Today I’d like to introduce you to a man I call the “Don Quixote of Tech”.
And no, I don’t mean it as a compliment.
If you who don’t remember, need a refresher, or haven’t read the book, the fictional Don Quixote is the hero of a famous novel by Miguel de Cervantes first published in 1605.
Despite the book’s age, many scholars consider it to be the finest novel ever written.
Our focus here is on chapter eight. In this section, Don Quixote of La Mancha and his sidekick, Sancho Panza, find themselves in a field of towering windmills.
Don Quixote says they are giants. He intends to slay them and take their riches. When Sancho says they’re windmills, Don Quixote says he is more experienced in these matters and he knows for certain they really are giants.
Obviously, they really were windmills after all…
Turns out something very similar to this enduring metaphor is playing out in Congress right now, thanks to Jerrold Nadler. He’s taking on Big Tech as the chair the House Judiciary Committee.
Here’s the thing. Just days ago, I saw headlines that said a “bipartisan” group in the U.S. House of Representatives opened a new front in an investigation of Big Tech and its alleged anti-competitive behavior.
Don’t believe it.
This is largely the brainchild of Jerrold Nadler, who also is busy teeing up impeachment proceedings against President Trump. (But that’s a subject for another day.)
Nadler sees tech firms as evil giants, when, in fact, they really are more like high-profit windmills of digital commerce.
A recent report in the Wall Street Journal says Nadler’s committee is asking that reams of documents from tech giants be turned over in by Oct. 14.
Nadler doesn’t just want to see executive communications and financial statements. He also wants information about mergers, market share, and how execs make key decisions – as well as a look at their competitors.
To be fair, a couple of Nadler’s Republican colleagues have signed the letter. But they are just as misguided as Nadler.
Do these guys not understand what a competitive marketplace looks like?
What the “Geniuses” in Washington Don’t Understand
Let’s start with Apple. It’s under fire for its App Store, where it’s taking a 30% cut on products created and sold by thousands of developers.
This is the company that basically created the smartphone and set up the App Economy that will be worth $375 billion in the next five years. Yet, it gets a very small piece of the action.
Apple sells few of its own apps. And, the Journal story notes that it collects cash from only 16% of the two million apps available to consumers.
Nadler and his cohorts have it backward. The App Store fosters competition. It also protects consumers by testing the apps in no small measure to make sure they don’t contain malware that could infect Apple products.
Without that App Store, most Apple developers would never have access to a big enough market to make it worth their while. More to the point, no one is forcing them to write Apple apps, just as no one holds a gun to the heads of Apple users forcing them to buy products.
Indeed, Google’s Android operating system dominates the smartphone market. It boasts roughly an 86% share. So, by definition, Apple can’t be a monopoly.
What those “geniuses” in Washington don’t understand is a basic principle of economics beyond the law of supply and demand.
It’s called Economies of Scale. And what the hyperactive digital tech world offers is unprecedented and just plain off the charts.
For instance, General Motors Co. (GM) tops out at selling 10 million cars and trucks a year. Facebook has that many users online at any point in time.
It has two billion users accessing the world’s largest social network because the cloud is accessible to every mobile device, laptop, and computer in the world – and because giant server farms can handle millions of simultaneous connections.
But it doesn’t own the social network market – there are at least 65 of them operating today. We’re talking platforms like Skype, Tumblr, LinkedIn, Nextdoor, and of course, Twitter Inc. (TWTR), which has more than 140 million users.
Make no mistake. Google’s parent Alphabet doesn’t control online search.
There are dozens out there. I use Microsoft’s Bing for 99% of my searches, and as a tech analyst, I’m a heavy user.
And Amazon faces a host of competitors these days as more traditional retailers join the e-commerce revolution. Walmart Inc. (WMT) recently beat on earnings after online sales surged 37% in the second quarter.
Don’t get me wrong. I’m not saying Big Tech can do no wrong. I’d still like to see better data and privacy protections across the board.
One Investment Opportunity for 1,900 Tech Stocks
Having said all that, high tech is what’s driving the economy with such vigor. It still offers an investor the single best place to improve their net worth.
And Congress is very unlikely to change that any time soon. But don’t take my word for it. Just look at history.
Microsoft Corp. (MSFT) battled the federal government over antitrust claims for more than a decade beginning in 1990. A federal judge ordered the company be broken into two units, but that was reversed on appeal.
In 1968, International Business Machines Corp. (IBM) faced antitrust charges because it dominated in big computers. Some 14 years later, all charges were dropped.
Neither of these cases brought any real congressional action. I believe that’s how things will go down this time as well.
Now then, there is some good news here. Shares of some tech titans are now oversold, which, in many cases, means it’s time to buy.
That’s why I still continue to recommend the Fidelity Nasdaq Composite Index Tracking Stock (ONEQ). It’s structured as an exchange-traded fund (ETF).
I recently told you about this fantastic opportunity to invest in 1,900 Nasdaq-listed stocks in one fell swoop. You can access that columnby clicking here.
This is a great way to turn the tables on the “Don Quixotes” in Congress to your profitable advantage.
After all, the federal government’s bashing can’t change a fundamental fact: the road to wealth in America is paved with tech.
Cheers and good investing,
Michael A. Robinson