Breaking up Big Tech: you’re doing it wrong

break up big tech
US Senator Elizabeth Warren on the campaign trail, March 8, 2019. Image credit: lev radin / Shutterstock.com

Senator Elizabeth Warren wants to break up Big Tech companies – but her plan for doing so seems focused on the wrong problems.

Last month, US Senator and presidential candidate Elizabeth Warren vowed that if she wins the 2020 election, one of her goals is to break up Big Tech companies like Google, Facebook, Amazon and Apple that she says have become too big, too powerful and anti-competitive.

Senator Warren has been talking about this for a couple of years, but now that she’s running for President, she’s put forward an actual proposal, which you can read here.

Basically, Senator Warren wants the US Congress to reclassify Big Tech platform companies as “platform utilities”, which would require them to provide “fair, reasonable, and non-discriminatory” access to users, and prohibit them from transferring or sharing data with third parties. Platform utilities that make more than $25 billion in global revenues would also be prohibited from offering their own services that compete against platform users.

Senator Warren also plans to appoint regulators to force Amazon, Google and Facebook to divest already approved mergers she deems anti-competitive, such as Amazon and Whole Foods, Facebook and WhatsApp/Instagram, and Google and Nest.

Naturally there’s no end of debate as to whether her plan is workable. For my money, the fact that it requires Congress to designate Big Tech companies as utilities pretty much ensures the plan will never get off the ground – not in the current hyperpartisan political environment, which will still exist even if the Democratic Party keeps control of the House and wins back the Senate in 2020.

Assuming the plan clears that basic hurdle, the real problem with the breakup plan is that it’s a retro solution to a thoroughly modern problem. Senator Warren compares the situation to past monopoly bust-ups like the railroads and AT&T, where the network was structurally separated from other businesses and non-discriminatory access to the network was required.

In those cases, the value was in the network. Senator Warren’s plan assumes the Big Tech platform is the equivalent of the network – but that’s not quite right, because the value isn’t created just by the platform, but by the services vertically integrated into that platform, as well as the big data powering those services. Consequently, divorcing services from the platform (and prohibiting both sides from sharing data that the services would need to make maximum use of the platform) reduces the overall value of both.

Put simply, splitting up a Big Tech platform company isn’t that straightforward compared to breaking up a 1980s telco monopoly. The parts that Warren wants to separate are so tightly integrated that ripping them part could damage the whole ecosystem.

Apples and oranges

Another flaw in Warren’s plan is that it treats Amazon, Google, Facebook and Apple as though they’re basically structured the same way and operate the same way – but they’re not and they don’t.

As Ben Thompson writes in Stratechery, Warren’s proposal makes a number of incorrect assumptions about how Big Tech companies operate and how they became dominant to begin with. For example, Warren’s proposal argues that Big Tech firms became dominant by using mergers to limit competition, but Thompson points out that Big Tech companies were already dominant in their respective fields before they started making the acquisitions Warren wants to dissolve.

None of this is to say Big Tech firms don’t engage in anti-competitive behaviour, writes Thompson, but if a forced break-up is the remedy, Warren’s proposal mostly focuses on the wrong things. The real antitrust issues with Big Tech lie in areas such as digital advertising and contracts (i.e. Google forcing OEMs to use its version of the Android OS and bundle its browser and search engine into their devices). Thompson does agree with Warren that Big Tech’s acquisition strategies are anti-competitive, but the problem there isn’t things like, say, Amazon buying Whole Foods, but Facebook buying rival social networks like Instagram.

Meanwhile, Kevin Roose notes in the New York Times that Warren’s proposal misses two other areas where Big Tech has an unfair market advantage – cloud computing (particularly Amazon), and the so-called “app tax” (the fee that Apple and Google charge developers to put their app in their respective storefronts).

There’s also the question of whether a forced break-up is necessary to achieve a more competitive marketplace, which is another column in itself – suffice to say many of the issues above could be addressed with regulations that surgically target the unfair practices in question, though it’s also possible their size alone might make them immune to regulatory incentives.

In any case, while there’s no doubt that Big Tech companies display the characteristics of anti-competitive monopolies, and this is overall not a good thing, I’m not convinced Senator Warren’s plan would fix that.

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