This illustration picture taken on April 20, 2018 in Paris shows apps for Google, Amazon, Facebook, Apple (GAFA) and the reflection of a binary code displayed on a tablet screen.
How should we read an American presidential hopeful’s forceful plea to break up technology companies such as Facebook, Google, Amazon and Apple?
The story so far: The debate over how to control the world’s powerful tech companies is growing. On March 8, Elizabeth Warren, Massachusetts senator and Democrat presidential contender for 2020, shared her plan to break up the big technology companies, which dominate the world from their base in the U.S. “Today’s big tech companies have too much power — too much power over our economy, our society, and our democracy,” she wrote in a post on online publishing platform Medium. While the idea of forced breakups in corporate America might sound radical, given that there have been only a few such instances in its history, she has given political weight to a proposal which until then resonated largely in the academic world. By doing so, Ms. Warren has also brought the issue of antitrust action, or action that promotes competition, into the mainstream at a time when the 2020 presidential race is set to pick up pace. Within days, Verge reported that “a majority of the other presidential candidates have agreed with at least the premise of her proposal.” The plan has put the Big Tech, as the big technology companies are referred to, on the back foot. In a television interview a few days ago, Apple CEO Tim Cook said he disagreed with Ms. Warren’s plan and mentioned that he is “frustrated that tech is painted as monolithic” What is at stake? What lies ahead?
What is the criticism against Big Tech?
Ms. Warren, while specifically referring to Google, Amazon, and Facebook in her post, wrote that American tech companies have built dominance because of two strategies. One involves purchase of potential competitors. As examples, she pointed at Facebook’s acquisition of Instagram and WhatsApp, and Google’s purchase of mapping service Waze and ad company DoubleClick.
The second strategy is the use of “proprietary marketplaces to limit competition”. In the post, she wrote, “Amazon crushes small companies by copying the goods they sell on the Amazon Marketplace and then selling its own branded version.”
Her point is that Big Tech has “bulldozed competition, used our private information for profit, tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.”
Ms. Warren later clarified that Apple, which doesn’t find a mention in her written proposal, also needs to be broken up. This triggered Mr. Cook’s response, mentioned above.
How big is Big Tech, really?
If you go by market capitalisation (or the value of a company’s outstanding shares), as per data in May, Amazon and Apple were worth well over $900 billion each (see graphic). Google’s owner Alphabet was worth over $800 billion while Facebook had a value of well over $500 billion.
The tech company that’s more valuable than all the above four is Microsoft, which has seen a resurgence in recent years. (Microsoft, interestingly, was sued about two decades ago for antitrust violations and barely escaped being broken into two.) These tech giants are among the world’s top companies by market capitalisation.
Market research company eMarketer estimates Google and Facebook control about 60% of the digital ad spending in the U.S. Ms. Warren wrote that “nearly half of all e-commerce goes through Amazon. More than 70% of all Internet traffic goes through sites owned or operated by Google or Facebook”.
Many of Google’s properties — including the video platform YouTube, the Android platform, Play Store, Maps, the Chrome browser, the search site, as also Gmail — each have a billion plus users. Facebook has over 2 billion users and its arms Messenger and WhatsApp have more than a billion users each.
What is the reason for this dominance? What is Ms. Warren’s plan?
Ms. Warren puts weak antitrust enforcement as the reason for the “dramatic reduction in competition and innovation in the tech sector”.
She wants to take two major steps: one involves legislating to ensure companies don’t end up being both a platform and a player. This pertains to companies with annual global revenues of at least $25 billion.
The second step involves “reversing illegal and anti-competitive mergers”. According to her, acquisitions of Whole Foods and Zappos by Amazon, of WhatsApp and Instagram by Facebook, and of Waze, Nest and DoubleClick by Google come under that category and need to be unwound.
Who is in agreement with this, who is against?
Fellow presidential contenders Pete Buttigieg, Julián Castro, John Hickenlooper, and Tulsi Gabbard have spoken about stronger antitrust enforcement, much in line with Ms. Warren’s reasoning. Republican Senator Ted Cruz, retweeting Ms. Warren — for the first time ever — who criticised Facebook for taking down posts calling for its breakup, said, “Big Tech has way too much power to silence Free Speech.” Others like Senator Josh Hawley have also spoken about how the dominance of a few in the tech world is threatening competition.
Chris Hughes, who co-founded Facebook with Mark Zuckerberg and was his roommate once upon a time, wrote an opinion piece in The New York Timesrecently calling for the social media company to be broken up into three. Mr. Hughes had exited the company many years earlier.
Facebook lost no time in responding to this. Its spokesman Nick Clegg said, “Facebook accepts that with success comes accountability. But you don’t enforce accountability by calling for the break-up of a successful American company.”
Antitrust experts have opined that it won’t be easy to implement Ms. Warren’s proposal not just because it would involve years of litigation. There is also the background of how antitrust violations have been viewed more from the prism of how monopolies can affect pricing. In the tech world, many successful giants have come about on a zero-pricing model.
Haven’t the tech companies been under pressure from policymakers in recent years?
In a way, yes. In the last few years, discontentment with tech companies has increased following incidents such as the Cambridge Analytica scandal. This has led to many voices calling for regulation of tech companies.
The U.S. historically has taken a much lenient approach, compared to say the European Union, to penalising abuse of a dominant market position. The last big charge on monopolisation was on Microsoft about two decades ago. — some believe the scrutiny itself worked to check excessive market power.
The EU in recent years has imposed antitrust fines to the tune of over $9 billion on Google. The latest one was a result of, as the E.U. antitrust agency put it, Google’s abuse of its dominance “to stop website using brokers other than the AdSense platform”. The fines amounted, as one report put it, to a small slice of its cash reserves. Spotify has now complained to E.U.’s investigators alleging misuse of Apple’s App Store in favour of the latter’s own streaming service.
Regulations on data privacy and copyright standards have also been tightened in the EU. The world seems to be walking up to the possibility of more regulation. Bloomberg has reported that Japan’s Fair Trade Commission is looking to examine Google, Apple, Facebook, and Amazon for possible abuse of market dominance.
What will be the effect of Ms. Warren’s proposal?
It’s tough to say what this will end up as. But what it has surely done is triggered a debate on the regulation of technology companies which seemed to be having an easy ride to burgeoning growth all along. Privacy concerns were there but tech companies convinced lawmakers that they could fix it on their own. Ms. Warren has been seen as a “pace-setter” by many in this regard, given that the U.S. will shortly go into campaign mode in the coming months. Her plan, radical as it is, is on the table, and others may not be able to ignore it.
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