By Christopher Mims
Lawmakers this week proposed breaking up Big Tech by reviving
aggressive, turn-of-the-last-century-style antitrust laws and
enforcement measures. Amazon, Facebook, Google and Apple, they
argued, all have developed monopoly power that they use to stamp
out competition and stifle innovation.
Days before, Facebook Inc. produced its own document contending
that breaking it up would be a "nonstarter" for a number of
reasons, including that the company's constituent parts are already
too complicated and interconnected for any of them -- Instagram,
WhatsApp, its ad business -- to be spun off as individual companies
or walled off as separate divisions.
"After many years of hard and costly work, Instagram and
WhatsApp are now integrated into the same bespoke infrastructure
that Facebook built from the ground up," the company says in its
The House Antitrust Subcommittee report released on Tuesday
concedes Facebook's argument that a breakup of any Big Tech company
is unlikely unless Congress passes new laws. For concerned
lawmakers, this only heightens the urgency to figure out how to
deal with Silicon Valley's clout.
For those who favor curbs on these companies, one question
looms. These four companies already possess unprecedented market
values and dominant positions in industries ranging from digital
advertising and app distribution to online retail and mobile
computing. If they are already so complex that it is prohibitively
difficult to untangle them, what happens if they continue to grow
unchecked for another decade? Collectively, these companies plan to
expand into health care, cryptocurrency, brain computing,
space-based telecommunications and countless other areas.
In the 2008-09 financial crisis, some argued that any bank too
big to fail is, by extension, too big to be allowed to exist. As
the tech giants become ever broader in the businesses they enter,
and deeper in their vertical integration, many economists and
activists are coming to a similar conclusion: "Too complex to break
up" is, like "too big to fail," an argument in favor of doing
precisely what these companies want to avoid.
There certainly are complications. When Facebook sought to
increase user engagement on Instagram, one of the company's first
steps was to port over the same algorithms that power the Facebook
News Feed. In fact, Facebook says it spent the past year further
integrating WhatsApp and Instagram, even rebranding them "from
Facebook." These certainly feel like defensive measures against
antitrust attempts to break up the company.
Maëlle Gavet -- former chief executive of Russia's largest
e-commerce site, former vice president of operations at the
Priceline Group and author of a book about Big Tech's current
problems and how to fix them -- says that from a technical
perspective, splitting off Instagram and WhatsApp would be
labor-intensive but doable. As newly independent companies, they
would have to rebuild their messaging and advertising systems, and
also move to a different cloud-service provider, which would
degrade user experience in the short term. But such a "demerger"
could be completed in a year or two, she estimates.
While Alphabet Inc.'s Google hasn't voiced its own "too-complex"
defense, it has also deeply integrated its past acquisitions, from
ad giant DoubleClick and streaming colossus YouTube to the world's
most popular mobile operating system, Android.
Splitting off any of these would be just as complicated, and
could result in the same short-term problems, says Ms. Gavet. "It
does not mean we should not do it," she says. "It just means we
should be ready for the pain it will cause" both users and
"Americans simply don't want Congress to break Google's products
or harm the free services they use every day," the company wrote in
response to the House report. "The goal of antitrust law is to
protect consumers, not help commercial rivals."
With Apple Inc., the "fault lines" -- as the House report calls
the seams between various potentially separable businesses -- are
blurrier. Much of the company's expansion has come from growth
fueled by early-stage technology acquisitions. Nevertheless, the
House report was critical of Apple's habit of operating a dominant
retail platform and simultaneously competing with its vendors.
In the App Store, Apple has prioritized the company's own apps
in search. (Apple says its own tests do not support this
assertion.) Apple also takes a 30% fee from transactions conducted
within the third-party apps it distributes, leading many companies
to attempt to work around Apple's rules while asserting the company
has become a monopolistic gatekeeper to hundreds of millions of
Apple said in a written statement: "Our company does not have a
dominant market share in any category where we do business... Last
year in the United States alone, the App Store facilitated $138
billion in commerce with over 85% of that amount accruing solely to
third-party developers. Apple's commission rates are firmly in the
mainstream of those charged by other app stores and gaming
Thomas Philippon, an economist and professor of finance at New
York University's Stern School of Business who specializes in
monopolies and regulation, cautions against treating Big Tech as a
monolith. Even if some of the same principles can be applied to all
of these companies -- the House report proposes, for example,
making it a universal rule that companies can't promote their own
goods on dominant platforms they own -- what that means for each
will necessarily vary. Splitting the App Store from Apple would be
absurd, says Ms. Gavet, but it's not clear what other regulation
could curb its power.
For Amazon.com Inc., one issue is the company's marketplace, on
which some of the company's own employees have said Amazon has used
data on sales from vendors to launch competing products. (Amazon
sent a letter to the House subcommittee on Oct. 4 saying that an
internal investigation found no instances of its employees doing
this.) Amazon has also prioritized its own products in its search
Amazon might require entirely new thinking about what consumer
harm means, says Ms. Gavet. While Amazon doesn't have a dominant
market share in any one area other than e-commerce, its offerings
are so broad, from Alexa, Ring and Eero to Whole Foods, Amazon
Logistics, Amazon Web Services and its enormously popular Prime
membership services, that its ability to gather data on Americans
has become comprehensive. "We intuitively feel this is a problem,"
she adds, "but how do you manage a company like that from an
In a lengthy rebuttal to the House report, Amazon called its
suggestions "fringe notions" born of "regulatory spitballing." The
company went on to highlight familiar talking points, such as that
Amazon commands less than 1% of global retail and 4% of retail in
the U.S., numbers that can be derived only from very generous
definitions of the markets in which Amazon competes. The company
concluded that suggestions in the report would harm both sellers
and consumers, leading to higher prices and less selection.
The argument that Facebook or any other tech giant is too
complex to break up is as old as the first antitrust case, says Dr.
Philippon. AT&T Inc. made the same argument many times when the
government sought to break it up in the 1970s, he adds.
Regardless, opponents of Big Tech might have to wait for an act
of Congress for any of these scenarios to play out. The next-best
check on their power would be to approach the companies' future
acquisitions warily, says Denise Hearn, a senior fellow at the
American Economic Liberties Project, a nonprofit opposed to
concentrated corporate power.
"I wish regulators would be better about anticipating potential
competitive threats," she adds. In evaluating Facebook's
willingness to pay $19 billion for WhatsApp in 2014 -- at the time
the largest-ever acquisition of a venture-backed company -- she
argues regulators should have asked why, exactly, Facebook was so
eager to pay more than 10 times what WhatsApp had been valued at
only a year before.
One answer has become evident since Facebook bought WhatsApp and
used it to pilot mobile banking products in India, where the
service has 400 million users. Facebook apparently viewed WhatsApp
as a blank slate with which the company could expand laterally into
markets completely unrelated to its core business, and then, per
its usual playbook, find ways to dominate that industry. This is
the same company that is also still planning to launch its own
currency, expand its lead in virtual reality, and create a
The House report says that in the future, any acquisition by Big
Tech should be viewed, by default, as an attempt to crush
competition or gain unfair advantage. The burden to prove otherwise
would then fall to the companies themselves.
This flies in the face of 50 years of antitrust enforcement.
Agencies haven't blocked a single one of more than 500 acquisitions
made by Apple, Amazon, Facebook and Google since 1998, notes the
House report. Since the 1970s, a steady erosion of antitrust laws
and enforcement has taken place in the U.S. in the name of
increasing economic dynamism, says Ms. Hearn.
From the perspective of startups, making it more difficult to
become acquired could have a chilling effect on their formation,
says Iain Murray, a senior fellow at the Competitive Enterprise
Institute, a libertarian think tank. "Saying the only route to
cashing in is to lead your company to IPO will destroy dreams and
lead to a less innovative culture," he adds.
"We are concerned that sweeping changes could lead to
overregulation and carry unintended consequences for the entire
economy," wrote Rep. Ken Buck (R., Colo.), a member of the House
subcommittee, in a separate report intended to complement the one
written primarily by the committee's Democratic majority. "We
prefer a targeted approach, the scalpel of antitrust, rather than
the chainsaw of regulation," he adds.
Despite these misgivings, on the whole, members of the committee
showed a rare bipartisan accord in concluding that Big Tech has too
much power. We may be at a tipping point: If these four companies,
collectively valued at more than $5 trillion, really are too
complex to break up or regulate without new or revived legislation,
perhaps members of Congress might at last be ready to deliver
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October 10, 2020 00:14 ET (04:14 GMT)
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