Why we can't just break up Big Tech

31 July 2020

3:01 AM

31 July 2020

3:01 AM

Yesterday was a historic day for Big Tech. For the first time, the CEOs of Facebook, Google, Amazon and Apple were forced to bend the knee before members of the US Congress, to answer questions about their monopolistic activities.

‘These platforms enjoy the power to pick winners and losers, shake down small businesses, and enrich themselves while choking off competitors,’ said the chair of the committee, Rep David Cicilline, in his opening remarks, adding that ‘Their ability to dictate terms, call the shots, upend entire sectors, and inspire fear represent the powers of a private government.’

He isn’t wrong. Silicon Valley’s largest companies pride themselves on innovation and a spirit of ‘move fast and break things’. Now the CEOs are being forced to confront some of the things they have broken.

The antitrust charge sheet against the tech titans is extensive: Amazon has squeezed out smaller retailers, Apple uses the App Store as a gatekeeper against apps that compete with its own, Google rigs search results in favour of its own products, and Facebook… well, where to begin?

Traditionally when faced with monopolies, the regulatory solution has been to break them up. In the early 20th Century, the US ‘trust busters’ broke up the railways and Standard Oil. In the 1980s, Bell Telecom was broken up into several smaller regional phone companies. And in 2000, a court ordered that Microsoft be split in two, after it tried to sink the Netscape web browser in favour of its own Internet Explorer. Though in this latter case, Microsoft settled with the government to avoid splintering, and agreed to change its behaviour.

So is it time for the same to happen again? Should the social media and tech giants be chopped into pieces for the good of competitive markets and democracy? Sadly, it may not be that simple.

I find the idea of breaking up Big Tech appealing on a gut, emotional level. I’m just as nervous about the immense economic, political and cultural power of these companies as everyone else is. I thought it was brilliant that erstwhile Democratic presidential candidate and possible VP-pick Elizabeth Warren was talking seriously about the power of big tech on the campaign trail.

But the reality is that Big Tech is different to the monopolies that came before. The idea of breaking them up raises two important questions: is it actually possible, and would it actually achieve the desired outcomes?

Let’s start with the practical ability to actually split these companies up. Take Facebook. The company paid $1bn for Instagram in 2012, and $19bn for WhatsApp in 2014, and today these two subsidiaries are enormous platforms in their own right, with over a billion users each. So could they simply be split off again?

The problem is that behind the scenes, the three platforms are tightly integrated, and share the same back-end infrastructure. WhatsApp, Facebook Messenger and Instagram’s direct message functionality are essentially different window-dressings on the same underlying code. Similarly, Facebook and Instagram share advertising infrastructure so that advertisers can appear on both platforms with ‘the click of a button’. So separating them out would be like demanding that McDonald’s sell half of its restaurants and expecting the newly-independent stores to operate without staff or supply chains.

Google and YouTube is another superficially straightforward break-up. Google bought YouTube in 2006 for $1.65bn, and today YouTube is the not just the biggest video sharing site by an enormous distance, but amusingly, is technically also the second most popular search engine in the world. On its own, it would make for a formidable new competitor in the social and entertainment spaces.

Again though, the problem of unpicking the two is hard to solve. Though YouTube may appear separate to the rest of Google, it is incredibly reliant on Google’s artificial intelligence. The recommendation algorithm, which is the backbone of the YouTube experience, is powered by Google Brain.

Simply put, while it might be moderately straightforward to divide up an oil or telecoms company by geography or business unit, when it comes to software, drawing those dividing lines is much more difficult.

Let’s imagine that – somehow – regulators did figure out how to break up Big Tech. It’d definitely feel satisfying to see Mark Zuckerberg and Jeff Bezos knocked down a peg or two, but would it actually solve anything? The problem is that in many cases, technology tends towards natural monopolies.

Take Amazon. There’s a relatively strong case for splitting the company in two: One half focused on retail and logistics that we all know about, and the other on Amazon’s less well known web services platform. Amazon Web Services (AWS) actually provides the bulk of the company’s profits, and is today a critical part of the web that we all take for granted. It provides much of the technical infrastructure and plumbing that keeps huge swathes of services online, from Netflix to Twitter to Facebook.

Now imagine Amazon was split into two separate companies. On the one hand, you would still have AWS as the dominant cloud computing platform, and on the other Amazon the retailer would still have a chokehold on online retail. In both of these markets, the problem wouldn’t change: both markets would have one single company as the dominant player.

Even if regulators took an even more granular approach it wouldn’t necessarily work. Imagine if Amazon was banned from selling its own goods on its platform (another frequent criticism of the company). In this case, Amazon would still control its digital marketplace platform as a whole, and would be able to set rules for its own benefit, at the expense of sellers using the platform.

The natural monopoly is perhaps most clear for Facebook. Imagine if Facebook and Instagram were somehow separated. What’s to stop Mark Zuckerberg from launching a brand-new photo-sharing app, and then using his 2 billion strong Facebook app to drive users to it?

This is exactly what he did when Facebook was unable to buy upstart rival Snapchat: instead of giving up, Facebook built a version of Snapchat’s ‘Stories’, and today Snapchat is virtually irrelevant. It’d be a much tougher fight if Facebook were forced to fight a billion-user strong Instagram, but ultimately Facebook would probably win, because social networks are made more powerful the more people they have on their platform. Winning begets winning, and Facebook is still a long way ahead of any potential rivals.

And finally, most counterintuitively, there could even be instances where a single company having a monopoly is actually a good thing.

The major criticism of Apple at the hearing yesterday was over the App Store and its policies. Apple has very strict rules over what apps are allowed in the store, and what they are allowed to do. The criticism is that they use these rules to freeze out and take advantage of other companies. For example, apps that want to offer subscriptions or payments through their iPhone apps must give Apple a 30 per cent cut.

One solution to this would be for regulators to say that it is unfair for Apple to only allow one App Store. Just as two decades ago Microsoft was forced to let users choose between Internet Explorer and Netscape, why not force Apple to let anyone run whatever apps they choose on iPhone? Or install other app stores? Sure, it would conceivably mean there is more competition and more choice for consumers, but it would have significant unintended consequences for security.

As things currently stand, the App Store is the best security you could hope for on a computing device. Only apps that have been vetted by Apple can be installed on your phone, so there is no need to worry about viruses or malware. If you download an app called ‘Netflix’ from the App Store, you can be confident that it is indeed the real Netflix app, and that there won’t be any nasty surprises. If the floodgates were opened, and Apple were to lose control of this process, then suddenly the devices that contain our entire digital lives would be significantly less safe. Sometimes having one, all-powerful entity can actually help us.

Ultimately then, there are no good solutions to dealing with Big Tech.

What makes it particularly vexing is that sometimes the terms of the argument are not even clear. The companies involved are actually very different to each other. They have different business models, are collaborators in some markets, and competitors in others. Market forces have created an equilibrium, where each of the four big players have sewn up some sectors, but lag dramatically behind in others.

As Rep Cicilline put it, ‘Because these companies are so central to our modern life, their business practices and decisions have an outsized effect on our economy and our democracy.’

The solutions – for there won’t only be one – are clearly going to involve hands-on regulation. But perhaps channelling the spirit of Silicon Valley, that regulation will have to be much more innovative than antitrust laws.

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