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Congress made a lousy case for breaking up Big Tech

Lawmakers tried and failed to prove that tech companies monopolize digital markets.
October 9, 2020
sundar testimony

The long-awaited tech antitrust report that the US Congress released on October 6 presents a remarkably flimsy case for action against the nation’s most innovative and competitive companies.

The report’s main recommendations would do very little to solve real social problems caused by technology, like misinformation and election interference, because these problems aren’t related to competition. And by narrowing its focus to the technology sector, the House Antitrust Subcommittee missed an opportunity to look at parts of the economy—hospitals, insurance providers, food producers—where consolidation and competition are genuine concerns.

In the 451-page report (pdf), more than a year in the making, legislators attempted to answer a seemingly straightforward question: Are Amazon, Apple, Facebook, and Google engaging in anticompetitive practices that government agencies aren’t able to punish under current laws? And if so, what changes should Congress make?

While the report describes a few genuine cases of unfair conduct by the platforms, many of the “problems” it identifies are merely complaints from companies that have been outcompeted. But harming competitors to benefit consumers (by lowering prices, for example) is the very nature of competition.

Most important, the report does not contradict these key facts about the US tech industry: prices are falling, productivity is rising, new competitors are flourishing, employment is outperforming other sectors, and most Americans really like these companies.

Disappointingly, the much-ballyhooed document is riddled with factual errors. For example, it claims that “a decade into the future, 30% of the world’s gross economic output may lie with [Amazon, Apple, Facebook, and Google] and just a handful of others.” But the source for that statistic, a study by McKinsey, actually said that by 2025 (not 2030), revenues from all digital commerce (not just by the Big Four and a few others) might reach 30% of global revenues.

To put in perspective how misleading the report’s original claim was, consider that the combined annual revenue last year of Amazon, AppleFacebook, and Google represented only about half a percent of global economic output. Such a blatant error is conceivable only in a piece of work that first assumed its conclusion (“Big Tech is taking over the world”) and worked backward from there. There are dozens of other examples like this.

The good

Let’s start with what’s good about the report. It calls for increasing the budgets of the Federal Trade Commission (FTC) and the antitrust division of the Department of Justice, which is long overdue considering that their combined budgets have fallen by 18% (pdf), in real terms, since 2010. If regulators do not have the resources to properly enforce the laws on the books, it’s no wonder that some lawmakers will start calling for changes to those laws.

The report also recommends requiring the FTC to collect more data and report on the state of competition in various sectors. And it says the FTC should conduct retrospectives to study whether its past decisions to approve or block mergers were correct. These kinds of studies are also long overdue and would make enforcement officials better at their jobs.

The FTC is currently engaged in a special review of every acquisition by the Big Five tech companies (those listed above, plus Microsoft) over the last decade. That process should be extended to other sectors and repeated on a regular basis.

Lastly, the report’s proposals for how to increase data portability might work very well for simple forms of data (such as a user’s social graph), which are easier to standardize. If consumers can easily take their data along with them, it will be easier for them to switch to new platforms, giving startups more incentive to enter the market.

The bad

Unfortunately, the report’s primary recommendations would do far more harm than good. The signature proposal is to force dominant platforms to separate their business lines. Chairman David Cicilline, a Rhode Island Democrat, has called this a “Glass-Steagall for the internet,” referring to the 1933 US law (repealed in 1999) that divided commercial from investment banking.

In effect, this proposal would break up tech companies by separating the underlying platform from the products and services sold on it. Google could no longer own Android and offer apps like Gmail, Maps, and Chrome. Amazon could no longer own the Amazon Marketplace and sell its own private-label goods. Apple could no longer own iOS and offer products like Safari, Siri, or Find My iPhone. Facebook could no longer own social-media platforms and use personal data to target ads to users. The upshot is that these moves would destroy tech companies’ carefully constructed ecosystems and make their current business models unviable.

Of course, if this proposal is adopted, there will be many edge cases. Is the iPhone’s flashlight feature part of the operating system or is it more akin to an app? At this point, a flashlight feels like a standard feature of any phone. But not long ago, users had to download third-party apps to achieve that functionality.

As research from Wen Wen and Feng Zhu shows, when an operating system owner like Apple enters a product vertical (such as flashlight apps), third-party developers shift their efforts to other, more difficult-to-replicate app categories. So is adding a flashlight to the OS really anticompetitive behavior from a dominant platform, or is it pro-consumer innovation that leads to better allocation of developers’ time?

The consumer

To justify its proposals, the report would have needed to find a smoking gun (or two). It didn’t. In general, the leading tech companies produce enormous benefits for consumers.

In general, the leading tech companies produce enormous benefits for consumers.

Prices for digital ads have fallen by more than 40% over the last decade, and those savings flow through to consumers in the form of lower prices for goods and services. Prices for books have fallen by more than 40% since Amazon’s IPO in 1997. And Apple’s App Store takes the exact same cut (30%) as other platforms, including PlayStation, Xbox, and Nintendo. In fact, once you account for free apps, effective commission rates in the App Store are in the range of 4% to 7%.

The report’s authors massage the statistics to make tech companies look like monopolies even though they’re not by conventional measures (defined as having greater than two-thirds market share, according to the Department of Justice). They’re all very large businesses, but generally accepted data shows they don’t meet that standard. Amazon has 38% of the e-commerce market. Fewer than half of new smartphones sold in the US are iPhones. In the digital ad market, Google has a 29% share, Facebook has 23%, and Amazon has 10%.

What’s more, consumers themselves say they benefit greatly from the products and services that these companies build. Research in the Proceedings of the National Academy of Sciences has shown that, on average, consumers would need to be paid $17,530 per year to give up search engines, $8,414 per year to give up email, and $3,648 per year to give up digital maps. Meanwhile, the price to access these services is typically zero.

The competition

One of the main themes of the report is that these platforms have become so powerful no new companies dare to challenge them (and no venture capitalists dare to fund potential competitors). Several recent examples belie that notion.

Shopify, which is mentioned only in passing, is a $130 billion e-commerce company that powers more than one million online businesses. The company was founded in 2006, and the stock has risen roughly 1,000% over the last three years. Its most recent earnings report (pdf) showed that total gross merchandise volume on the platform is more than doubling year over year. (By contrast, Amazon’s GMV is growing by about 20% annually.)

To show Facebook’s dominance in the social-media market, the report includes an outdated chart (on page 93) comparing global monthly active users across the leading platforms. The chart puts TikTok at around 300 million monthly active users. But TikTok is a much more formidable competitor to Facebook than the report’s authors seem willing to admit: it recently announced that as of July, it had nearly 700 million monthly active users worldwide. On the same day the report was published, the investment bank Piper Sandler released a study showing that TikTok had surpassed Instagram as US teenagers’ second-favorite social-media app (behind Snapchat).

Zoom is another competitor that’s glossed over in the report. The subscription-based company faced an uphill battle against incumbents such as Google that offer videoconferencing for free (or bundle it with other productivity software). The report notes that in response to Zoom, Google tried to boost its own videoconferencing product, Meet, by introducing a new Meet widget inside Gmail and adding a prompt for Google Calendar users to “Add Google Meet video conferencing” to their appointments.

How have these moves affected Zoom? The company increased its number of daily meeting participants from 10 million in December 2019 to 300 million in April 2020, and its stock is now seven times higher than it was last year (reaching a market valuation of almost $140 billion).

Those aren’t just a few outliers. As Scott Kupor, a venture capitalist at Andreessen Horowitz, pointed out, startups have been booming over the last 15 years in the US. According to data (pdf) from PitchBook, the total annual number of VC deals increased from 3,390 to 12,211 between 2006 and 2019. Deal value increased from $29.4 billion to $135.8 billion. The number of deals at the earliest stage of investment—angel and seed rounds—rose by about a factor of 10 over the same time period (to 5,107 deals worth $10 billion in total value in 2019).

What’s next?

Granted, all the data presented here doesn’t rule out future antitrust cases against the tech companies. The Justice Department and some state attorneys general plan to launch an antitrust case against Google in the coming weeks. The FTC is likely to file suit against Facebook before the end of the year.

If those cases go to court, more sophisticated economic modeling based on non-public data might show that prices would have fallen even faster—or there would have been an even bigger startup boom—had the tech giants in question not been so dominant. But such an outcome would only prove that even if these companies really do harm competition, we don’t need major changes to our antitrust laws to hold them accountable.

To be sure, the scale and scope of tech platforms have created novel problems that our society needs to address, including issues related to privacy, misinformation, radicalization, counterfeit goods, child pornography, the decline of local news, and foreign interference in our elections. But instead of wasting taxpayer resources on a misguided crusade to break up our most innovative companies, Congress should consider passing measures like these:

  • Comprehensive federal privacy legislation that addresses the gaps in our current sector-based approach (and avoids the pitfalls of the EU’s General Data Protection Regulation and California’s Consumer Privacy Act).
  • Sunshine laws like the Honest Ads Act that help prevent foreign interference in future elections and make digital political ads more transparent.
  • Reform for the intellectual-property dispute process to reduce the prevalence of counterfeit goods online and prevent tech giants from copying genuinely innovative products.
  • Direct subsidies for the provision of local news, funded via broad-based taxes.

Unfortunately, changing our antitrust laws as the House Judiciary Committee recommends would fix none of the social issues caused by Big Tech. Each problem needs a targeted regulatory solution, not the big stick approach of "break them up."

Correction 10/10/20: We've updated the author's bio to include companies discussed in this piece that are also donors to the Progressive Policy Institute.

Alec Stapp is the director of technology policy at the Progressive Policy Institute, a center-left think tank based in Washington, DC whose donors include Amazon, Facebook, and Google.

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