File 033420
Email Discussion on Tech Regulation and Economic Slowdown (File 033420)
Kathy Ruemmler forwards an Axios article to Donald Trump discussing regulatory pressures on major tech companies amid potential economic recession in 2019.
Summary
This email contains Kathy Ruemmler's brief note forwarding a high-priority Axios article to jeeyacation@gmail.com (Donald Trump) about the intersection of economic slowdown and increased regulatory scrutiny of major tech companies. The article discusses how a potential recession combined with existing controversies could intensify pressure on Google, Facebook, Amazon, and other tech giants in 2019. It covers congressional testimony requirements, federal privacy law discussions, FTC investigations into Facebook, and Trump administration scrutiny of monopolistic behavior. Various analysts and economists debate whether economic downturn would necessarily harm Big Tech, with some arguing their ad-based revenue model is resilient to GDP fluctuations.
From: Kathy RuemmlerSent: 12/4/2018 3:20:07 PMTo: jeeyacation@gmail.comSubject: Slowing economy could increase pressure on Big Tech - AxiosImportance: HighWhat do we think of this?https://www.axios.com/recession-threat-2019-regulatory-risk-google-facebook-amazon-b8966b22-57dc-426c-9f4f-5526982383c7.htmlSlowing economy could increase pressure onBig TechSara Fischer, David McCabe, Courtenay Brown5 hours agoA potential recession, combined with increasing regulatory threats for some of the biggesttech companies, foreshadows a difficult 2019 for Silicon Valley.Why it matters: The biggest tech companies have already raked in billions of dollars inprofits and benefited from major tax cuts that aren't going to be repeated, so next year isn'tlikely to be better for them financially. They've also been dogged by scandals that have leftmany questioning their positive role in society, and if on top of that the economy starts toslip, 2019 could be worse."People look for scapegoats in a bad economy. And with big tech already on its heels, adownturn probably would feed arguments that the largest internet companies are too bigand need to be reined in."— Paul Gallant, an analyst with Cowen Washington Research GroupBig Tech is closing out a contentious year in Washington, and potential regulation willcontinue to haunt it well into 2019.• Google CEO Sundar Pichai has agreed to testify before Congress, and will likely beasked about whether the company is being transparent about its data privacy practices andany potential bias. By the year's end, the CEOs of Twitter, Google and Facebook will havebeen called to testified in front of Congress for the first time ever during 2018.• Lawmakers in the United States are pushing for a federal privacy law with an urgencylikely to be exacerbated by more breaches like the one Marriott disclosed last Friday.• The Federal Trade Commission still has an open investigation into whetherFacebook's conduct violated a previous settlement with the agency. Margrethe Vestager,HOUSE OVERSIGHT 033420Europe's aggressive commissioner overseeing competition, is still investigating aspects ofGoogle's business and whether Amazon plays fair in the market for generic products.• President Trump has said his administration is seriously looking into monopolisticbehavior of Facebook, Google and Amazon.Some analysts predict an economic slowdown___even if it doesn't lead to a recession likethe one in 2008___will be enough to change the global attitude around big Americancompanies."So the really shocking thing this year is that the only major economy in the world wheregrowth has actually accelerated this year is America. And this is because of the tax cuts, thederegulation, the other stimulus which has been put into work. And that has also helped theearnings of companies. My point is, from next year onwards, those effects begin to fade."— Ruchir Sharma, chief global strategist at Morgan Stanley on Fareed Zakaria GPSon SundayThe "FAANG" stocks (Facebook, Amazon, Apple, Netflix and Google) that pushed thestock market to record highs have not been immune from this year's market rout.• "The mood has changed. Investors are asking a lot more questions right now," saysLarry Glazer, a Managing Partner at Mayflower Advisors, which manages $3 billion."Momentum has faded on these names."• Adding to potential concern: possible regulatory action could translate into highercosts, particularly for Google or Facebook.• "Facebook has been under such a dark cloud for so long that now everybody isexpecting the worst," Paul Meeks, a technology portfolio manager at Wireless Fund, toldAmos.The other side: "I don't see a looming recession. And even if there was, people aren't goingto target these companies if there is a recession," says Nicholas Economides, Professor ofEconomics at NYU Stem School of Business.• Economides argues that, even if there was a mild reduction in GDP growth, itwouldn't significantly impact the high tech sector.• For companies like Google, Facebook and Twitter, "their main revenue streams arefrom ads. They gain market share from brands converting traditional ad spend to digital ads.This conversion is not so dependent on the growth of GDP, because they are still in theprocess of converting ads of different formats to digital ads, and that's something that willcontinue, regardless of GDP growth."The bottom line: Tech companies that have long been the darlings of investor portfolioswill likely find themselves in much weaker positions.HOUSE OVERSIGHT 033421