Can Companies Under Anti-Trust Scrutiny Keep The Earnings Growth Coming?

Some of Silicon Valley’s biggest names are ensnared in antitrust lawsuits, and it looks like more are on the way. Can tech companies manage to keep innovation and earnings growth coming when they’re under heavy fire from regulators and trust busters?

The answer is that they can, but they’re going to need to stay nimble and focused, learning from the mistakes of others in order to come out stronger on the other side. 

The last several years have seen attorney generals and the DOJ ramp up their efforts to combat the Big Tech companies. Google, Meta, and Amazon are all in the process of battling lawsuits, while Microsoft stopped bundling their Office and Teams tools, a prophylactic move.

Apple most recently joined the fray, as they were served an 88-page complaint by the DOJ outlining how the company has built up anti competitive processes to drive their revenue. 

Though antitrust lawsuits rarely result in company breakups anymore, they can still be massively disruptive for target companies, who have to navigate an arduous legal process while still keeping their eye on the competitive ball. 

Because antitrust lawsuits are not something that the government engages in lightly, a company that’s the target of one is going to be up against the full force of the DOJ. That means the stakes are high and C-suite members will be involved – and distracted. 

Though Apple has effectively beat these sorts of allegations before, in bringing this suit against the iPhone maker, the DOJ is effectively choosing the biggest player in the mobile phone market for a fight, arguing that the company has become so big as to become a threat — and that now American citizens are being harmed. 

It’s something only a relatively small number of companies will ever have to concern themselves with. But their rarity means that companies often lack a clear playbook of how to navigate these untested waters. Winning the legal battle may actually be the easy part — keeping the market strength is where antitrust suits become tricky.

Part of the issue for companies is their size: by the time you’re big enough to attract the attention of the DOJ, generally, you’ve become a much larger, less nimble organization.

So, if Apple, or any of these companies, want to maintain their strong market share, they need to start by looking at how companies have struggled in the past. 

IBM is one of the best examples of the havoc that antitrust actions can wreak on a company. After years of growth, by the 70s, IBM was one of the most admired and successful companies in the nation. 

But when the DOJ laid out their anti-competitive allegations, the company took their eye off the ball. The lawsuit lasted a staggering 13 years, during which time, IBM was hyper focused on combating the suit, making decisions that weakened their overall position in the market in pursuit of better legal standing in the antitrust case.

When combined with poor strategic decisions, IBM lost their competitive advantage. This allowed Microsoft to step in to be a business processing marketplace and create operating systems and productivity tools that came to dominate. IBM’s leadership had become too focused on the suit, and though they eventually won, they could never recover their market position. 

Microsoft enjoyed amazing success, however, this decision to bundle internet browser software with its core office offering during the internet’s infancy led to antitrust scrutiny. After being hit with an antitrust suit by the federal government, the company effectively seeded their browser and search market to Google, provided Apple $150 million of emergency funding to preserve the competitor, and lost focus. Google and Apple subsequently became dominant players, while Microsoft struggled to keep its core offering relevant.

The company was close to being broken up, until an appeal halted the decision. Microsoft spent the next 15 years or so in the desert, struggling to regain their competitive edge. It wasn’t until 2010 with the launch of Microsoft Azure that the company was able to start to reinvent itself as a cloud computing-based software company. 

The lesson for Apple and the rest of the tech companies caught up in antitrust actions right now: don’t lose sight of your company’s core competencies and innovation during antitrust undertakings, and don’t underestimate the impact of antitrust investigations in distracting focus you need to run your business.

While Apple has been enormously successful in their device and software development, the market is moving towards AI, and the company can’t afford to let the distraction of an antitrust suit prevent them from continuing their progress forward. 

It’s impossible to predict exactly how the market will move, or what the future of the DOJ’s pursuit of Big Tech will look like. Part of the question marks around this case will surround the outcome of the presidential election. Would a Trump DOJ have the same desire to pursue Apple that the current regime has? 

Big Tech can’t be dismissive of antitrust actions. They’re no slap on the wrist. They’ve proven highly consequential in the history of corporate America, and there’s nothing to suggest that they won’t again shape the winners and losers of the next wave of tech development.

Agility is key; focus is essential. Big Tech needs to be prepared. 

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.