Elizabeth Warren Wants To Break Up Amazon, Google And Faceb…

from the tell-us-how-you-really-feel dept

This isn’t necessarily a big surprise, given that she’s suggested this many times over the past few years, but 2020 Presidential candidate Elizabeth Warren has just laid out her plan for breaking up Amazon, Google and Facebook. It’s certainly worth reading to understand where she’s coming from, and some of the arguments are worth thinking about — but much of it does feel like just grandstanding populism in front of the general “anti-big tech” stance, without enough substance behind it.

Twenty-five years ago, Facebook, Google, and Amazon didn’t exist. Now they are among the most valuable and well-known companies in the world. It’s a great story — but also one that highlights why the government must break up monopolies and promote competitive markets.

I find this a very odd way to open this proposal. I don’t see how the first sentence supports the second. Indeed, the first sentence would seem to contradict the second. Twenty-five years ago those companies didn’t exist, and if you asked people what tech companies would take over the world, you’d get very different answers. Technology is an incredibly dynamic and rapidly changing world, in which big incumbents are regularly and frequently disrupted and disappear. One of my favorite articles to point people to was a 2007 article warning of the power of a giant monopolistic social network that would never be taken down by competition. That social network? MySpace. The article briefly mentions Facebook, but only to note that it “will always be on MySpace’s periphery.”

Let me make my position clear on all this too: I am always supportive of greater competition, and have always been a huge supporter of disrupting incumbents, because I believe that’s how we get to better innovations. But I also believe that this is rarely done by government intervention, and usually comes from new technologies and new innovations in the marketplace. For years now I’ve been talking about why the real way to “break up” big tech platforms is to push for a world of protocols, rather than platforms, which would push the power out to the ends of the network, rather than keeping them centralized under a single silo with a giant owner.

But I fear that nearly all of these plans to “break up” big tech actually make that harder. It doesn’t open up new opportunities for a protocol-based approach, and simply assumes that the world will always be managed by giant platform companies — just slightly smaller, and highly regulated, ones. And that might actually lead us to a much worse future, one that is still controlled by more centralized systems, rather than more decentralized, distributed protocols where the users have power.

The internet is a constant challenge with lots of new upstarts hoping to disrupt the big guys. And sometimes it works, and sometimes it doesn’t. We should be wary of companies with too much power abusing that position to block competition. And I’m certainly open to looking at specific situations where it’s alleged that these companies are blocking competitors, but a general position that says breaking up the internet giants seems more opportunistic and headline-grabbing than realistic.

In the 1990s, Microsoft — the tech giant of its time — was trying to parlay its dominance in computer operating systems into dominance in the new area of web browsing. The federal government sued Microsoft for violating anti-monopoly laws and eventually reached a settlement. The government’s antitrust case against Microsoft helped clear a path for Internet companies like Google and Facebook to emerge.

Two things on this. First, Microsoft was clearly engaged in anti-competitive practices that were designed to restrict competition and harm consumers. There was clear evidence of the company proactively seeking to undermine competitors. There is (to date!) little such evidence of the same thing with the big internet companies. It is entirely possible that such evidence will eventually be found, and if that’s the case, then it’s reasonable to punish the companies for such practices. But, to date, all of the examples people cite as “evidence” of anti-competitive practices by the big internet companies really looks like reasonable steps to improve consumer welfare with their products (i.e., the opposite of what Microsoft was doing in the 90s.)

Second, I know some may disagree, but I find it difficult to believe that the government’s antitrust case against Microsoft truly “helped clear a path” for Google and Facebook. After all, that antitrust case fizzled with the DOJ, despite “winning” the case, eventually getting basically no real concessions from Microsoft at all. The argument that some will make was that merely being involved in the antitrust case helped clear the path by (a) distracting Microsoft and forcing it to spend a bunch of resources on fighting the DOJ and (b) by making the company more hesitant to continue its historical practices, but I’m not sure there’s much evidence to support either of those claims. Microsoft fell behind Google and Facebook because the company was structurally oblivious to the power of the internet, and when it finally realized the internet was important, really couldn’t make the necessary shifts to be a truly internet native company. Yes, it took over the browser market, temporarily, but was easily beaten back when better browsers came on the market.

The story demonstrates why promoting competition is so important: it allows new, groundbreaking companies to grow and thrive — which pushes everyone in the marketplace to offer better products and services. Aren’t we all glad that now we have the option of using Google instead of being stuck with Bing?

Again, this seems to contradict the larger message here. If Microsoft were a stronger company, then, uh, wouldn’t that mean Google had less dominance?

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.

It may be true that they have too much power. But the way to deal with that is by encouraging more innovation. A heavily regulated market… tends not to do that.

As for Warren’s actual plan, it has two steps:

First, by passing legislation that requires large tech platforms to be designated as “Platform Utilities” and broken apart from any participant on that platform.

Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.”

These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.

So, first thing on that: passing legislation is the job of Congress, not the President. And Warren is already in Congress. So if this is part of her Presidential platform, it seems like, maybe she should start by introducing such legislation now, while she’s actually in the legislative body.

Second, while “fair, reasonable, and nondiscriminatory dealing with users” sounds nice — and is used in other things such as FRAND patent licensing — it’s not entirely clear what it truly means in these situations. Everyone likes the words “fair,” “reasonable” and “nondiscriminatory,” but in the context of users on a platform, does it mean that internet platforms can no longer ban trolls for harassment? Because right now there are a lot of trollish people who are insisting that being banned from Facebook, Twitter or YouTube is unfair, unreasonable and discriminatory. Indeed, this seems like a huge gift to the trolls and grifters who pretend to be “conservative” and then whine when platforms cut them off. Certainly, at the very least this would lead to a huge burst of such lawsuits, as Warren’s plan allows basically anyone to sue over this:

To enforce these new requirements, federal regulators, State Attorneys General, or injured private parties would have the right to sue a platform utility to enjoin any conduct that violates these requirements, to disgorge any ill-gotten gains, and to be paid for losses and damages. A company found to violate these requirements would also have to pay a fine of 5 percent of annual revenue.

This is a recipe for insane amounts of litigation — often vexatious litigation, just seeking to ding a company for being “unfair” in its choices.

Incredibly, this includes “search results.” Warren specifically calls out Google search as a “platform utility,” and says that under her plan:

Google couldn’t smother competitors by demoting their products on Google Search.

And that sounds good if Google was legitimately “smothering competitors” by “demoting their products on Google search” but there’s no evidence that it does. The very nature of search is that Google is expressing its opinion by ranking the search results in the order it thinks best serves you. If it believes that your particular site is not relevant, it’s going to demote it. But, under Warren’s plan, if you’re not showing up at the top of Google results, you can sue for massive damages. In other words, SEO-by-litigation and anyone who isn’t happy with where they show up is going to sue.

Indeed, in her plan, she links to the big NY Times article about the site Foundem that has been at the center of various antitrust challenges against Google over the past decade. And, as we wrote all the way back in 2010, Foundem’s argument makes no sense. The company made a shopping search engine, and insists that it was anticompetitive that Google’s search engine kept dropping Foundem’s site in Google’s search results further and further. But the reason for that was that when people were searching on Google for products, they wanted links to actual products and not to another search engine. Foundem’s search results dropped not because Google suddenly feared competition from Foundem, but because pointing users to another search engine was a bad experience for users. Back in 2009 there was a great analysis that explained why Google downranked Foundem and it had nothing to do with competition, but because Foundem was a crappy link directory (with affiliate codes attached) that was basically just a spam site hoping to live off of Google traffic.

Now imagine if every such spam company could now sue Google for not ranking high enough? Is that really the world we want?

The second part of Warren’s plan is to break up already consummated tech merger deals:

Second, my administration would appoint regulators committed to reversing illegal and anti-competitive tech mergers.

Current antitrust laws empower federal regulators to break up mergers that reduce competition. I will appoint regulators who are committed to using existing tools to unwind anti-competitive mergers, including:

Amazon: Whole Foods; Zappos
Facebook: WhatsApp; Instagram
Google: Waze; Nest; DoubleClick

Unwinding these mergers will promote healthy competition in the market — which will put pressure on big tech companies to be more responsive to user concerns, including about privacy.

First of all, I should note that just recently lots of people were totally up in arms over Donald Trump supposedly trying to interfere with the DOJ’s analysis of the AT&T / Time Warner merger. And I’m curious if those people feel the same way about a potential President Warren announcing ahead of time — without any actual investigation by a supposedly independent DOJ — that it’s okay to declare that they should be broken up? It certainly seems like the same form of bogus interference, even if for different reasons. The DOJ is supposed to be an independent agency for a reason. We shouldn’t cheer when Donald Trump ignores that and we shouldn’t cheer when any other President or Presidential candidate does it either.

Second, while I might find myself much more supportive of a more aggressive DOJ that blocks future acquisitions by these companies, I’m not sure I see how the specifically listed divestiture plans would… do much of anything (with the one possible exception of Google/Doubleclick, which I’ll get to). While I’m sure that Amazon, Facebook and Google would grumble about breaking off all of the others, for the most part, all of the listed divestitures involve companies that were mostly left alone and run as separate subsidiaries, which don’t necessarily have much to do with any of those companies’ core business. Sure, there might be some revenue or growth hits in spinning those off, but it doesn’t really change their fundamental ways of doing business. Amazon loses Zappos? Meh. It’ll still sell lots of shoes and maybe ramp up its efforts there in a way that ends up making Zappos tough to sustain by itself. Google loses Waze? Well, it already has Google Maps which probably has more users anyway.

Facebook might be a little different, since Instagram and Whatsapp clearly seem to be a key part of Facebook’s future strategy, but at least for now they’re pretty separate.

The Google Doubleclick one could be a bigger deal, since that is a core part of Google’s business. Warren’s “plan” talks about Google buying up DoubleClick as if that were done for anticompetitive reasons, and pretending that the DOJ “waved through” the deal while ignoring the monopoly issues, leaving out the fact that it happened way back in 2007 when the marketplace was very, very different, and Google’s current position was far from certain. And while Doubleclick, as part of Google, may end up handling a lot of the ad serving market, there are tons of alternatives. The online ad market is crammed with tons and tons of companies. It’s not difficult to find confusing maps laying out the state of the market — and many companies are looking to take down Google Doubleclick, which is often seen as the provider of last resort (it works, but the quality is shit and the payouts are worse).

In other words, this entire plan gets headlines (duh) because so many people are (perhaps reasonably!) angry at the power of big tech companies. But, very little in the actual plan makes much sense. The “platform utility” idea will lead to massive, wasteful, stupid lawsuits. The unwinding of old mergers will involve interfering with an independent agency, and seem unlikely to do much to change the main “concerns” that Warren raises in the first place.

And, again, none of this is to say we shouldn’t be concerned about big internet companies with too much power. It’s a perfectly reasonable concern, but just because you want to “do something” and “this is something,” doesn’t mean that it’s the something we should do. The way to attack the positions of these big internet companies is to enable more competition — and you do that by encouraging alternatives in the marketplace. This is why I’m actually hopeful that some of these companies will actually start to explore an idea of moving to protocols, rather than owning the whole platform themselves, or that we’ll see new protocols springing up.

Meanwhile, if Warren were truly concerned about “monopolies” and a lack of competition, why isn’t her plan looking at the lack of competition in the broadband and mobile markets — cases where we have legitimate competition problems due to bad regulatory policies going back decades?

Filed Under: antitrust, big tech, breaking up, doj, elizabeth warren, fairness, internet, platform utilities
Companies: amazon, facebook, google

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