Printer Friendly

The power of Google and Amazon looms over tech IPOs.

Byline: Gerrit De Vynck Bloomberg

After a years-long drought, a wave of technology startups Uber, Lyft, Pinterest and more are going public, evidence that the sector is thriving. But there's a shadow hanging over almost all of them.

Seventeen of the 22 tech initial public offerings that aimed to raise $100 million or more in the last 18 months mention Amazon or Google and sometimes both as a competitor or risk to their business. Many, such as cyber security software maker Tenable Holdings, are operationally dependent on Amazon's cloud. Others, such as photo collection site Pinterest, compete directly with one of the giants, in this case Google's image search.

Critics including U.S. Democratic presidential candidate Senator Elizabeth Warren say big tech companies have created a "kill zone" that prevents startups from getting past a certain size without being bought or pushed out of business. But filings from newly public tech startups suggest a more nuanced picture is emerging: Companies can escape the "kill zone," but if they do, they're likely beholden to the tech giants in other ways.

Consider Lyft. The ride-sharing company needs to get people to download its app, so it turns to the biggest advertising system in the world Alphabet Inc.'s Google. In 2018 alone, Lyft spent more than $90 million on Google ads. Those ads sent people to Google and Apple-owned app stores. When they open the app, the map they see inside is driven by Google technology, which Lyft also pays for. Much of Lyft's systems run on Amazon's cloud to the tune of $300 million in fees through 2021. Moreover, Google owns more than 5% of Lyft through its investing arm Capital G. It even has a board seat.

"Some of our competitors or technology partners may take actions which disrupt the interoperability of our platform with their own products or services," Lyft said in a filing. "We expect the types and levels of competition to increase."

It's true that big tech companies helped create the current wave of startups. Cloud providers such as Amazon Web Services make it possible for businesses to grow quickly without having to build their own server farms. Google and Facebook enable companies to target likely customers. But as the tech giants expand and enter new markets, they're increasingly disrupting smaller businesses they may have helped foster.

Fastly, which specializes in a niche type of cloud computing, has benefited from distribution partnerships with Google and Amazon, helping it raise more than $180 million in its May IPO. But now, as Google and Amazon expand their cloud offerings, they're beginning to compete with Fastly directly, the company said in a May 6 filing. Chewy, the online pet food and supplies site, uses Amazon's cloud but has viewed the e-commerce giant as a rival ever since Amazon started its own pet products brand last year.

The tech giants have the power to change their services at any time, generating havoc downstream. For years, Pinterest nabbed free traffic straight from Google searches. But in early 2018, Google made a tweak that meant Pinterest image pages didn't show up in search results, hurting online traffic and slowing user growth in the months that followed.

"Our ability to maintain and increase the number of visitors directed to our service from search engines is not within our control," Pinterest said in a filing. "Search engines, such as Google, may modify their search algorithms and policies or enforce those policies in ways that are detrimental to us.

Pinterest also uses small bits of code dropped into peoples' browsers to learn which ads they should show to each individual. Apple has cracked down on this practice in its Safari browser, and Google has made moves to limit it on Chrome as well.

Software developers have long complained that they are being overcharged to use the giants' app stores. Newly public companies also pay these tolls. Sciplay Corp., which develops mobile casino games, got all of its revenue in 2017 and 2018 through Apple, Google, Facebook and Amazon. The Las Vegas, Nevada-based company pays about 30% of its revenue back to these companies for the privilege of appearing on their app stores.

The dilemma for would-be trustbusters is how to rein in the power of the big tech companies without disrupting the web of companies that now rely on them.
COPYRIGHT 2019 Paddock Publications
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2019 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Business
Publication:Daily Herald (Arlington Heights, IL)
Date:Jul 7, 2019
Words:724
Previous Article:Taste of Chicago is back - and bigger than ever - July 10-14.
Next Article:The Wheaton Municipal Band Explores the Healing Power of Music with Alex Kaminsky, music director from Marjory Stoneman Douglas High School.
Topics:

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters