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Deal Professor: Expect Little Antitrust Challenge to Walmart’s Bid for Jet.com

The problem with this narrative is that it cements the positions of Walmart and Amazon as the only players in town.

This is the modus operandi of the big internet behemoths. They live in fear of new technology disrupting their businesses and killing them off.

Antonio García Martínez’s recent book about Silicon Valley, “Chaos Monkeys,” tells how Facebook operates on the model of “we might die any day.”

Mr. García Martínez was a Facebook product manager when the company faced its greatest threat: Google Plus. Facebook won because it enforced an ethos of all work, all the time, spurred by constant fear of extinction.

Facebook and its elite brethren will do anything to make sure they are not the next Yahoo or Radio Shack, killed by disruption and failure to innovate. This translates into paying obscene sums for technology that might challenge their dominance one day.

Video

Walmart’s New E-Commerce Strategy

Marc Lore, left, the chief executive of Jet.com, and Doug McMillon, the chief executive of Walmart, are teaming up against Amazon.

By CNBC on Publish Date August 9, 2016. Photo by CNBC. Watch in Times Video »

If you don’t believe this, there is a poignant passage in “Chaos Monkeys” where Mr. García Martínez notes that Mark Zuckerberg saw that there were two companies with “hockey stick growth” that matched Facebook’s own: Instagram and WhatsApp. Both were amassing users at an amazing rate and both were an existential threat to Facebook.

Did Mr. Zuckerberg rev up the Facebook machine to try to outcompete them? No. Instead, he bought Instagram for about $ 1 billion and WhatsApp for an astounding $ 21.8 billion.

Today, Facebook is dominant, with more than 1.7 billion monthly active users. WhatsApp has more than 1 billion monthly active users and Instagram, more than 500 million.

This is par for the course in Silicon Valley. Google bought Waze for $ 1 billion in part to prevent Facebook from getting it and in part to buttress its own dominant map technology. The result is that Google remains dominant with only Apple as its main competitor. For a time, the only other competitor to these two was Nokia’s Here maps, which was sold to a group of car companies in 2015 for use in driverless cars and has disappeared as a competitor. The result is a duopoly in map technology.

Another Google example is YouTube, which was bought for $ 1.65 billion in 2006 and is now a constant stream of users for Google. Indeed, YouTube, with more than one billion active monthly users, is a top driver of Alphabet’s user growth.

Billions of dollars are made in Silicon Valley by selling nascent upstarts to the giants. And the dominant players pay eagerly to remain dominant. That is what is going on with the Jet.com acquisition and perhaps even the $ 26.2 billion purchase of LinkedIn by Microsoft.

Where are the antitrust authorities in all of this? The guiding standard under the law is that no acquisition should be allowed if it would “lessen competition.”

Under the traditional view of antitrust, when Facebook, for example, tries to buy a company like Instagram, it can argue that anyone can start such a website. And there are other competitors like Google and Snapchat. And so this gets past the antitrust authorities, who seem more concerned with how the data will be used rather than the accumulation of users. Both United States and European Union regulators examined the WhatsApp deal, but it passed muster because WhatsApp was viewed as a messenger service, something where there was alternative competition.

This misses the point that domination is all about users and views. Those companies with users and page views can dominate, and accumulating those users is everything, something only an infinitesimally small number of companies can find the key to doing.

The antitrust system results in the increasing oligopoly that we have, where a few companies dominate major industries, accruing the wealth and power that go with it as potential disrupters are swallowed at birth, the way Cronus, the titan in Greek mythology, ate his young to prevent their uprising.

No one knows what might happen to Jet if it remained independent. Perhaps it would fail. Amazon is dominant and Walmart may truly be the only real competitor. The same could be said of any of these acquisitions of high-growth companies. So preventing this acquisition may result not in creating a competitor to Amazon but in the eventual death of Jet. This of course would leave its founder and investors much poorer, a true cost.

The flip side of this risk is that the big tech companies continue unchallenged in their dominance. Perhaps it is time to rethink antitrust enforcement, and take the risks associated with a different view of antitrust that looks at potential dominance and at breaking up oligopolies. Rhea protected Zeus from Cronus, which eventually led to Cronus’s destruction.

If antitrust authorities do not adapt and emerging competitors continue to be bought up, we should not be surprised of the continued dominance of a very few companies like Facebook, Google, Amazon and Walmart.

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