Regulators struggle to rein in global firms that infiltrate every aspect of life in Canada
Toronto Star, 10 Sep 2019, TONY WONG TECHNOLOGY REPORTER
We’re living in a FAANG world. And, no, it’s not a vampire movie, although the metaphor of a behemoth that thrives on our data as its lifeblood might be apt.
Whether you shop for shoes on Amazon, call your mom on your iPhone, click on Facebook for your news or on Netflix and chill on the weekends, FAANG affects just about every aspect of your life.
It’s an acronym for some of the world’s biggest technology companies — Facebook, Amazon, Apple, Netflix and Google. Add in Microsoft and you pretty much have the wealth of some nations in companies that have become superpowers unto themselves.
Combined, the six have annual revenues of approximately $865 billion (U.S.), greater than the GDP of Saudi Arabia, the 18th largest economy in the world based on 2018 figures. (Canada, with a GDP of $1.7 trillion is the 10th largest world economy.) Data has become the new oil. “How dominant they’ve become has been amazing,” says professor Tyler Chamberlain of the University of Ottawa’s Telfer School of Management. “These are truly global companies. The major businesses of the past had international operations. But the scale of the digital companies is unprecedented.
“They have dominated like no other companies before,” Chamberlain says.
Canada has certainly been a beneficiary of the tech boom. This year, Toronto was ranked as one of the top North American cities for tech talent by commercial real estate consultants CBRE. Toronto’s talent pool grew at the fastest pace of 50 markets measured, with 80,100 jobs created in the past five years, making the city the third best market in North America.
Only Silicon Valley (the San Francisco Bay area) and Seattle were ranked higher for their overall talent pools.
While the companies have undoubtedly created great wealth and prosperity for shareholders, the dominance of the big six has also created problems.
“They have, to some, become the robber barons of the modern era,” Chamberlain says.
Governments worldwide, including Canada, are grappling with how to regulate the foreign enterprises that are disrupting domestic economies on a massive scale.
That includes issues such as corporate taxation, privacy, fake news, antitrust and even cultural concerns such as contributing to Canadian content.
The Canadian government is looking at ways to regulate and tax the digital entities with a federal review panel that will make recommendations in January. What makes regulation more difficult is that the companies are notoriously secretive, guarding their information and data, while monetizing the data of consumers.
Basic information such as the number of employees or Canadian revenue is not always publicly revealed, making it difficult to gauge the exact footprint of Big Tech on the Canadian economy.
Netflix, for example, doesn’t reveal how many viewers are watching their shows. A Netflix Canada spokesperson told the Star “no comment” when asked repeatedly about the most basic information such as how many employees or offices they had in Canada. With an estimated 6.3 million subscribers in Canada alone, according to U.K.-based thirdparty analysts Comparitech Ltd., the country is the company’s fifth-largest market.
Facebook, meanwhile, told the Logic, a news outlet that reports on the innovation economy that, globally, the company had 30,000 workers in safety and security by the end of 2018. But the company would not reveal a breakdown of the number of employees working in safety and security in Canada.
“It’s a major issue how we deal with these tech giants at this point because it will impact us in a significant way down the line,” BMO Financial Group chief economist Doug Porter says. “It bears extremely close watching to see what happens because, at the end of the day, it will affect Canadian government revenues fundamentally.”
But citizens are demanding change. In August, a coalition of Canadian arts organizations representing producers, writers, publishers, directors, actors and artists launched a pressure campaign demanding that political parties update digital laws to protect Canadian culture. The #SaveOurCulture campaign is aimed at politicians running in the October federal election.
“Digital has not only transformed the ways in which cultural content is accessed, it has also disrupted the cultural economy without adapting the rules of the game,” said spokesperson Bill Skolnik, co-chair of the campaign and executive director of the Directors Guild of Canada.
Canada’s Competition Bureau told the Star it is “monitoring” tech giants for anti-competitive behaviour in the wake of a sweeping U.S. Justice Department investigation as well as an inquiry by the Australian Competition and Consumer Commission. Regulators are looking at whether the digital companies are abusing their power by stifling innovation and competition. As a result, Canada’s Competition Bureau launched a wideranging inquiry this month on how the digital economy may be harming Canadian business, asking anyone with information to come forward.
“Since certain digital markets tend towards a “winner takes all” outcome, firms in these markets have a strong incentive to adopt strategies that increase the likelihood the market tips in their favour,” says the bureau in a paper.
Facebook was recently fined a record $5 billion by the U.S. Federal Trade Commission over privacy violations, and the European Commission just opened an antitrust investigation into Amazon.
Facebook has been on the firing line because of its impact on the 2016 U.S. presidential election and issues of foreign interference. With the federal election next month, Canada is also on alert.
“They all have their own sets of problems and issues. But Facebook, especially, because of their prominence on social media and impact on culture and communication,” says the University of Ottawa’s Chamberlain. “It really puts them in the spotlight where they get a lot of attention, making it more difficult and complex.”
Netflix, meanwhile, competes with Canadian broadcasters such as CTV, Global and Citytv, but does not have an obligation to contribute funds to produce Canadian shows.
And tax rules that were made during the heyday of print journalism puts legacy publishers at a disadvantage compared to platforms such as Google and Facebook. They have grown so large they now command almost three-quarters of all digital advertising dollars.
The digital economy has also put a squeeze on artists, including writers, musicians and actors struggling to attain the kind of middle-class living status that, while never assured, seems more difficult to attain now than in the past.
Interestingly, a government bureaucrat didn’t coin the term FAANG, but it was popularized by CNBC Mad Money host Jim Cramer, who used it to describe high-performing technology stocks. The original FANG consisted of only four high-performing stocks — Facebook, Amazon, Netflix and Google (owned by parent company, Alphabet). Since then, it’s been expanded in various versions, but the old guard of Apple and Microsoft — because of their market dominance and importance — are worth adding to the list.
The dominance of big tech companies has some critics calling for them to be broken up into smaller companies. That’s not a new reaction, Chamberlain says. “If you go back in history when you have these dominant firms, there is always pushback, a desire to split them up and tear them down. But the reality is market forces say they certainly won’t be there forever.”
Someone’s head is always on the chopping block, but that changes. What everyone is afraid of today will invariably change tomorrow,” Chamberlain says. “That doesn’t mean we shouldn’t regulate and have rules. But it’s good to have perspective.”
Basic information such as the number of employees is not always publicly revealed