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Author: Tan KW   |   Latest post: Wed, 24 Apr 2019, 10:03 AM


Liz Warren: I'll smash up Amazon, Google, and Facebook – if you elect me to the White House

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'They’ve bulldozed rivals, used our private info for profit' ... yes, yes, but could she actually tackle giants as prez?

Analysis US presidential contender Elizabeth Warren has vowed that if elected she would break up Amazon, Google, and Facebook, accusing the internet giants of abusing their market power.

"Today’s big tech companies have too much power," Senator Warren (D-MA) wrote in an essay published on Friday. "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."

The high-profile Dem, best known for her fierce criticism of banks in the aftermath of the economic crisis, is outlining her main policy ideas in a crowded field of Democratic 2020 presidential hopefuls.

Although Washington DC has discussed action against large tech companies for several months in the aftermath of a slew of scandals, Warren is the first person to directly advocate for breaking them up.

She offers the antitrust actions taken against Microsoft in the 1990s as a template for breaking up the next generation of tech giants, and argues that Facebook, Google and Amazon in particular are using their dominance in one market to carry out anti-competitive actions in others.

Her approach would see tech platforms designated "platform utilities" through legislation and then any arms of existing companies that operate on top of those platforms could be broken away from the main utility.

Platform utilities would not be allowed to transfer or share data with third parties, and the designation would be applied to any company that has a global revenue of $25bn of more and offers a public marketplace, exchange or platform.

So, for example, Amazon would be allowed to continue to own and run its dominant ecommerce platform – which accounts for an extraordinary 50 per cent of ecommerce in the US. But would not be allowed to own its Amazon Basics and Amazon Marketplace products, which compete with others on the platform and, according to Warren, have a clear competitive advantage.

Likewise, Google Search would be designated a platform utility and so the company would be required to break off its Google ad exchange.

Mergers and acquisitions

A second related action would see mergers viewed as anti-competitive blocked and in some cases unwound. Warren lists some specific examples: Amazon and Whole Foods, Zappos; Facebook and WhatsApp, Instagram; Google and Waze, Nest and DoubleClick.

"I will appoint regulators who are committed to using existing tools to unwind anti-competitive mergers," she wrote, arguing: "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."

And to make the actions stick, Warren proposed a European GDPR-style fine of five per cent of annual revenue (which is actually larger than the GDPR maximum of four per cent.)

It is a bold position – and one that marks Warren out from her competition. And, naturally, it has already picked up fierce opponents and defenders.

Think-tank the Competitive Enterprise Institute (CEI) called the idea a "doomed regulatory experiment" and claimed there were no current barriers to entry in the internet space.

Likewise, tech trade group NetChoice – which includes many tech giants amid its members – said that Warren's ideas would "increase prices for consumers, make search and maps less useful, and raise costs to small businesses that advertise online."

In defense of the plan there is Public Knowledge, which argued that "the time has come to engage in a serious debate about sector-specific regulation of digital platforms" and said legislation that focused on increasing competition on digital platforms was needed.

And internet advocacy group Demand Progress tweeted its support, arguing that "momentum is building to take back our democracy from the tech giants. This is a landmark proposal whose time has come."

So... good idea, or not?

The two big questions surrounding Warren's proposal are: is it needed? And is the best way to achieve it?

There is little doubt that something needs to be done to pull back what have been clear abuses of market power. Facebook has become a law unto itself and has repeatedly abused its users' trust when it comes to sharing personal data, yet feels sufficiently empowered to continue its behavior, misleading lawmakers and users and in some cases outright lying about its actions.

The reason Facebook is able to run roughshod over the clear concerns of users and legislators is its near total dominance of social media: there is no easy alternative to its service for connecting and sharing information online.

Facebook is not like Google search or Amazon's marketplace however: despite its determined efforts, Facebook is still not a place people go to buy products and so there is little chance for it to edge out third parties.

Warren claims that Facebook willingness to buy and takeover any company that threatens its dominance in its market – WhatsApp and Instagram being the obvious examples – has resulted in people simply not bothering to create possible alternatives to Facebook.

For some reason, she doesn't mention Snapchat – a viable competitor that has seen its most original ideas copied almost instantly by Facebook as a way of blocking its growth. And while VCs used to throw money at startups in the hope they would one day get bought by Google or Facebook, that approach does appear to have ended – or at least slowed considerably. Facebook is now more likely to copy and squash a competitor than take it over.

If nothing else, the fact that Facebook has been shown to be a morally bankrupt company and yet users constantly opine that they don't really see an alternative is a sign that the market is distorted.

But the question is whether Warren's approach is the right one. Privacy legislation that obliges Facebook to not abuse its position could be just as effective and wouldn't rely on the federal government deciding how markets should be structured.

Alphabeti spaghetti

Google is a different animal. It has already broken itself apart to some degree when it became Alphabet. But there is significant evidence that Google has used its own systems to beat out competition. There was a time when a startup could come up with a great system for, say, movie tickets and expect Google to buy them.

Now Google just assigns a team to develop the same product and kills the market the moment any competitor puts the service live, because it has the ability to put its products front and center. Likewise, reviews and Yelp.

Yelp is not the nicest company in the world, pressuring companies to pay it if they want bad reviews to go away for example, but it is a useful service. Google has methodically undermined its service by offering and promoting its own review service, somewhat aggressively in the case of Android phones.

And, of course, there is the financial powerhouse behind Google – the ability to sell ads above and alongside its search results. The company has a clear incentive to promote those companies that pay it more, and it has complete control over that process. Just ask the many millions of people who have paid Google to run ads and then been informed that their ad wasn't performing as well as Google wanted, so it has decided not to run your ads.

And then of course there is the fact that Google – and Facebook – have such complete dominance over what people on the internet see that they approach the rest of the world with the perspective of "what they can do for us," rather than chasing business. A clear indicator of a distorted market.

Google, for example, won't consider - even for a second - paying news outlets for using their content. It expects to be able to grab and use it for free while making money by running ads alongside. And when countries have implemented laws to force compensation, the tech giant – which makes over $100bn a year in revenue – simply shut down its service.

YouTube makes its money from running ads alongside other people's content. It decides how much the people that actually create the content get paid and it is unafraid of imposing its own policies at a second's notice – such as when, earlier this month, it unilaterally decided to remove all comments from millions of videos because of a problem it has with properly policing its systems. Some exceptions were made – which it decided.

The real problem

But by far in a way the most obvious target for anti-competitive behavior is Amazon, which has used its total dominance of the ecommerce market to distort just about every aspect of buying or selling online.

Nowhere is that clearer than in the fact that many, very large, companies sell their products on Amazon as well as through their own website. It's a situation that makes zero sense unless you assume that Amazon is abusing its dominant position, it is almost always cheaper to buy a product on Amazon than to purchase it from the company directly. And while that is great news for the consumer, it is clearly not a competitive market.

Again, though, does Warren's proposal to create "platform utilities" - with companies forced to run them fairly and equitably and forced to sell off any arms that work off that platform - make sense?

In one sense it does, but it is also not a traditional American approach. When Congress can't even decide that internet provision should be viewed as a utility, like telephone lines, then it seems very unlikely there will be general agreement that platforms built on top of the internet should be legally designated "platform utilities."

What would be a good move – and which plays to Warren's strengths and knowledge – would be to bolster and strengthen existing federal regulators to come down harder on companies that are anti-competitive.

Ah, yes, lobbyists

But that, of course, is where the biggest distortion in American life comes in: regulators are increasingly impacted by the lobbying power of large corporations, in large part because the political parties get to decide who heads up the regulators and who is in overall charge.

The back-and-forth over net neutrality at the FCC, where the basic rules over internet provision have repeatedly changed depending on which party is in the majority is perhaps the clearest example of how partisan politics has infected every part of government.

The irony is that Warren's plan could only be implemented if Democrats took control of all the levers of power. And as a result, the moment one of those levers were lost, as would be inevitable, there would be a push to reverse the plan.

Something does need to be done about the overweening power that Big Tech currently possesses and while Warren's plan provides a nice, clean approach, the reality is that any real plan will be far messier and scrappier.

It will be interesting to see whether Warren's approach is supported or emulated by other Democratic presidential hopefuls. But if she were to be honest about it, Warren knows that this plan is a non-starter but it does play to her strengths and clearly she is trying to get make a connection with younger voters who will be far more engaged in digital markets than older voters and could prove vital to winning the Democratic candidacy.

Warren is heading to the South by Southwest festival in Austin, Texas this weekend whether festival goers will get to listen to Cool Aunty Liz tell them why they should vote for her. ®


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