Some of the biggest names in tech are increasingly finding themselves under scrutiny from regulators looking to curb their influence and encourage competition. Phil Davis, founder of Philstockworld.com, looks at the potential impact this increased oversight could have on the sector and on investors.
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* EU regulators say they've launched investigations into Apple, Google, and Meta as they enforce tough new anti-competition rules known as the Digital Markets Act. Now, the rules are designed to stop big tech companies from cornering certain digital markets and becoming what the EU calls "gatekeepers" in certain sectors. * My next guest says this could be a watershed moment for the tech industry. Phil Davis, Founder of PhilStockWorld.com, joins us now for a look at what this could mean. Phil, it's always great to see you. How are you? * Hi, Kim. I'm great. How are you doing? * I'm doing well. I'm glad you're joining us to tell us what you think. So let's start with the investigations. Essentially, they're investigating what they're calling also anti-competitive behavior, I assume. So how significant are these investigations for those companies I just mentioned? * Well, they're very significant. One thing is you've got to realize that you're sort of opening a pandora's box here when you start allowing the EU and the US to regulate what social media companies do, because, obviously, there's 200 other countries on the planet that would love to regulate, and fine, and so on, and so forth. * The thing about social media is it's ubiquitous. Facebook has three billion users-- pretty much half the people on the planet are using Facebook. It crosses boundaries and things. You've got it on your own family. There are people in different countries, there are people in different time zones, there are people all over the place. * If there's a global consensus suddenly to have oversight on this thing that's already everywhere, the only thing that's going to happen, it's going to fragment it. And imagine how difficult it will be. Will it be legal for you to take your iPhone to Europe because it's only working under US regulations? You have to think of things like that. * So I guess you're kind of spelling this out-- if the regulators do come back and say, yeah, no, we do think there is some sort of lack of competitiveness out there, is that the material change? Is that just, we're going to start living in this bifurcated or, I don't know if this is a word, trifurcated world where your devices only work in certain places? How is that going to work? * It's not. It's like the multiverse. It's just basically, you'll never know until you wake up in the morning what your iPhone can and cannot be allowed to do, or what your social media reference, or who you can reach on Facebook and who's not allowed to communicate with you anymore. This is crazy stuff. * Now, the EU is primarily focused on data privacy. That's their big hangup. So most of the issues that they're chasing down are about privacy. But take Facebook, for example-- the EU tells Facebook, stop selling people's private data. * And then Facebook says, OK, we'll just charge a monthly subscription, then, and we won't sell the data. And then the EU is now saying, oh, stop charging people monthly subscriptions. That's crazy. What are they supposed to do? You can't run a service like that for free. It costs billions and billions of dollars to run that service. * It does. And I'm not playing devil's advocate here, because I'm just curious, though-- but regulators, I think, often are going through some sort of cost benefit analysis, right? What is it costing the industry or people versus the benefit they get-- and you're kind of highlighting both sides here. They have to do something, do they not? There has to be some sort of regulation. * Does there? Could you have said that about books when they started printing and publishing books and when newspapers came out, and so on and so forth, and said, this has to stop. We can't have-- we did it. We said, you can't have this magazine. You can't have that magazine. You can't say this. You can't say that. * It doesn't work, though, ultimately. And you would think that we've sort of grown up and realized that stuff doesn't work. But no, we're right back in the same sort of hamster wheel of regulations all of a sudden. * It could be an opportunity for small companies, as you start trying to break up the big companies. But a small company can't afford to navigate the framework of a regulation that you're setting up. It's actually probably going to benefit the large companies over the longer run, because they're going to have the 10,000 lawyers you need to operate in a multinational environment. * Yeah. No, all good points. It's not easy. And if it was easy, it would be easily solved. I want to touch on Apple as well, too, and I want to talk about what the implications, though, are for investors in this. And it might be that some of the good times are past. * But for Apple, layered on top of this, I think they have their own Department of Justice lawsuit which is concerned about the ecosystem that Apple has, which is what a lot of Apple users like is just everything is so seamless and works together. But it's a closed system. But DOJ is taking issue with that. * Yeah. And we're kind of right back to the same thing, right? There has to be a balance between the benefits of having a tightly integrated ecosystem, and the cost of that innovation is vital. I think you've got to think of Apple like a utility company at this point. They're like AT&T, right? * You can't just smash them to pieces. It didn't work anyway, right? AT&T basically came right back together. But you've got to regulate it and force them to work with the government. And if you don't like the fact that they're charging 30% at the App Store, talk to them about it and say, how about 20%? How about 15%? * Find a number that actually works and let them make money, which is exactly what we do with utilities. You don't plug your plug into an outlet in America and get a random amount of voltage. It's absolutely standard. If the Apple ecosystem works in such a way that it allows people to have a safe environment to utilize their phone, to exchange information, and so on and so forth, and the App Store offers a safe environment without a lot of viruses and stuff, why would you stop that? * That's the wrong thing to be stopping, especially when you're so worried about the Chinese coming in and the Russians coming in and doing whatever with your phones and putting Trojans in. Why are you taking Apple, which has the least vulnerable system, and telling them, oh, no, you can't do that? That makes no sense. * Let me ask, then, because, it's hard, because, again, there's been a lot of self regulation up to this point. And like it or not, I think we are entering an era of regulation. We're seeing it coming in AI, the Digital Markets Act. There's just more and more coming. * So let me ask you, what does that mean for investors? We've had this lovely period, some might even call it a renaissance, when these tech companies have been built. But now, like utilities, they are getting regulated-- what does that mean for me in terms of returns? * I would say initially, and I mean initially like the next five years, you're going to have trouble with these kind of returns because everybody's getting pressed upon. It's much easier for somebody like me to come out with a digital system or an automated system that's going to compete with a lot of the big boys. So there's a lot of pressure there. I have lower cost and so on and so forth. * And, again, it's just progress. It's a build up in efficiency and so on and so forth. It's not anything unnatural. These things happen as business models develop under a capitalist system. But as an investor, you're not going to get that sort of never-ending home run that you're used to getting out of investing in some of these tech stocks. And that's going to be kind of an adjustment for people. You're going to have to learn to pick winners and losers again.
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