The Rise of the Giants
Introduction
The amazing growth of 3 giants of Social Media – Amazon, Google and Facebook has spurred an envious interest in the way these organizations interact with general public and how each tech giant conducts its business. Over the past few years, a wave of public sentiment has been pouring against how these companies work. These companies are known as tech giants and not without reason. Each one of these companies dominates and captures lion’s share of the market in their respective segments. Amazon is the number 1 online retailer, Google is the undisputed leader in online searches and monetizing those searches, while Facebook is the topmost social media platform.
The secretive business practices at these 3 tech giants have swelled up public imagination and piqued powerful lawmakers alike. The swirling anti-tech giant sentiment has risen to the level that politicians are now actively indulging in riding the wave of popular sentiment. Just this last week, Elizabeth Warren, 2020 Democratic presidential candidate and Massachusetts senator, proposed “big, structural changes” to the tech sector, including breaking up Amazon, Google, and Facebook. Warren believes that Big Tech has amassed too much power, citing statistics showing almost half of e-commerce goes through Amazon, and more than 70% of all internet traffic goes through sites operated by Google or Facebook. “They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else,” Warren alleges.
Its not just the business practices that have caused this level of concern. The real reason many suspect these companies have become such hotbeds of popular discourse are three-fold. First and foremost is the way these tech giants capture, store and use private information and data from their virtual billions of users worldwide. Second, is the amount of power they wield in their individual domains, where they have an absolute monopoly; monopoly that they seek to maintain through actively seeking and ruthlessly chasing smaller firms for buyouts or mergers. And last but not the least, actual business practices at these firms have raised many eyebrows in the past and they continue to do so.
The issues highlighted above lead to a lack of trust given the non-existent transparency maintained by the tech giants in their business dealings. Perhaps most importantly, it is this lack of trust that has swelled up the entire or at the very least, most of the sentiment against the tech giants.
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Causes of concern – Monopolies and Antitrust redefined!
The government’s antitrust case against Microsoft helped clear a path for Internet companies like Google and Facebook to emerge,” Warren wrote. But its becoming evidently clear now that the companies that flourished in the wake of the Microsoft antitrust era have, themselves, become too powerful, she argues.
There is little doubt that Consumers and users across the world love these tech companies. However equally well, citizens, workers, entrepreneurs and lawmakers are beginning to recognize that their power is troubling. Broader consensus is shifting to that the need for a new framework, a new vocabulary for how to assess and address the newfound dominance of today’s tech giants. There is a growing concern that the current structure of antitrust laws, how the Antitrust laws are understood and applied is grossly insufficient to the current technology age and today’s tech giants.
A century ago, in the Gilded Age, waves of mergers led to the creation of some of the biggest companies in American history — from Standard Oil and JPMorgan to the railroads and AT&T. In response to the rise of these “trusts,” Republican and Democratic reformers pushed for antitrust laws to break up these conglomerations of power to ensure competition.
Current Antitrust regulations are focused on protecting consumers’ interests, stemming from the definition of Antitrust developed in 1970’s. Much of the consumers’ interests are seen as price protection, hence as long as consumers are getting the best deals and best prices, Antitrust regulators would largely choose to stay out of the way of those giant corporations.
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Amazon burst on to the scene at the time when online retailing was in its nascent stages and quickly redefined the entire online retail marketplace. The retailer overwhelmingly dominates online commerce around the world, employs more than half a million people and powers much of the internet itself through its cloud computing division. Amazon today has more revenue than Facebook, Google and Twitter put together, but it has largely escaped sustained examination.
Since Amazon is renowned for its low prices and reasonable quality of goods with an above average customer service, it largely stayed out of net of any untoward attention from regulators which kept it safe from any kind of federal or regulatory intervention. Over the years, Amazon has amassed so much of critical ass that today it powers an entire ecosystem of its own. Amazon has gathered so much data on millions of customers in so many countries that it rivals Google and Facebook in terms of data collected. And that’s not where it ends. It is so willing to forgo profits in the aim of seeking market share, and it does so in such an aggressive manner that the sellers selling their goods on its marketplace regularly go under. Amazon just doesn’t take a cut from the sellers and re-sellers selling goods on its platform. It requires sellers on its platform to maintain the inventory as per its own standards, not as per their own interests and business models. In addition, Amazon freely copies the best-seller products, sources those from manufacturers directly and launches its own brand selling the same product against the other sellers on its platform, thereby competing directly against them. And it doesn’t end here. Many retailers using Amazon’s platform allege that Amazon’s own brand of products are promoted over their brands when an user searches for a particular product. Amazon has so many distinct advantages from its distribution centers, shipping and warehouse infrastructure that it exerts an influence much broader than its market share. The thousands of retailers and independent businesses that must ride Amazon’s rails to reach customers through Amazon’s marketplace are increasingly dependent on Amazon, who most of the times turns out to be their biggest competitor.
A company that sells things, competes against others selling things, and owns the entire platform where those things are sold and how those are sold, inherently has the biggest possible advantage in the game. And that advantage isn’t going anywhere anytime soon. If anything the advantage is getting consolidated over time as more and more independent sellers are pushed out of the way.
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In a similar way, Google captures and stores nearly every single click by billions of users every single minute, hour and day. The massive stores of data are stored, managed and used in a way where even the Google’s current customers are not immune to unwilling participation in the data collection activities.
Google is almost completely vertically integrated. Google has its own infrastructure pretty much every step of the way. As an example lets look at an user using simple search function. The person searching can use a Google web browser, chrome. The client can be running on Chrome OS, a Google-owned operating system or android, Google’s mobile operating system. The client's network connection can travel through the Google gigabit end-user fiber, to and transit to a google data-center entirely over Google infrastructure. The Google data-center is owned and operated by Google. Inside the data centers, Google servers (probably consumer hardware and linux, but perhaps with some Google-esque twists) use Google proprietary software to crawl and index the web, and store the index and snippets. At the end of search query, ad results are selected from the Google owned search advertising system, and assembled along with search results.
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In addition to this vertical integration, Google has significant breadth. Google drive for cloud storage, Google docs for working with documents and spreadsheets, Google picture storage systems, music, software shops, book distribution, and on and on.
Keeping aside the consumer-price benefit perspective, there is a broader consensus across the regulators and federal agencies around the world that companies operating in their respective jurisdictions need to be subject to increased scrutiny. The Antitrust laws and understanding of those laws which was rooted in deep suspicion of concentrated private power, is now often seen as the one promoting concentration of market influence and power.
‘The truth is that many watchdogs and advocacy groups regard Google and Facebook as out of control,” Jonathan Compton, a partner at DMH Stallard in the U.K., says. “The deeper problem is what to do about it. Even if you make the decision to regulate the big platforms, and that is an issue in itself involving freedom of expression, how can those platforms regulate their content when they have two billion or so users?”
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While there are many varied complaints against the business practices of tech giants, these seemingly myriad of complaints can be categorized under broad buckets as below.
- Collection of users data
- Maintenance of collected users data
- Stifling of competition through acquisitions and mergers
- Restricting competition through restrictive trade practices aimed at disadvantaging competition.
- Closed-door B2B Data deals and data-sharing throughout the world
- Automation and growing control over lives
Over the last 10 years, the five largest tech companies have made more than 400 acquisitions globally. None of these acquisitions have been blocked, even the significant ones like Amazon’s acquisition of Whole Foods, and only a small number have had conditions attached for approval.
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Retributive actions by regulators
Regulators and governments around the world have been taking notice of the trends. Many governments are now actively evaluating and questioning how competition policy needs to be updated to rein in monopoly platform power that the tech giants have accumulated and help smaller technology innovators get out from under the shadows of these tech giants.
Until recently, no one worried about Amazon, Facebook, Apple, Google or Twitter either. Now people from varied backgrounds - politicians, the media, academics and regulators are throwing in millions to research new ideas and tossing around those ideas that would, metaphorically or literally, cut them down to size.
The US Justice Department’s securities fraud unit began investigating Facebook for the first time in 2017 after reports that Cambridge Analytica, a political consulting firm, had improperly obtained the Facebook data of 87 million people and used it to build tools that helped President Trump’s election campaign.
In another case, Facebook came under major storm when it was learnt that it was giving people between the ages of 13 and 35 a payment of $20 per month plus referral fees for access to their digital phone and web activity. Facebook is able to access this data after users install a "Facebook Research" VPN app. Facebook began shutting down the program however Apple pulled the plug on it thereby creating a major embarrassment for the tech giant. The program was run through three third party firms - Beta-testing services BetaBound, uTest and Applause. These firms helped distribute the app, and didn’t initially mention Facebook’s involvement on the sign-up pages for the social media study. Only Applause did so and that too conditionally in case of minors.
Before shutting down however, Facebook was able to view web searches, location information, private messages in social media apps, and other data of the users participating in the study. The study's participants were even asked to screenshot a page showing what they ordered from Amazon, according to TechCrunch.
In a landmark ruling announced June 2017 that was hailed as a major victory against Alphabet, the EU’s antitrust watchdog fined Google €2.4 billion ($2.7 billion) for manipulating search results to favor its own shopping services over those offered by competitors. The fine is the largest antitrust penalty issued by the European Commission (EC), which gave Google 90 days to give “equal treatment” to competing services in its search results.
Almost 13 months later, in a judgement announced 18 July 2018, EU regulators slapped Google with a record 4.34 billion euro ($5 billion) antitrust fine for abusing the dominance of its Android mobile operating system, which is by far the most popular smartphone OS in the world. The primary charge against Google and its parent company Alphabet was that both companies unfairly favored its own services by forcing smartphone makers to pre-install bundle of Google apps, Chrome and Search, through its app store, Google Play. The commission also said that Google violated competition rules by incentivizing phone makers to limit users’ choices through exclusively pre-installing Google search on all devices and prohibited manufacturers from selling phones that ran modified, or "forked," or in other words those versions of Android not authorized by Google or Alphabet Inc. In its decision, the EU commission cited Apple, Google's number one competitor in the smartphone market, saying the smartphone maker did "not sufficiently constrain" Google. Apple also pre-installs a number of apps on its iPhone models.
In response to the EU’s $5 billion antitrust ruling, Google announced changes to the way apps are bundled on Android phones and charge a licensing fee for phone manufacturers that want to pre-install apps like Gmail, Maps and YouTube in the EU market. Google also announced an end to restrictions on phone makers selling modified or "forked" versions of Android, thereby agreeing to offer users’ more choices vacating its previous position. Previously, Google tied together a bundle of 11 apps that phone makers needed to pre-install if they wanted to license Google app store. Overall, Alphabet’s Android powers more than 80% of the smartphones sold in the world. The changes announced by Google in response to the ruling, only affect phones for the EEA, European Economic Area, a group consisting of 28 EU countries, plus Iceland, Liechtenstein and Norway.
In its third and most recent blow against Google, Google has been fined €1.49bn ($1.7bn) by the EU for advertising violations, bringing the total amount the tech giant has been fined to just under $10 billion over the past two years. "The EC has fined Google €1.49bn for illegal misuse of its dominant position in the market for the brokering of online search adverts," said EU commissioner Margrethe Vestager. "Google has cemented its dominance in online search adverts and shielded itself from competitive pressure by imposing anticompetitive contractual restrictions on third-party websites. This is illegal under EU antitrust rules. The misconduct lasted more than 10 years and denied other companies the possibility to compete on the merits and to innovate – and consumers the benefits of competition."
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In addition to its two antitrust probes into Google’s AdSense service and Android operating system, European officials have in recent years launched tax avoidance investigations into Apple, Amazon, and Starbucks.
In august 2016, South Korea’s antitrust regulator it is looking into whether Google has violated the country’s anti-competition laws, acknowledging formal scrutiny of the global internet search company for the first time.
In Dec 2014, Google announced that In order to avoid liability under the new law, Google is both shuttering Google News in Spain and removing Spanish publishers from the other international News sites. Spanish regulators introduced legislation in 2014 that would force Google to pay to publish content from Spanish publishers on its Google News in Spain.
An independent report commissioned by the UK government to examine how competition policy needs to adapt itself for the digital age has concluded that tech giants don’t face adequate competition and the law needs updating to address what it dubs the “novel” challenges of ‘winner takes all’ platforms.
The report released just yesterday, also recommends more policy interventions to actively support startups, including a code of conduct for “the most significant digital platforms”; and measures to foster data portability, open standards and interoperability to help generate competitive momentum for rival innovations.
In US, Federal prosecutors are getting hot on Facebook’s data deals. The prosecutors, who have already subpoenaed records from at least two prominent makers of smartphones and other devices, are conducting a criminal investigation into data deals Facebook struck with some of the world’s largest technology companies. Facebook is accused of entering into partnerships with both the companies in order to provide the companies broad access to the personal information of hundreds of millions of its users. The agreements, allowed the companies to see an user’s friends, contact information and other data, sometimes without explicit consent. Facebook has phased out most of the partnerships over the past two years.
Rep. David Cicilline (D-RI) called on the Federal Trade Commission to open an investigation into Facebook on the grounds of possible violations of anti-monopoly law. Cicilline, who heads the antitrust panel on the House Judiciary Committee, is one of the central lawmakers overseeing federal anti-monopoly policy. Cicilline sent a letter to the Federal Trade Commission’s (FTC) five commissioners, writing that the agency should investigate Facebook’s acquisitions of rivals Instagram and WhatsApp, its “exclusionary conduct” in relation to former competitors like Vine, and alleged abuses of its monopoly power connected to Facebook’s “widespread commercial surveillance” of its users.
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How Tech giants are reacting
In the wake of European Commission's $5 billion antitrust ruling, Google immediately announced its compliance with the regulations. Google announced its plan to satisfy regulators by separately licensing Chrome and the search app. Google also announced separate licenses for its suite of other apps, including the Play store, Gmail, YouTube, Maps, and more. Phone manufacturers could license and pre-install that app suite without licensing and pre-installing Chrome or Search. However, these changes did not mean that Android’s market share or Google’s revenues were going down any time soon. Google says that including Search and Chrome with its other apps funded its development of Android, so to offset the lost revenue, it's introducing a new licensing fee. An OEM that wants to install any of Google’s products, whether the Play Store or Chrome or anything else on any phones sold in the European Economic Area will have to pay up. This payment, or licensing fee is reported to be as high as $ 40 per device for high end devices, based on confidential "fee schedule" documents. However, unnamed sources also said that Google offers OEMs separate agreements to cover some or all of the Google suite licensing costs —but only if the manufacturer chooses to pre-install Chrome and Search as well. And so, the status quo largely remains the same: Android phones that come with Google Play Store will also include Chrome and Search. Android OEMs still have to pay Google to install a non-Google search engine by default.
Experts also warn that beyond a point, the practice of levying fine can become counterproductive. Antitrust scholar Lina Khan, who was recently brought on as a committee staffer on FTC, said “recidivists like Facebook should face remedies that change the operation & incentives of the firm.” After repeated offenses, “cost-of-business fines are not enough.” That if the outcome of every antitrust investigation is a fine, then fines themselves, no matter how impressive those may sound, cease being a deterrent and rather become a cost of doing business for the firm/s involved.
Google has chosen to appeal all the three cases where EU has imposed a fine against it or its parent company Alpahbet, Inc. And that is largely the model which is followed. The pace of events in technology today rather render waste any effort to curb such practices as by the time regulators following conventional Antitrust and monopoly policies reach any conclusion, the ground realities have all but changed.
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The Way Forward
The tech industry overall, and tech giants in particular have has thrived over the past two decades thanks in part to little government regulation and intervention of any kind. These tech giants were largely left to themselves, to define not only their business practices and strategies, rather the whole ecosystems were left at their mercy. The tech companies however contend that this has allowed them to develop products that benefit consumers, like free internet services and online shopping.
Today’s big tech companies, commonly called tech giants, have amassed too much power — far too much power over our economy, our society, and our democracy. This amount of power is disproportionate to any legitimate business needs. These tech giants have bulldozed competition, often resorting to their market power and burgeoning purses to run in to ground any competitors’ efforts to compete meaningfully. These tech companies have funded massively powerful lobbying firms, using those to tilt lawmakers’ opinions and the political power in their favor. They have used private information for profit and continue to do so, all the while tilting the playing field against everyone else. And in the process, they have hurt small businesses and enterprises and stifled innovation.
For some time now, activists world over have been complaining about the slow pace of Antitrust investigations. Critics argue that existing Antitrust and competition laws cannot keep up with the fast pace and rapid growth of the tech industry. By the time authorities issue a verdict, the concerned company has already moved on, or the underlying technology has changed and marketplace dynamics have changed. For example, in the most recent EU fine against Alphabet Inc for abusing its market dominance by imposing restrictive clauses in contracts with third party websites, Google had changed its ways well before this fine was imposed. As the EU itself pointed out, Google stopped the illegal practices linked to the latest charges a few months after the regulatory body issued a so-called Statement of Objection back in 2016. But the fine was levied as the practices went on for 10 years, denying other companies the chance to compete and innovate, and not giving consumers any choices.
The tech giants are innovating new technologies and new business models. The remedy is new thinking that is informed by traditional principles.
Lina Khan recommends that perhaps it “could make sense” to treat Amazon’s e-commerce operation like a bridge, highway, port, power grid or telephone network — all of which are required to allow access to their infrastructure on a nondiscriminatory basis.
It would follow then that there is lesser need to break up big tech giants. The need is to rather provide smaller firms autonomy to practice their craft with unrestricted, nondiscriminatory and unbiased access to the same platforms.
“The FTC is facing a massive credibility crisis,” said Mr Cicilline in an accompanying New York Times op-ed, arguing that the agency had “enabled Facebook to extend its dominance” by failing to take action in the past. “Even a fine in the low billions of dollars will amount to a slap on the wrist,” said Mr Cicilline in the op-ed, pointing to the company’s massive scale. He argued the FTC needed to seek “deep reforms” of Facebook’s business model, corporate structure and even its board and executive leadership.