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Cramer Says He Understands The Case For Breaking Up Big Tech

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Cramer Says He Understands The Case For Breaking Up Big Tech

Big tech companies continue to face scrutiny from U.S. lawmakers and regulators for monopolistic characteristics, but this doesn't necessarily mean that behemoths like Apple Inc. (NASDAQ: AAPL) will be broken up.

Cramer: 'I Get Where The Regulators Are Coming From'

CNBC's Jim Cramer recalled during his daily "Mad Money" show a story from 20 years ago, when he was running his financial website TheStreet.com.

Cramer held a meeting with then-internet giant America Online, which he said offered Cramer a $2-million deal in exchange for content to be posted on its internet portal. AOL's power over the internet at that time was "ludicrous," and it was nearly impossible for anyone to make it big on the internet without the backing of AOL, he said. 

Legendary media pioneer and AOL Networks CEO Bob Pittman presented a partnership under which his financial website could thrive under AOL, Cramer said. The only catch: instead of AOL paying Cramer's company $2 million, Pittman wanted Cramer to pay AOL $2 million.

If Cramer didn't agree to the new terms, he was obviously free to take his business elsewhere, Cramer said — but there wasn't anywhere else to go. 

That firsthand experience is relevant to big tech companies today, Cramer said.

For example, a company isn't forced to advertise its products on Google's search engine — which Cramer said is known to tilt search results to favor its own businesses.

"You don't have to advertise on Google," the CNBC host said. "You are free to find another gigantic search engine. Just don't hold your breath."

As an investor who wants to see stock prices move higher, it is difficult to be "thrilled" with recent rhetoric from lawmakers, he said. But as someone who was "on the other end of this dynamic" when AOL was dominating the internet, Cramer said he gets "where the regulators are coming from."

Are Amazon, Google, Apple Monopolies? 

Apple CEO Tim Cook could make the case that his company's iPhone faces competition from rival smartphone makers, and the App Store faces direct competition from the likes of Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL), the American Enterprise Institute's James Pethokoukis told CNBC Wednesday. While it is "OK to be big and dominant" under existing antitrust law, what is not acceptable is to hurt consumers through "bad practices," he said. 

It will be very difficult to make the case that Apple is engaged in activities that hurt consumers, since it offers free services that consumers "greatly value," the AEI policy analyst said. 

The odds of breaking up some of the world's largest companies are "unlikely," although new laws related to security or privacy could be written, he said. 

Could A Breakup Benefit Stocks? 

Assuming Apple is guilty of operating as a monopoly, a potential remedy would be splitting the Services business from the legacy hardware business, Larry Haverty of LJH Investment Advisors told CNBC. The end result would be a new company that would trade at a much higher valuation given its superior growth profiles and margins prospects, he said. 

"The parts are worth more than the whole." 

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Posted-In: American Enterprise Institute Antitrust big tech Jim CramerGovernment Regulations Tech Media Best of Benzinga

 

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