Tech giants like Amazon, Google, Facebook and Apple would be broken up under a proposal U.S. Sen. Elizabeth Warren aired online Friday.
“Today’s big tech companies have too much power — too much power over our economy, our society, and our democracy,” the Democratic presidential hopeful wrote on Medium.
“They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else,” Warren continued. “And in the process, they have hurt small businesses and stifled innovation.”
To address those perceived problems, Warren has called for the following legislative remedies:
- A requirement that large tech platforms be designated as “platform utilities” and severed from any participant on that platform;
- Appointment of federal regulators to break up mergers that reduce competition, including mergers that already have been approved, such as Amazon’s acquisition of Whole Foods and Zappos, Facebook’s acquisition of WhatsApp and Instagram, and Google’s acquisition of Nest and DoubleClick.
Major Area of Abuse
Under Warren’s proposal, a platform utility is a company with annual global revenue of US$25 billion or more that offers to the public an online marketplace, an exchange, or a platform for connecting third parties.
Such utilities would be prohibited from owning both the platform and any participant on the platform.
In addition, the utilities would be required to meet a standard of fair, reasonable and nondiscriminatory dealing with users, and not be allowed to transfer or share data with third parties.
Smaller companies that operate platforms — those with global annual revenues of $90 million to $25 billion — would be subject to the same fairness standards as larger platforms, but they could own participants on their platforms.
Warren’s proposal calls for a number of punitive measures for companies that violate the law, including a fine of 5 percent of annual revenue.
“Asking for companies that run marketplaces to avoid participation in those marketplaces is essential,” said Shane Green, U.S. CEO of Digi.me, a personal data management service in Washington, D.C.
“This is a major area of abuse and unfairness today that needs to stop,” he told the E-Commerce Times.
Breaking Up Is Hard to Do
Breaking up a company under existing law is tough, observed Joe Kennedy, a senior fellow at the Information Technology & Innovation Foundation, a public policy and technology innovation organization in Washington, D.C.
“You have to show a pattern of bad behavior that can’t easily be corrected by any other means,” he told the E-Commerce Times.
Unwinding mergers also would be difficult.
“It’s very unlikely, in my mind, that the government would win many of those cases,” said Christopher L. Sagers, a law professor at Cleveland State University.
“To the courts, the deals will seem like they’re not horizontal — they weren’t deals in which the acquiring firm and the target were in head-to-head competition selling the same product to the same people,” he told the E-Commerce Times.
Moreover, the challenges to the mergers would have to be argued before an increasingly conservative judiciary.
“The judiciary will not only have four years of Trump appointees who are not going to be friendly to these lawsuits at all, but they would end up in a Supreme Court with two Trump justices, and maybe more. So it’s not going to work,” Sagers said.
Better-Behaved Tech Giants
Warren claimed her proposal would be beneficial to small businesses and innovators.
“Small businesses would have a fair shot to sell their products on Amazon without the fear of Amazon pushing them out of business,” she wrote.
“Google couldn’t smother competitors by demoting their products on Google Search,” Warren said.
“Facebook would face real pressure from Instagram and WhatsApp to improve the user experience and protect our privacy,” she continued.
“Tech entrepreneurs would have a fighting chance to compete against the tech giants,” added Warren.
In theory, breaking up companies that dominate various markets opens the way for greater competition and potential value for consumers, including lower costs, increased choices and broader development efforts that would in new products and services, noted Charles King, principal analyst at Pund-IT, a technology advisory firm in Hayward, California.
However, “none of those benefits are guaranteed,” he said.
“Plus, if the breakups cripple the affected companies, customers could see products and services degrade,” King told the E-Commerce Times.
However, there might be some long-term breakup benefits for the tech giants, Digi.me’s Green argued.
“The proposal could very well force companies to spin off some of their businesses or change their practices — which might even be good for them longer term,” he said.
“Take a look at the benefits to AT&T, IBM and Microsoft from facing government efforts to breaking them up a few decades ago,” Green continued. “These companies benefited, as they were forced to increase competition between themselves and stop acting like monopolies.”
Rather than priming innovation, Warren’s proposal could have the opposite effect, maintained the ITIF’s Kennedy.
“Why would you build a platform if you’re going to be kicked off of it or if can’t participate on it?” he asked.
Some of the problems Warren seeks to address aren’t antitrust problems, Kennedy said. “There are privacy concerns and security concerns about protecting data — all important questions, but it makes little sense to apply antitrust to those problems.”
The open development, evolution and use of the Internet would benefit, suggested Konstantinos Komaitis, senior director for policy development and strategy at the Internet Society, a nonprofit in Reston Virginia.
He praised Warren for shining a spotlight on the problem of consolidation of the Internet economy.
However, “it’s tempting to reach for simplistic answers about the Internet’s future,” Komaitis cautioned.
“Our analysis shows, that questions surrounding this trend are more complex, and hasty interventions to consolidation could lead to unintended consequences and harm for the Internet and its users,” he told the E-Commerce Times.
One of those unintended consequences could be giving foreign competitors an edge over U.S. companies.
“If the world were just the United States, Warren’s proposal would ensure competition,” said Rob Enderle, principal analyst at the Enderle Group, an advisory services firm in Bend, Oregon.
“But the world isn’t just the United States. We compete globally,” he told the E-Commerce Times.
“If you break up the strong U.S. companies, they’ll probably be overwhelmed by foreign companies, something that almost happened to IBM,” Enderle continued. “Her plan would effectively hand the technology market to China.”