Elizabeth Warren is coming for tech companies. And that means more time and money spent fighting regulation instead of funding innovation.
FROM WIRED | MARCH 9, 2019
So, it finally happened. A leading American politician has said aloud what many have been whispering: It’s time to break up Big Tech. Democratic presidential candidate Elizabeth Warren just fired the opening salvo and called for the federal government to take action: “Today’s big tech companies have too much power— too much power over our economy, our society, and our democracy. They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.” To remedy that, she is proposing that Facebook, Google, and Amazon be broken up, and that any company with more than $25 billion in revenue be designated a “platform utility” and be regulated accordingly.
Whether you think this is a great idea or a terrible one, it is highly unlikely that this issue is going away. And whether or not Elizabeth Warren makes it to the top of the Democratic presidential ticket, this issue is bigger than her ability to get first-mover attention. US representative Jerry Nadler of New York has already begun to prepare his Judiciary Committee, under the leadership of David Cicilline of Rhode Island, to probe anticompetitive consolidation in the tech industry, building on Nadler’s earlier observation that companies like Facebook “cannot be trusted” to regulate themselves. And of course, the populist backlash to Amazon’s New York headquarters plan indicates the public’s growing unease. Big Tech is patient zero for the plain truth that vast agglomerations of money and power, combined with highly opaque business practices and little government oversight or accountability, does not tend to fare well in democratic societies.
It is certainly true that the current framework of antitrust laws does not work well for the new technology behemoths. The laws were designed to break up labyrinthine corporations that stifle competition and harm consumers by virtue of market share and size. Amazon is huge, but it does not dominate any one of its many verticals; it is an e-commerce giant, but e-commerce is still only a partial share of overall commerce (less than 20 percent). Google and Facebook dominate online advertising market share, but they do not dominate overall advertising market share. Apple has a massive ecosystem of phones, tablets, computer, and apps, but it is nowhere near close to dominant market share in any of those. Antitrust as it is currently structured is not designed to address the particular challenges created by the sudden rise of Big Tech over the past two decades.
But that should not give much comfort to those who think that these efforts to regulate and break-up will fall short. To begin with, government is perfectly capable of adapting to new forms of business by inventing categories that are then regulated. Prior to the passage of the Sherman Antitrust Act in 1890 and then the Clayton Antitrust Act of 1914 (the foundational laws for our current antitrust regime), there were no “vertically integrated monopolies” or anticompetitive corporations. Those concepts were invented and defined because of a widespread perception—accurate or not—that companies of a certain size and organizational structure served the interests only of their owners and shareholders and harmed that of workers and the public good. Google et al might not fit the mold of industrial conglomerates of the late 19th and 20th centuries, but legislatures with the wind at their backs surely can and will create new categories in order to justify new regulations. Warren’s salvo is simply on opening statement.
It’s also questionable whether Big Tech is at all prepared for this coming onslaught. Tech companies appear complacent that because so much of what they offer is either free or helps consumers obtain goods and services for less cost and with less friction, they are not and will not be subject to antitrust actions. They have tended to argue that their business models are in service of consumers, as evidenced by more supply of more things at lower cost. For much of the past two decades, public attitudes have supported that, more or less. Judging from the wave of negative press, damaging stories and increasingly loud rumbles in Congress, people may finally be realizing the cost of these free services.
Hence, 2019 might be for tech what 2008 was for the big banks: the inflection point when public attitudes turned aggressively negative and demand for regulation grew. The regulation of banks that followed the financial crisis has in many respects been the worst of all possible outcomes: the big banks have become bigger while simultaneously stifling competition and becoming less profitable and less innovative. Something similar for tech-land, where the pace of change is by nature faster and the need for innovation much greater, could permanently dampen the ability of the US to remain globally competitive. We aren’t yet at a Dodd-Frank moment for Big Tech, with massive new regulatory oversight, but Warren’s manifesto should serve as a warning.
Yes, the larger technology companies are very adept at the art of lobbying regulators in Washington or important state capitals such as Sacramento. That is not the same as maintaining their social license to operate, the unwritten but crucial buy-in of users and stakeholders without which no company can thrive at scale for long. For instance, in Amazon’s negotiations of HQ2, it did well working with Albany, but not so well at all dealing with the messier public relations of working with actual people in actual communities to convince them that their needs would not be ignored. Facebook has been doing its best to educate US lawmakers about privacy settings and their business model, a campaign that hasn’t worked so well with European regulators and which has done little to offset growing public disenchantment with Facebook. Neither company saw their revenues dented quite yet, but like banks and cigarette companies before them, Big Tech would be in denial if it believes that the same couldn’t happen to them.
Many of these businesses have thrived because they’ve made so much so much more attainable for so many, and by a general sense that they were making our world better. Their social license to operate has deepened over time, but like reputation and trust, what takes years to build can be squandered quickly. Once attitudes turn negative and accelerate in that direction, they tend to grow in intensity before dissipating. Warren might be the loudest of the wake-up calls to date. And hers may well be one of the last before the discussion of the proper size and influence of Big Tech, of the pros and cons of size and scale, is driven not by those who see the immense importance and potential of these companies but by those who see them as a threat. In no way we will be better off in a regulatory regime designed by those who see these companies as a danger, which means that these companies must respond by intensive engagement with their customers and truly understand their very real concerns. If they don’t, they will be forced to spend immense time and money reacting to regulations instead of building for the future. And none of us will be the better for it.