As big tech companies collect startups from different industries like Easter eggs, are they unwittingly adding evidence to the antitrust investigations of the Justice Department and Federal Trade Commission?
While two of the four companies in question — Alphabet Inc.’s Google, and Facebook Inc. — slowly begin to concede in public filings and conference calls they are subjects of regulatory scrutiny, they are brazenly scooping up smaller companies that extend their tentacles into new markets and collect more personal information. (Apple Inc. AAPL, +0.18% and Amazon.com Inc. AMZN, +1.06% remain mum on the topic.)
Alphabet’s GOOGL, +1.23% GOOG, +1.26% proposed $2.1 billion acquisition of smartwatch maker Fitbit Inc., announced on Friday, vividly illustrates the concerns of lawmakers and privacy advocates in the ability of tech behemoths to accumulate and amass even more consumer data — down to their heart rates.
“By attempting this deal at this moment, Google is signaling that it will continue to flex and expand its power in spite of this immense scrutiny,” Rep. David Cicilline, D-R.I., chairman of the House Antitrust Subcommittee, said in an email statement to MarketWatch. “Google’s proposed acquisition of Fitbit would also give the company deep insights into Americans’ most sensitive information — such as their health and location data — threatening to further entrench its market power online.”
“This proposed transaction is a major test of antitrust enforcers’ will and ability to enforce the law and halt anti-competitive concentrations of economic power. It deserves an immediate and thorough investigation,” Cicilline added.
Google’s gambit to bolster its less-than-formidable hardware lineup also underscores an area of antitrust law that is often not pursued: The complementary acquisition.
“The argument against mergers of complements is that they leverage growth and eliminate competing startups before they become the next Facebook or Apple,” Herbert Hovenkamp, a professor at the University of Pennsylvania who teaches at both its law and business schools, told MarketWatch in a phone interview. “But [regulators] generally don’t pursue these cases because it doesn’t expressly show how they lessen competition in the short run through price fixing or a reduction in quality.”
Yet Cicilline’s objection to the Fitbit purchase came just two days after Facebook FB, +0.77% Chief Executive Mark Zuckerberg acknowledged in a conference call with Wall Street analysts that its $1 billion acquisition of Instagram in 2012 is the most likely the focus of an FTC probe. He argued that the two companies offer complementary products that benefit consumers.
In all, Facebook has devoured nearly 100 companies — many of them competitors that included WhatsApp and Instagram — since 2007 without the federal government challenging one purchase. It shut down at least 39 companies, some of which may have represented future competitors, according to Tim Wu, a professor of law, science, and technology at Columbia University.
Facebook, which was purportedly also in talks to buy Fitbit, according to a report in The Information, further raised eyebrows in September with its planned purchase of CTRL-Labs, a startup that would let people control computers with their brains — a long-held ambition of Zuckerberg.
Google’s voracious acquisitive appetite for startups — more than 270, including an average of 34 a year between 2011-14 — has included direct competitors YouTube; DoubleClick, an online advertiser; AdMob, a mobile advertising company; and Waze. (In June, big-data company Looker was snapped up for $2.6 billion.) Just one acquisition, travel search firm ITA, was challenged by the government before it was conditionally approved, according to Wu.
The accelerated pace in which Google and Facebook have bought companies to expand their digital empires into hardware, artificial intelligence, health-related fields, mobile advertising, video, and other markets are “consistent with the platform companies’ continuing acquisition of companies that can expand their collection of personal data. They also underscore the limitations of current antitrust laws,” Andrew Jay Schwartzman, an attorney with Georgetown’s Institute for Public Representation told MarketWatch in an email message.
Adds Charlotte Slaiman, competition policy counsel at consumer advocacy group Public Knowledge: The Fitbit transaction “seems to be really important for Google’s advertising with health-adjacent data. It is something antitrust enforcers would look into.”
Even Google, whose tight-lipped nature has become a staple of its culture, admitted that it is under the regulatory microscope.
In a 10-Q filing last week, it said: “In August 2019, we began receiving civil investigative demands from the U.S. Department of Justice (DOJ) requesting information and documents relating to our prior antitrust investigations in the United States and elsewhere and certain of our business practices. The House Judiciary Committee and attorneys general from 51 States and Territories have also opened antitrust investigations into certain of our business practices. We continue to cooperate with the DOJ, Federal and State regulators in the United States, and other regulators around the world.”
For investors, there is no immediate concern — as reflected in healthy stock gains for all four companies this year. But as investigations deepen and the 2020 presidential election nears, “the valuation overhang from regulatory uncertainty will likely continue to grow and weigh on the sector’s performance,” Goldman Sachs analyst David Kostin warned in a research note last week.