Big Tech Vs. Washington: A *Virtual* Showdown or a Thud?

So much has been written about why Amazon, Google and Facebook have become so successful.

The reasons for success these journalists, professors, analysts and so on mention are endless: they’ve all built outstanding products that we love to use. They’re obsessed with the customer/user experience. They’ve nailed product/market fit. You get the picture.

And yes, those are all nice and inspirational. But the companies also had some help along the way… from the government.

See kids, there once was a company so big and so powerful that it could have thwarted any power that today’s giants have been able to obtain. It was because of decisions made in the federal government to tame that behemoth that some of today’s bigshots, which seem invincible today, have been able to reach the pinnacle of success.  

What firm am I talking about? Microsoft.

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To learn more, let’s go back to the 1990s. At the time, Microsoft was by far the most dominant technology company on the planet. It was like Amazon, but 10 times as ominous (cue scary music with Bill Gates doing the laugh at the end of Michael Jackson’s Thriller). 

As the company became more powerful, there were concerns that it was engaging in anti-competitive practices. There were a lot of elements, but the main concern centered on Internet Explorer, a browser automatically installed on a Window’s operating system. If you wanted a separate browser, you would either need to download it (which was allegedly difficult to do, I was a little kid so I don't remember) or you would have to go to a Circuit City or CompUSA or wherever to buy it.

Clearly, this gave Microsoft a huge advantage in the marketplace. And as the company continued to grow, it was able to crush rivals such as Netscape into oblivion.

Eventually, the federal government took on Microsoft. After a lengthy lawsuit that lasted several years, the U.S. District Court ruled in 2001 that Microsoft was to be broken up into two distinct companies: one that developed the operating system and another that developed the software components. An appellate court later overturned that breakup decree, but Microsoft settled and allowed other software firms (like Google) to have access to Windows.

What would have happened if the rulings went the other way? Who knows for sure, but it’s fair to say that Microsoft would have probably been deeper in the spaces that other large tech companies occupy now. Googling something? We’d perhaps be Yahooing it. And Chrome would only be short for the element “chromium.” In an even wilder scenario, MySpace and Sears.com could have been default services for Windows.

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As Microsoft’s power was curbed, Facebook was formed, and Amazon, Google and Apple (let’s call them the Big Four) began their massive growth trajectory. As for how much the Microsoft antitrust rulings had to do with the growth of the other technology firms is debated (that iPod thing could have helped Apple), but most tech experts agree the verdicts were at least a medium-sized catalyst to the Big Four’s success.

But fast forward to 2020. The Big Four are now facing their own antitrust scrutiny. Below are a few highlights:

• Google has faced fines of 8.25 billion euros ($9.66 billion) from EU regulators in recent years for favoring their own services in search results over competitors. Google denies these accusations.

(That sounds like a big fine, right? Well, I took a look at the company's most recent balance sheet, and it shows more than $117 billion in cash, cash equivalents and marketable securities on hand. So, not exactly in immediate danger of bankruptcy.)

• In September, 47 attorneys general from across the U.S. opened up investigations into whether Facebook used its dominance in the social media realm to misuse consumer data and jack up advertising prices. Facebook denies these accusations.
• Both the U.S. (federal and some states) as well as the EU have launched investigations into whether the Apple’s App Store violates antitrust regulations. Of concern is the 30% fee it takes from app developers after each purchase. Apple denies that this practice is uncompetitive, notes that it only takes money from a small number of apps, and the 30% is less than what StubHub and Ticketmaster take when people purchase tickets.
•  And just this Friday, the Wall Street Journal wrote an article (paywall) detailing how some startups would meet with startups about an investment or acquisition (surprise, Amazon denies these accusations). As part of the due diligence process, it would gain all sorts of information about the company. Then it would launch a competing product/service.  

(I also wrote about Amazon’s impending antitrust issues here.)

Those are just scratching the surface. Every few days, I feel as though I read about one of the big tech firms using anticompetitive practices. 

On Wednesday, the CEOs of Facebook, Alphabet (Google’s parent company), Apple and Amazon will head to Capitol Hill to testify in front of the U.S. House. These four firms are now considered, by far, the most powerful firms in the technology industry (Microsoft could be grouped in that category too, but they’ve shifted much of their focus to the enterprise space).

Why did I spend so much time discussing Microsoft? During the height Microsoft’s dominance, Gates was called before Congress to testify about the company’s practices. Some say that hearing, where Gates raised his right hand and often appeared uncomfortable answering Senator’s questions, was a turning point in Microsoft’s quest for world power.

Could these four firms represented on Wednesday be having their Microsoft moment?

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Ah yes, the economy. It’s hard to overstate the importance of this. Since the COVID-19 crisis, the top tech firms have been doing well – at least when looking at their stock price (the senior leadership derives most of its compensation through stock). Below is the change in share price over the last six months, courtesy of Yahoo Finance:

Alphabet: +3.36%

Facebook: +6.73%

Apple: +16.67%

Amazon: +61.63%

Amazon is doing so well, Jeff Bezos’s net worth is more than the market cap of nearly half of the companies on the Dow Jones Industrial Average. Meanwhile, unemployment during the COVID-19 crisis is at the highest levels since the Great Depression.

Does the success of these companies coinciding with bloodshed of economic fortunes of tens of millions of Americans mean that these companies have violated antitrust laws? Nope. But Congress is not an independent court – it’s a political body representing the American public. So expect that economic disconnect to serve as a backdrop for the hearing.

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So about that hearing. I’ll be watching a few things closely on Wednesday:

Will members of Congress make an ass out of themselves? A couple years ago, the U.S. Senate had the opportunity to ask Mark Zuckerberg very pointed about the Cambridge Analytica fiasco. Instead, the hearings were overshadowed by senators who had not even the simplest understanding of how the business operated. This exchange between Sen. Orrin Hatch and Mark Zuckerberg pretty much summed it up:

Oh the smirk seen round the world! Zuckerberg 1, The World’s Most Deliberative Body 0. Hopefully, members of Congress have decided to do a little more preparation this time around.

How does going virtual change the process? I’ve never witnessed a congressional hearing that was conducted virtually, so I don’t really know what to expect. That said, I think this benefits the tech CEOs. There won’t be any pictures of the executives raising their right hands. We’re less likely to see beats of sweat coming from Tim Cook’s head during an uncomfortable question. Also, given the CEOs are testifying as a group, the outrage (real and faux) will be shared more broadly. Simply put, this feels a little bit more low pressure.    

Does legislation follow? Congress is part theater, part oversight and part legislative. On Wednesday, the first part is a given, and we’ll probably see some of the second. Whether Congress gets around to the third part remains to be seen.

The challenge here is that although all these big tech firms have their fair share of antitrust issues, each company is actually very different. Different that separate laws would probably need drafting to check their power. So although this hearing might provide valuable insight to legislators, laws changing how these companies operate is probably a longer-term endeavor.

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Whether this hearing is the beginning of fundamental change to how these companies operate or whether this is a small hiccup on the quest for world dominance remains to be seen. Nevertheless, come Wednesday, I’m going to be wearing my comfiest pajama pants, popping a giant bowl of popcorn and anxiously watching an exciting afternoon of congressional testimony.

Expect a follow up post on Thursday!

Now it’s your turn! How do you think the hearings are going to go? Comment below on your thoughts. Also, did you like what you read? Check out some of my other articles below:

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