Regulators are coming after Amazon, Apple, Facebook, and Google, and it could get ugly. The companies would benefit by acting preemptively.
FROM WIRED | JUNE 10, 2019
Rumblings about the role of Big Tech in American society have coalesced into a storm long coming, with revelations that the Department of Justice and the Federal Trade Commission are contemplating sweeping antitrust investigations of Facebook, Google, Amazon, and Apple.
At any point in the past few years, these companies could have acted preemptively to head off the storm. Europe’s privacy rules, which took effect last year, were surely a warning. Now there’s a greater imperative for them to act, to forestall government mandates to break up or radically change their models. By acting preemptively, the companies can better shape the outcome, and their ultimate fates.
As recently as a decade ago, Big Tech enjoyed widespread cultural acclaim. In the wake of the financial crisis of 2008–09, when bankers were the villains who nearly brought down America, tech and Silicon Valley were seen as rare bright spots in the American economic firmament, their founders and executives extolled as heroes.
But the winds have shifted, so decisively that Congress, too, is joining the act. One prominent lawmaker has announced hearings about anti-competitive practices that are hurting consumers, and presidential candidate Elizabeth Warren has already called for the break up of the large firms, saying that they “have too much power over our economy and our democracy.”
These concerns appear a rare area of bipartisan agreement, enjoying support among both Republicans and Democrats. Polls suggest that Republicans see tech companies as pushing a liberal agenda, and Democrats see regulation as essential to protect against rising inequality and erosion of democracy. In a time when bipartisanship is almost as rare as cats and dogs sleeping together, this consensus should make Silicon Valley very afraid.
It is, of course, possible that this wave will crest without much happening. But no industry that has grown large and powerful in the US has escaped regulation, and the tech companies may prove no different.
Honestly, the companies should have seen this coming and done something years ago. Now, they need to consider moves that would once have seemed utterly unnecessary. One company that may escape the fray is Microsoft, largely because it already survived an effort to break it apart by the Justice Department beginning in the late 1990s.
So, what could be done? For one, Amazon and Facebook could voluntarily break up. Amazon could divide itself into two companies: its core retail business and Amazon Web Services, which provides cloud-computing services. Some Wall Street analysts have previously suggested such a move. AWS would command a premium valuation because of its profit margins and growth rate; the resulting companies could be more valuable than Amazon is today. Yes, the retail business is less profitable, and posted an operating loss as recently as 2017. But perhaps being separate would force Amazon retail to stop competing on price with hardline retail, leaving it more cash to invest in warehouses and distribution. As a side benefit to the nation, this also might slow the erosion of traditional retail businesses.
It’s not as if breaking up is radical or impossible. Industrial companies have been spinning off units for years. Honeywell, a large industrial conglomerate, has spun off multiple large divisions; DowDuPont, created by a 2017 merger, is now splitting itself into three independent companies. The difference is these companies aren’t controlled by a founder billionaire like Jeff Bezos, who has spent decades building Amazon and has shown little interest in such changes.
As for the others, Facebook could separate Instagram and WhatsApp from its core app, as early employee Chris Hughes recently suggested. The total value of the resulting companies might not change much, but the control of personal data surely would. Google could create distinct businesses in mobile, search, and Google X; admittedly, X might not be very attractive as a public company, as it depends on profits from the other units to fund its moonshots, absent a commercial breakthrough such as self-driving cars. And Apple could separate the App Store and services business from its core business selling devices. A recent US Supreme Court decision allowing an antitrust case against Apple to proceed hints that the company may be forced to consider such plans.
None of these moves would be culturally or financial simple, but they wouldn’t be unprecedented either. One could argue cynically that turning four Big Tech giants into 10 or 12 Big Tech giants would not, in the end, do much to address concerns about the industry’s power and influence. It would, however, change the atmosphere around regulation, and perhaps avert changes that could be disruptive in ways we can’t foresee.
At the same time, these and other tech companies such as Palantir, Uber, Square, and PayPal, could create meaningful consortiums to address public concerns around the collection, control, and use of data. There is good precedent for self-regulation in other industries; financial services firms worked in concert to create self-regulatory bodies such as FINRA, which establishes rules that are then endorsed and overseen by the SEC.
Such self-regulation might force some companies to reconsider business models offering “free” services for free data. But these companies were founded on continual innovation. Shouldn’t that innovation extend to their business models? And while the owners and managers have a fiduciary duty to shareholders, avoiding onerous litigation and costly regulation is very much a fiduciary responsibility.
Countless other ideas would emerge if these companies recognized the urgency of the moment and chose to act, both individually and collectively. Apple is trying to turn itself into the “privacy company,” which is both right and wise, but that alone won’t address concerns about the App Store monopoly and whose content can live on its platform. Facebook avows that it has learned from the many hits of the past two years, but for now its avowals are louder than actions.
What is needed, then, is the kind of recognition that comes after an intervention, an awareness that things cannot and should not continue as before. There is scant indication of that happening yet; if it does not, today’s forays of presidential candidates and government regulators will seem benign in retrospect. For a set of organizations that preach a mantra of doing good for society, they could do no better good just now than in rethinking their structures and models to suit the world going forward and not just their gated franchises.