Breaking up Big Tech – Is Antitrust action the only way?

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Antitrust action is a sledgehammer while Big tech requires scalpel-work

For decades, the tech innovators of Silicon Valley had every one enamored by their ingenious skills giving us one innovation after other. The US government quickly became the primary buyer, and beneficiary, of these innovations. As this relationship progressed, the imbalance of power became more apparent with each passing year – the last three years, since election 2016, being the most vitriolic, bringing the nastiness of this inevitable breakup to the fore.

Tech giants – Facebook, Google, Amazon and Apple among others – are not so innocent contends the government; left-leaning bias, ring-wing censorship, curtailing free speech, not curtailing hate speech, data hoarding, profiting of user data and even being so irresistible that these services are now prima facie an addiction unto themselves. With such a range of offenses, tech big wigs have irked regulators and politicians on both sides of the aisle. So, while they’ve been expecting it – given the fact even the presidential candidates have made antitrust plans part of their campaigning – the extent of these plans is only just starting to show.

Before regulators and politicians try to fix big tech monopolies, they’d need to learn how they work and what defines a ‘monopoly’ in the age of venture capital.

For weeks, the DC grapevine was abuzz with possible antitrust investigations by the Justice Department and the Federal Trade Commission. Latest reports confirm the “distribution of household chores” with DOJ calling Google and Apple, while the FTC gets Facebook and Amazon. Meanwhile, House Democrats are launching an antitrust probe of their own over competition in the tech industry more broadly.

Pursuing these probes presents unique challenges of their own but before delving in to the more intricate ones, we need to lay down the obvious requisites: The regulators and politicians trying to fix big tech monopolies need to learn how they work i.e. not just the companies but defining ‘monopoly’ in the age of venture capital.

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The legal framework governing American antitrust legislation, as summarized succinctly by Adam Thierer and Jennifer Huddleston, Senior Research Fellows, at George Mason University’s Mercatus Center reads that it is only intended to be used when “a firm has the ability to monopolize a sector, or it possesses an ‘essential facility’ that cannot be replicated.”

The present framework laid out in the Sherman Antitrust Act and the Clayton Act gives great leeway to regulators to reign in monopolies. There is a formidable tradition of jurisprudence that lays out corporate practices, say price fixing, as harmful and therefore always illegal. The last major tech giant, Microsoft Corporation, which went through almost a decade long antitrust proceeding without being broken up at all has never attracted further scrutiny – a fact made more surprising by its market valuation, as of last Friday, which stands at $1 trillion – $100 billion more than Apple or Amazon.

In general, the U.S. antitrust approach places the consumer at the center of the analysis. So if a corporation, like Amazon with its acquisition of Whole Foods, delivers good and services to the consumer at lower cost in the market. It will be hard to argue it is violating the consumer protection enshrined in aforementioned laws. Amazon also only controls a small percentage of the overall grocery market in the US.

Alternatively, what if the government broke up or limit any firm that is simply a great competitor even if consumers are actually served well by this giant. Their competitors will grumble for their nemesis to be taken down a few pegs but how does that benefit the consumer? It needs to be kept in mind that it isn’t just about Amazon but the precedent such proceedings are bound to create. There is also the more troubling notion concerning how powers-that-be would break down these entities?

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Having Facebook chip away Whatsapp and Instagram doesn’t curtail either one from becoming a behemoth on its own

Keeping in mind, the definition of monopolistic enterprise must provide an ‘essential service’. Historically, antitrust cases had a relatively straightforward roadmap. The Standard Oil case, decided by the Supreme Court in 1911, split up the company largely along geographic lines. Kudos to 1911 Supreme Court, but try applying the same to Facebook. The critics contend its monopoly over online attention of two billion users. But Facebook competes with Twitter and Snap Inc. among other ever emerging new media technologies. This is not 1980s, and Facebook certainly can’t be divvied up like AT&T and Bell Systems.

Facebook’s boundaries, too, are not so easily identifiable. Even Sen. Amy Klobuchar (D., Minn.), whose presidential bid includes regulation of Facebook, admits it is premature to call for breaking up big companies.

Similarly, asking Facebook to break away from WhatsApp and Instagram, while requiring Google’s parent company Alphabet to spin off independent products from advertising-funded search is more likely to muddle this mess further than clear it up: What is to there curtail an independent Instagram from becoming an even bigger tech giant?

So, will this brouhaha end up being irrelevant but for the political grandstanding?

“Tech anti-trust too often wants to insert a competitor to the winning monopolist, when it’s too late. Meanwhile, the monopolist is made irrelevant by something that comes from totally outside the entire conversation and owes nothing to any anti-trust interventions.”

Benedict Evans, Tech Venture Capitalist on Twitter

Antitrust actions, on average, are long drawn out proceedings. And by the time they achieve their agenda, the tech landscape evolves by creating many a new behemoths in another niche. Apart from the IBM and Microsoft cases earlier mentioned, a 2011 FTC probe investigating Google’s arrangement of Web search results possibly violating antitrust and anti-competition statutes resulted in moot two years later.

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Regulators, as term-bound bureaucrats are imprisoned by their own static mindset. They focus on an over-achieving market player, then carve its most successful slice for regulatory consideration. Unfortunately for them, market-at-large and tech giants, in particular, operate on a sliding timescale.

“What’s needed is a measured approach through legislation, not a bludgeoning of four companies that are so vital to the U.S. economy and its workforce. There needs to be give and take between Silicon Valley and the Beltway, not confrontation.”

Rep. Ro Khanna (D., Calif.)

Also, to consider along with rampant tech innovation is the sheer size and resources available to just these four companies; they can afford to contest these regulatory, and judicial proceedings, far longer than the present DOJ, FTC and House Democrats. We are setting up a confrontation that could crawl its way through court for years, with no benefit to consumer while creating hindrance to innovation. Even the most optimistic timelines don’t see these probes concluding before one of present 2020 presidential candidate is on his way out.

Efforts by Rep. Ro Khanna (D., Calif.), whose district covers Silicon Valley, and other Congressional members to regulate tech could prove to be the most likely outcome over the next few years.

“What’s needed is a measured approach through legislation, not a bludgeoning of four companies that are so vital to the U.S. economy and its workforce. “There needs to be give and take between Silicon Valley and the Beltway, not confrontation.”

In the meantime, we still don’t how this new round of trust-busting will shake out. But it’s a good chance that by the time we’re on the other side, a new class of unassailable giants will have cropped up without regulators noticing. And then we can start the theatrics all over again – we can but hope, in the next round, regulators will bring scalpels, and not sledgehammers.

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