Big Tech is the regenerative starfish of our times – Nikkei Asia

Angela Huyue Zhang is director of the Center for Chinese Law at the University of Hong Kong. She is author of "Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation."

Looming regulatory challenges are clouding the future of Big Tech the world over.

In China, Alibaba received a record fine of $2.8 billion for abusing its dominant position in e-retailing business last month. The e-commerce giant was reportedly asked to divest media assets from its vast business empire, even though this was not included in the penalty decision and there is actually no legal basis under Chinese antitrust law to request the firm to do so.

And in January this year, the People's Bank of China was proposing rules that threaten to break up online digital payment platforms owned by Ant Group and Tencent. Chinese financial regulators also requested Ant and a dozen other Chinese fintech firms to decouple "inappropriate link" between their payment apps and other financial services.

China is not alone in seeking to break up its tech giants. The United States Federal Trade Commission and 48 states are suing Facebook, which could see social media giant forced to divest assets such as Instagram and WhatsApp. Meanwhile, the European Commission is proposing a Digital Services Act that could result in tech companies being broken up if they are found to be in repeated violation of competition law.

Deemed the nuclear option, the extreme structural remedy of forced divestment is not necessarily fatal for large tech companies.

Gone are the days when corporate behemoths such as AT&T, Standard Oil or the 19th century railroad monopolies were divested to resolve monopoly issues. Big Tech belongs to a completely different species that thrive on an asset-light business model. By harnessing sophisticated algorithms fed by masses of data, Big Tech has become incredibly good at adapting to government regulation.

In many ways, Big Tech resembles a starfish, those seemingly simple but incredibly resilient marine creatures. Just as starfish have five or more arms enabling it to hold on to surfaces against strong sea currents, the extraordinary variety of services provided by Big Tech permeates many aspects of our daily lives, making them similarly resistant to regulatory shifts.

Furthermore, just as starfish are often viewed as harmless grazers despite their ruthless carnivorous instincts, Big Tech preys aggressively on nascent rivals. Above all, just as starfish can regrow their body parts, Big Tech also has the ability to quickly rejuvenate by expanding into new product lines with relative ease.

In 2018, China's media regulator ordered ByteDance to permanently shut down Neihan Duanzi, a popular joke-sharing app with 17 million users, on the basis of its vulgar content. Jinri Toutiao, ByteDance's flagship news app was also temporarily removed from app stores for a similar reason.

Interestingly, the Chinese authority's ruthless intervention came at the same time that Facebook founder Mark Zuckerberg testified to Congress regarding his company's alleged failure to protect privacy in the wake of the Cambridge Analytica scandal.

In contrast to Zuckerberg's efforts to defend his company, however, ByteDance founder Yiming Zhang made no excuses and quickly apologized on behalf of his company for content that had "gone against socialist core values."

Despite this regulatory setback, ByteDance continued to flourish, with the company's valuation more than tripling in 2018 as its other apps, including Toutiao, Douyin and TikTok, saw an explosion of users.

Indeed, the permanent shutdown of Neihan Duanzi hardly affected Bytedance's most potent weapon: a smart recommendation system that pushes content to consumers and its vast database of user profiles and personal preferences. Nor did the government intervention disrupt its core human capital, especially its army of talented algorithm engineers.

Ant Group is another example. Yu'E Bao, an investment fund introduced by Alibaba in 2013, was once the world's largest money market fund. Faced with a slew of regulatory clampdowns by Chinese financial regulators since 2017, however, the fund's assets have fallen sharply.

This did not stop Ant from becoming the world's biggest fintech company. By leveraging data obtained through Alipay, Ant continued to expand rapidly into the credit and insurance businesses. By the time Ant filed its initial public offering last fall, its microloan businesses had become Ant's primary source of revenue.

As Jack Ma often claims, Alibaba is not an e-commerce company but a data company. As long as tech companies are able to hold onto their core competencies by capturing user attention and developing sophisticated algorithms to capitalize on the data they hold, they can come back from any setback caused by government intervention with relative ease.

This explains the Chinese government's growing interest in breaking data monopolies, with recent news reports indicating that Beijing is considering setting up an arm's-length joint venture company with domestic tech giants that would oversee the immense amount of data they collect from users.

This is intended to create a more level-playing field for smaller fintech companies competing with Ant Group and Tencent that have accumulated troves of customer data. However, requesting these tech giants to directly turn over data could run the risk of infringing consumer privacy since consumers have not given consent for their data to be passed on to a third party.

On the other hand, stricter data protection laws, which supposedly make it harder for Big Tech to collect and use data from consumers, may put smaller businesses at a disadvantage. The European Union, which stands at the forefront of privacy and data regulation, has seen some smaller businesses suffer more as they struggle to adapt to stringent regulatory demands under the General Data Protection Regulation.

As the German philosopher Friedrich Nietzsche once wrote: "what does not kill me makes me stronger." The same applies to Big Tech.

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Big Tech is the regenerative starfish of our times - Nikkei Asia