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GAFA Go Home: America's Tech Giants Brought Down To Size

The digital behemoths Google, Apple, Facebook and Amazon have long sold dreamy ideals. In reality, their business models are very conventional. Their extraordinary power is founded solely on their digital leverage.

GAFA's power boils down to the question of a 'digital paradise'
GAFA's power boils down to the question of a "digital paradise"
Jean-Marc Vittori

PARIS — Like gods returning to the mortal sphere, the past months have seen Google, Apple, Facebook and Amazon, known together under the acronym GAFA, lose their luster. Just the news of Jeff Bezos's divorce pushed investors to question Amazon's future. Apple declared a basic profit warning which, for Apple, isn't so basic after all, as they haven't taken such a step since 2002. Facebook can't stop apologizing for selling its clients' information. Here in France, officials like Xavier Bertrand, head of the northern Hauts-de-France region, are looking to fiscally "twist the arms' of these digital superstars.

The blow has been even worse on the stock exchange, where GAFA are now the four horsemen of the apocalypse. Since reaching their summits last summer, the total market value of the four companies has fallen by almost $1 trillion. Apple alone lost nearly $400 billion, a staggering downfall considering the company's extraordinary rise as the first to break the $1 trillion capitalization threshold. It seems the inscrutable smoke screen wafting around GAFA is beginning to dissipate.

GAFA are now the four horsemen of the apocalypse.

Investors, despite a reputation for being cold rationalists, love to be told a good story. They buy into these narratives as they do with the shares themselves, and these firms have been spinning fantastic yarns. Microsoft showed them the way in the 80s: Bill Gates's product was supposed to run computers worldwide with not just an operating system, but the building blocks of their use: word processors, spreadsheets, internet browsers, electronic messaging, etc.

We now know that the incredible power of Microsoft didn't come from exceptional know-how so much as its iron grip on intellectual property. Their source code was more guarded than a patent for a new pharmaceutical molecule, barring other companies from offering adapted products. In between, they built the biggest fortune in the world.

GAFA went even further, each selling a digital paradise in their own way. While Apple marketed itself as the world leader for information-centric electronic products, Facebook touted a perpetual connection with all of your friends and family. Amazon boasted a universal retail business with quasi-instantaneous delivery and Google offered free, immediate access to all the information and knowledge in the world with the advent of immortality as a bonus.

Even if the emperor has no clothes, he still reigns supreme.

The reality is much more prosaic. GAFA repurposes very basic models and places them in a whole new stratosphere thanks to the digital boom. Apple is simply a telephone manufacturer (although the actual fabrication is done by subcontractors while Apple focuses on concept and sales). Google reinvented the Yellow Pages for the digital age. The same goes for Amazon, the modern version of mail-ordering. Facebook probably has the most original model, although it drew heavily on the already-established structures of free media.

The American tech giants now stand naked, which doesn't prevent them from having new stories to tell. Amazon continues to impress with its leadership in cloud computing, which is nothing more than warehousing (except with data instead of merchandise). Apple does one better by bragging about its shift towards services… exactly like IBM in the 1990s.

But even if the emperor has no clothes, he still reigns supreme. As global behemoths, GAFA hold onto their dominant position. Jean Tirole, the president of the Toulouse School of Economics and Nobel laureate of economics for his analysis of market power, explained the two sources of their ultra-strength in a recent article. First, they grow because of a "network externality" (it's better to connect with others if you stay in one network, like Facebook). Then, the digital aspect allows for enormous economies of scale, and the returns can bringer ever higher growth. "The digital economy almost inexorably creates ‘natural monopolies,"" explains Tirole.

The American tech giants now stand naked.

The economist points to four areas that need better regulation: competition, labor law, privacy protection and taxation. Courts in developed countries frequently see cases involving work contracts, like the recent Uber case in France. Respecting privacy protection is at the heart of the new European data protection rules that came into play in May 2018.

It's even more complicated for the two other categories, as their legal framework was created 100 years ago (the end of the 19th century for antitrust laws, the 1920s for international taxes). Both need to be rewritten. In the meantime, states are cobbling together policies. On the fiscal side, France wants to tax GAFA's sales revenue in the face of a hesitant Europe. In terms of monopolies everything needs to be redone, starting with some serious reflection on policing competition in the digital era. And it needs to be done with an alternative method than the one inscribed in the preamble of the 1946 French constitution, stating: "All property and all enterprises that have or that may acquire the character of a public service or de facto monopoly shall become the property of society." Even if the fog around GAFA is lifting, these companies continue to hold too much power.

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Migrant Lives

They Migrated From Chiapas When Opportunities Dried Up, Orchids Brought Them Home

An orchid rehabilitation project is turning a small Mexican community into a tourist magnet — and attracting far-flung locals back to their hometown.

They Migrated From Chiapas When Opportunities Dried Up, Orchids Brought Them Home

Marcos Aguilar Pérez takes care of orchids rescued from the rainforest in his backyard in Santa Rita Las Flores, Mapastepec, Chiapas, Mexico.

Adriana Alcázar González/GPJ Mexico
Adriana Alcázar González

MAPASTEPEC — Sweat cascades down Candelaria Salas Gómez’s forehead as she separates the bulbs of one of the orchids she and the other members of the Santa Rita Las Flores Community Ecotourism group have rescued from the rainforest. The group houses and protects over 1,000 orchids recovered from El Triunfo Biosphere Reserve, in the southeastern Mexican state of Chiapas, after powerful storms.

“When the storms and heavy rains end, we climb to the vicinity of the mountains and collect the orchids that have fallen from the trees. We bring them to Santa Rita, care for them, and build their strength to reintegrate them into the reserve later,” says Salas Gómez, 32, as she attaches an orchid to a clay base to help it recover.

Like magnets, the orchids of Santa Rita have exerted a pull on those who have migrated from the area due to lack of opportunity. After years away from home, Salas Gómez was one of those who returned, attracted by the community venture to rescue these flowers and exhibit them as a tourist attraction, which provides residents with an adequate income.

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