The disrupters could get disrupted

FOUR mega-cap tech companies are so powerful and high-performing that Wall Street has a collective name for them - the FANG stocks, namely Facebook, Amazon, Netflix and Google.

These four firms alone have turbo-charged US stock market returns in recent years, reaching more than US$1.7 trillion in total market capitalisation.

Just as the growth, earnings and cash generation of these Big-Tech names have soared, so have their impact on economies and consumers, who are wowed by the services, price transparency and convenience they provide.

As a result, there has, until recently, been little public pressure to challenge the dominance of these firms, which some critics say have near-monopoly status.

But these powerful companies are attracting greater scrutiny from regulators:

These regulatory pressures indicate that governments may be increasingly focused on reducing the market dominance of the FANGs and similar firms. The question now seems to be: Will these masters of high-tech disruption soon find themselves disrupted? Here are five ways Big Tech may feel the heat:

Digital advertising comes under pressure

"Bots" and automatic algorithms have completely transformed the realm of digital advertising and brought in billions of dollars in revenue for Facebook and Google.

Yet an old adage still rings true today: "Half the money I spend on advertising is wasted; the trouble is, I don't know which half."

If doubts about ad-sales effectiveness and practices grow, they could undermine social-media business models and the profitability of the FANGs.

Some firms may be overstating the reach and effectiveness of their technologies. One mega-cap US consumer-goods company recently made headlines when it slashed its online ad spending, citing "largely ineffective" digital ads.

On the other hand, some of these ad-sales platforms may work too well, bringing into question the professed "platform neutrality" of some Big Tech companies. Amid growing concerns about Russia's role in recent US elections, Facebook recently bought its own high-profile ads to detail how it is "protecting our community from election interference" - a clear response to calls for them to police their network.

'Free' content dilutes brand loyalty and bottom lines

Even though social media has become part of our daily lives, how much brand loyalty does it inspire? Surveys show that use of social media would drop if consumers had to pay for access; they would simply migrate to other "free" services.

This has implications for corporate longevity. Some may not endure in the same way as companies in more traditional industries once did with similar size and scale.

For its part, Google recently announced it is dumping its "first-click-free" news policy, which had forced media companies to offer some free content or suffer a drop in their search-engine rankings. This can be seen as a way of helping to support digital subscriptions - and therefore funding - for news providers.

Google may also hope this heads off more onerous regulations by positioning them as good corporate citizens, and by reinforcing their stance that they are not a media company.

Unused cash grows costly

The FANGs remain extremely profitable, yet much of the cash they generate languishes on balance sheets. The result is billions of dollars left unused, un-returned to shareholders and unable to boost economic growth - and in many cases untaxed as well.

This is growing increasingly frustrating for almost everyone but the cash-rich companies themselves. Unfortunately, shareholders cannot do very much about it: the "founder's stock" structure used at some firms does not always create an environment of good corporate governance - though active investors can try to effect change. Regulators have more power, however, and they are clearly looking for ways to claw back some of this cash.

Regulators crack down on data privacy

Big data, predictive algorithms and artificial intelligence all rely on one thing: collecting and analysing information. However, when the data in question comes from the lives and habits of private citizens, shouldn't they be able to influence how the data are used?

Regulators in Europe think so.

The EU's new GDPR will give citizens more insight into and control of their digital information - and it will give regulators a potent new weapon against companies that do not act in consumers' best interest. While rules that are overly stringent could limit the benefits of technological innovations, the GDPR could also raise consumers' trust in digital services and create a level playing field for companies that responsibly monetise consumers' data.

Political pressure leads to new 'duty-of-care' requirement

As a global producer of content that leverages it against advertising to drive growth, Facebook has effectively become a media company - but critics suggest that it seeks to leverage its success as a global influencer without the responsibility that comes with it.

This privilege may disappear if the US government imposes on Facebook and other social-media platforms the kind of "duty-of-care" requirement that old-world media companies have been facing for many years. This would force Big Tech firms to engage in editorial and legal responsibilities that already impair their current competitors - ironically disrupting their own disruption and potentially adding to their cost bases.

Western governments have, for the most part, been happy to let Silicon Valley oversee itself, but it is clear that this grace period may be closing - especially in Europe.

In addition to some of the new rules and pressures outlined above, we expect the playing field to be levelled further:

It is growing increasingly possible that these regulatory pressures could soon begin to limit the almighty FANGs' reach in the US and Europe - rich but small markets compared with the opportunities facing China's BATs (Baidu, Alibaba and Tencent).

These firms are, in many ways, the Chinese equivalents of the FANGs, yet as of now, the BATs are not facing the same level of increasing regulatory scrutiny as their FANG counterparts. With less-onerous oversight and a larger opportunity set in their own neighbourhoods - populations in Asia are exponentially bigger - one could make the case that the BATs may fly further than the FANGs.