A better way to break up big tech

AUSTIN, Texas — Among the techies who attended the annual South by Southwest Interactive conference the past few days, the hottest topic of conversation — besides the swarms of drunken idiots careening around Austin on rented electric scooters — was Sen. Elizabeth Warren’s ground-shaking proposal to break up large tech companies like Amazon, Google and Facebook.

In her proposal, which she released on the eve of the conference, Warren argued that these companies have abused their power and harmed competition in two big ways.

The first is by offering their own products on services they control: Amazon giving preferential treatment to its house brands, or Apple promoting its own apps inside the iOS App Store. Warren, D-Mass., a presidential candidate, argues that the companies should be required to do one or the other — sell their own goods or run a third-party marketplace — but not both.

“You can be an umpire or you can own teams,” she said. “But you can’t be an umpire and own one of the teams that’s in the game.”

Warren also argues that by acquiring potential competitors, as in Facebook’s purchases of Instagram and WhatsApp, large tech companies have made it harder for smaller startups to compete on fair terms. She proposes appointing regulators who would undo such mergers and break up the conglomerates.

Regulating big tech is quickly becoming a central theme of the 2020 presidential race. Sen. Amy Klobuchar, D-Minn., Sen. Bernie Sanders, I-Vt., and others have also talked about the need to rein in the tech giants. And Warren has demonstrated more technology literacy than most elected officials.

But many of the tech-industry insiders I spoke with in Austin, including some who agree with Warren that the big companies are too powerful, cautioned that some of the details in her proposal were too vague and could backfire if put into effect as written.

Warren’s plan is a bold first stab at reform, and some of her proposals make a lot of sense. But I’d offer a few edits:

Apply specific fixes to specific problems. One shortcoming in Warren’s plan — and it’s an understandable one, given that this is a campaign proposal and not a finalized set of rules — is that it proposes broad solutions to narrow problems.

Lawmakers don’t typically craft regulations for individual companies. That’s for good reason: A law that specifically targeted Amazon, and not its competitors, would be seen as creating an unfair double standard.

Instead, Warren’s proposal targets technology companies with more than $25 billion in annual revenue that operate third-party marketplaces — a group that includes Apple, Amazon, Facebook and Google — and proposes rules that apply to all of them, as well as any companies that meet the threshold in the future. (Microsoft, which makes more than $25 billion in annual revenue and has a third-party marketplace in the form of the Windows app store, was somehow spared.)

The problem with applying a one-size-fits-four model to tech, as the industry analyst Ben Thompson has written, is that the large tech companies have different business models that pose different anticompetitive risks. The stranglehold Google and Facebook have on the digital advertising market is different from the way Amazon muscles out e-commerce brands, which is different from the way Apple uses its app store to force burdensome terms on developers.

The possibility of unintended consequences means that tailoring regulations to address each of these problems is important. A law that banned Amazon from competing with third-party sellers on its service could also threaten Chromebook laptops, or prevent iPhone users from accessing their iTunes libraries.

Rather than one giant package that crams everything together, a set of effective tech regulations would treat each problem discretely, and address each with surgical precision.

Split off cloud businesses. Warren proposes having big tech companies split off significant chunks of their businesses, like separating Google’s ad operations from its search engine. But she does not mention one of the clearest examples of oligopolistic behavior in the tech industry: cloud computing.

Right now, much of the internet is powered by infrastructure owned by a small number of giant tech companies that includes Amazon, Microsoft and Google. These companies make a killing by renting out data storage, computing power and other essential services to other businesses, essentially selling the picks and shovels of the digital gold rush.

The cloud-computing market may not seem like an obvious antitrust target. It is highly competitive, and years of price wars between the giants have driven the costs of these services down. Doesn’t giving young startups the ability to rent world-class infrastructure make it easier, not harder, for them to compete?

Yes, it does. But the concentration of critical infrastructure among so few companies — each of which also operates enormous consumer-internet businesses of its own — gives those companies enormous power, and invites anticompetitive abuse.

For example, let’s imagine that Amazon CEO Jeff Bezos decided to sabotage Netflix, which runs on Amazon Web Services, Amazon’s cloud-computing unit, in order to help his company’s streaming video service. He could theoretically tell the Amazon Web Services team to slow Netflix’s traffic, or analyze its usage patterns to determine which Netflix shows Amazon’s streaming-video team should copy.

To be clear, Bezos is extremely unlikely to do that, given that it would be a scandalous violation of Amazon’s privacy policies and would cost the company a lucrative customer. But the reality that companies with dominant internet services also provide the infrastructure that powers much of the consumer internet is a clear example of the kind of market consolidation Warren is trying to address.

An effective breakup proposal could require companies like Amazon, Google and Microsoft to spin their cloud-computing divisions off into stand-alone businesses, in a manner similar to the one Warren proposed for breaking up e-commerce marketplaces. To adapt her baseball analogy, tech companies would either play on the team or own the stadium, but not both.

Get rid of the “app tax.” Another easy, specific fix would be to stop Apple and Google, the makers of the two dominant mobile operating systems, from taking unfair advantage of mobile app developers.

At the moment, any company that wants to sell in-app purchases or subscriptions through an iOS app must pay what software developers derisively call the “Apple tax”: a fee of 15 to 30 percent that Apple skims off the top of in-app purchases and subscriptions bought by users. (Google’s mobile app store charges similar fees.)

These fees add up quickly. Before it removed in-app subscriptions last year, Netflix was paying Apple an estimated $700,000 a day for the privilege of selling subscriptions in its app. And some competitors have begun to complain that these services’ strict developer policies amount to bullying. On Wednesday, Spotify filed a complaint with the European Commission over Apple’s app store policies, arguing that they unfairly stifle competition.

Apple and Google would argue that their fees are justified, because operating an app store requires hiring reviewers and security teams and all kinds of other expenses. But these companies have monopoly control of their own mobile universes, and they have used that power to set up virtual tollbooths that suck billions of dollars a year out of the pockets of smaller competitors.

Don’t get lured into a censorship debate. Something bizarre happened Monday, when Facebook momentarily took down several of Warren’s Facebook ads promoting her proposal to break up big tech. Warren seized on the episode, saying it was proof of Facebook’s ability to “shut down a debate” over its power.

The ads were quickly reinstated, and Facebook made it clear that the removal was not a case of politically motivated censorship. The company has a long-standing policy that limits the use of Facebook’s name in ads, a measure that is mostly meant to prevent sketchy advertisers from claiming falsely to be “Facebook’s official quiz game” or whatever.

But the idea that Facebook would censor one of its prominent critics was irresistible to politicians, including conservative lawmakers like Sen. Ted Cruz, R-Texas, who have spent the past several years complaining that social media platforms are engaging in partisan censorship.

“She’s right — Big Tech has way too much power to silence Free Speech,” Cruz wrote of Warren in a message on Twitter.

One problem with the debate over the tech companies’ power is that it risks conflating real anti-competitive behavior (like Facebook shutting off data access to competitors) with imaginary abuses (like Cruz’s unsupported claims that social media services are biased against conservatives). The former is a real menace; the latter is a bad-faith attempt to work the refs and preserve a partisan advantage. But in political discourse, both can be framed as proof of the need for “neutral” services.

The best advice I could possibly give Warren, or any other Democrat hoping to bring big tech to heel, is to focus squarely on competition, and to avoid getting sucked into partisan debates about content censorship.

The worst outcome of a push to regulate big tech companies would be a set of rules that made it easier for people to exploit these companies’ power, while leaving their fortresses intact.

Kevin Roose is a New York Times writer.

(Excerpt) Read more Here | 2019-03-17 00:02:00
Image credit: source


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.