BusinessDigest

ITS TIME TO BREAK-UP BIG TECH

Big Tech or the Big Four- Apple, Facebook, Google, and Amazon have been receiving a lot of hate nowadays. We have US Senator Elizabeth Warren running for office on the promise of breaking down Big Tech and the rising of Michael Bloomberg who is campaigning that “Billionaires aren’t bad by themselves.” We see CEOs and CFOs of these trillion-dollar companies testifying before Congress every few days. All these raise the question- is Big Tech that bad? And what are the ways it can be broken down without resulting in thousands of job cuts and loss of innovation?

Let’s break down the various instances where Big Tech has been investigated by various government agencies in the past few years according to Forbes:

Federal Trade Commission: The FTC has already started investigating Facebook on antitrust grounds. Facebook was earlier fined on grounds of wrongful privacy practices

States Attorneys General: Eight states and Washington, D.C., are reviewing Facebook, while a larger group of attorneys general from 48 states (plus Puerto Rico and Washington, D.C.) announced Monday they are investigating Google, focusing on whether it holds too much power in the advertising industry.

Among the only states that haven’t signed on to the probe are California- where Google is currently based and Alabama. The California AG office said in a statement it hasn’t decided whether to join the investigation. Alabama’s office did not immediately respond to a request for comment from Forbes.

Department of Justice: The DOJ is also conducting a comprehensive review of the power and dominance of Big Tech, which will likely involve Google, Facebook, Apple, and Amazon. Its been reported by the Wall Street Journal that the DOJ might investigate different tech practices or legal theories than the FTC in its scrutiny of Amazon and Facebook.

European Union: Since 2010, the European Union has begun three separate antitrust investigations into Google for violating the EU’s competition laws due to its commanding position in the market. These cases have resulted in bringing formal charges against Google related to Google Shopping, Google AdSense and the Android operating system. To date, Google has been found accountable for antitrust behavior in the cases related to Google Shopping and Android and has been fined over €8 billion.

Are Big Tech Companies Monopolies?

Uh? Both Yes and No. First of all, what does the term Monopoly mean?

According to Wikipedia, the term monopoly is characterized by the absence of competition, which can lead to high costs for consumers, inferior products and services, and corrupt behavior. A company that dominates a business sector or industry can use that power to its advantage, and at the expense of others. It can create artificial scarcities, fix prices, and otherwise circumvent natural laws of supply and demand.

Bell used to be called the phone company until the government classified it as a monopoly and broke it down into four separate companies. These companies would then merge and acquire each other to give rise to the top two ISPs of the US- AT&T, and Verizon. So, the breaking down of a monopoly led to the formation of a tri-poly in the country. This is one of the very few times that breaking down of a company worked. The other being the breaking down of Standard Oil.

United States v. Microsoft Corporation was a noted American antitrust law case in which the U.S. government accused Microsoft of illegally maintaining its monopoly position in the PC market. This was by bundling Internet Explorer on all computers running Windows thereby making IE the default, and killing competition like Netscape Navigator. At trial, the district court ruled that Microsoft’s actions constituted unlawful monopolization under Section 2 of the Sherman Antitrust Act of 1890.

However, the antitrust lawsuit was settled by Microsoft and the Department of Justice and failed to break up the company.

It is to be noted that antitrust lawsuits are only taken up against a company if the company uses its monopolistic position to harm consumers and block innovation. The argument for Microsoft in 1998 was that Microsoft wasn’t making money from IE and therefore, was helping users find a free alternative to something which they would otherwise need to pay for. The same is true today for companies like Google and Facebook which are essentially free for consumers and therefore, are very hard to categorize as bad monopolies.

Nevertheless, a very strong case can be made in the way these companies are stifling innovation by acquisition, blatant copying, and other means. Let’s take a close look at each company one at a time.

The Case Against Google

Once the underdog in the Search engine space, Google has become anonymous with search, mail and for collecting huge amounts of user data knowing exactly where we are, our likes, dislikes and every single thing about us.

The acquisition of Android by Google in 2005 may be regarded as the best business decision by any company in the century. By essentially giving out Android for free, Google was able to make itself indispensable to everyday users.

Most of us cannot imagine our lives without directions told to us by Google Maps or the sweet notification sound of a Gmail notification. Google has been able to make itself the brand name of the services it offers- Gmail has become synonymous with email, when you tell someone to open maps, 95% of the people are seen to be opening Google Maps, Youtube with videos, and Android with Google. What Google did is genius, and by creating an ecosystem where its products are hard to live without, it has been able to dominate and crush competitors rising in the phone OS space.

Do you remember Windows Phones? Yes, those hip plastic phones made by Nokia. Google refused to make its apps available for the platform. This became a dangerous precedent, with other app makers also shying away from creating apps for Windows Phone. With fewer apps, came fewer people to buy the phone; and with fewer people on the platform, app makers were even more reluctant to use their resources on the platform. All this becomes a vicious cycle with Microsoft essentially discontinuing Windows Phone from 2017. The same happened with BlackBerry OS and Mozilla’s FireOS. All these were great pieces of software, with designs rivaling iOS and Android but the unavailability of Google apps which millions of people depend on, essentially killing them.

This is too much power to concentrate in the hands of a single company. Earlier this year, during the US-China trade war, all American companies were instructed not to do business with Chinese company Huawei. This resulted in Google stopping security updates to Huawei devices as well as stopping Huawei from using Android as its operating system. This led Huawei to scramble to develop its own operating system with losses predicted in billions due to this single move. This again goes to demonstrate how much power Google has in everyone’s life, with our devices becoming essentially useless without it.

Yelp, a well-known review website has essentially become useless owing to Google copying most of its primary features and integrating businesses and Google Reviews on the businesses straight into the searches.

Recently, Google asked websites to get hosted on its platform. In return, Google would render a low data version of the website on the phones of users who had low Internet bandwidth. It was a voluntary decision that website owners needed to make, however, by not hosting their website, they risked getting ranked lower on Google searches and thereby losing a huge amount of traffic. This is a clear example of Google using its monopolistic position to pressure website owners to succumb to its wishes.

Okay, a fun fact- Google and Bing together power the searches of all other search engines.

The Case Against Facebook

Facebook recently unveiled a new logo with facebook typed in upper case and screams “ I am innocent”. The idea was to use the good name of the other brands it has acquired, namely Instagram and WhatsApp to rebuild trust for its main offering- facebook.

Facebook has mastered the network effect. Even if someone tries to leave it, they fear being left out of the conversation and the network effect kicks in. The network effect of facebook has been explained in a Vox.com video which talks about why we keep using facebook even though we hate it.

Facebook has been quick to use its cash reserves to swallow up competitors. When it saw the instant photo-sharing platform- Instagram which could have been a potential rival to itself, it quickly scrambled $1 billion to buy up the platform. The same is true with Facebook’s $6.5 billion dollar acquisition of WhatsApp. Today Facebook has more than 2 billion users and Instagram and WhatsApp being the other two giants with more than 1 billion active users each. There is no other platform that has greater than 500 million active users.

Step two of Facebook’s Playbook is blatant copying. When Snap Inc. refused its offer to buy Snapchat, Facebook copied what made Snapchat popular in the first place- the stories. Stories became a signature feature of all facebook products- Instagram, WhatsApp and Facebook itself. It even went as far as to design a specific app called “ Threads” which is essentially a knock off of Snapchat in all features and functions. Having big bucks behind its product, Facebook was able to make Stories one of the most used features with Instagram Stories averaging four times the views which a standard Snapchat story generates. This resulted in Snapchat never getting the traction it would have got if Facebook hadn’t decided to copy it.

All this sets a dangerous precedent, with big corporations swallowing up competitors and making their products so indispensable in our daily lives that we are afraid to leave it, even if we know the harm it’s causing us.

The Case Against Apple

Elizabeth Warren in her blog post notably, left out Apple, although when asked by the media about whether that company should be able to sell its own apps on its App Store, Warren didn’t hesitate to swing her anti-trust axe. Her statements were similar to the one Spotify argued in their video in which they complained of Apple playing both the player and referee in the game.

Apple has full control of every app that they have available on the AppStore and doesn’t allow apps to advertise as well as use other payment platforms than their own in which they take 30% of every transaction made. Also known as the Apple Tax, Apple’s own apps don’t have to pay the same thereby, having their apps available at a better price for the users and undercutting the margins of apps like Spotify.

Apple can afford to lose money on Music and Tv and offer the same at a cheaper price to make buying an Apple device a compelling choice. But the same cannot be said about Spotify which has to keep its offering compelling for users as well as shell out money for every song they stream. Spotify argues in its video that Apple is using its monopolistic control of the App Store to push forward its own apps. Apple did release a press statement refuting the claims of Spotify and pointing out how Spotify and the users benefit from the App Store.

The Case Against Amazon

John Oliver, in his HBO program Last Week Tonight beautifully broke down how Amazon’s warehouses provided an unsafe as well as the terrible atmosphere for people working in them.

However, the problems with warehouses are just the beginning. The business model of Amazon has led to hundreds of malls closing down with big names like Sears closing shop in scores of cities. Large companies like Best Buy and Walmart are scrambling to find new business models to retain their customer base. A startup, diapers.com, started getting noticed by parents. This led to Jeff Bezos sending an acquisition offer to the startup. However, when the start-up refused to the offer, Amazon used its predatory selling tactics to start selling diapers so cheap that it began to cut extensively into diapers.com’s profits. This eventually resulted in the start-up being acquired by Amazon and the domain diapers.com being redirected to Amazon. 

When we think of Amazon, we think of the e-commerce giant which has grown so big that it can practically get away with paying $0 in federal taxes even after being a trillion-dollar company. However, large portions of Amazon’s profits come from its cloud infrastructure called Amazon Web Services(AWS). AWS powers almost a third of the Internet, with big companies like Netflix and even the CIA using AWS for their cloud computing needs. AWS has grown so big that if it went down for some time, most of the things we find available on the Internet would become dark.

This business of Amazon is extremely profitable and Amazon can channel the profits in AWS to offer products at unbeatable prices to customers on its e-commerce platform. Amazon uses predatory selling to sell items at a loss just to gain market share. This is essentially what constitutes a monopoly but since it’s beneficial to customers, government agencies are uneasy to step in. Amazon and the other companies have also large lobbying powers in Congress, thereby blocking any investigation into them.

Next Steps for Big Tech

As Elizabeth Warren points out, today’s big tech companies have too much power — too much power over our economy, our society, and our democracy. They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.

Breaking down of the companies could be considered as an option. Just by breaking down Google into Google and Android, Facebook Inc. into the three companies it owns and Amazon into AWS and the e-commerce platform, the power of these companies over society can be reduced significantly.

Other smaller ways would be to make structural changes in the companies while increasing government insight and regulation of these companies as well as pressurizing the companies to pay more in taxes and not channel their profits into tax havens like Ireland.

I strongly recommend reading Elizabeth Warren’s argument on this topic. Whatever it is, something needs to be done to limit these companies and prevent society from being owned and shaped by a few super-rich men.

Written by- Rohan Ganguly

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