Listen to this story
After witnessing decades of unfettered growth and ever-increasing influence and power, consumers have understandably fallen a little out of love with the tech industry. Nor does it help that tech has at times been acting like America’s abusive boyfriend — mishandling data, violating user privacy, policing closed ecosystems. What was once an adoring relationship has flipped to distrust — and, sometimes, outright hate.
The undeniable power of these platforms and the tech giants that build them has prompted a wave of regulation that started in Europe with the General Data Protection Regulation and is poised to crash onto U.S. shores.
To my mind, regulation is deserved and reasonable. Politicians, however, can’t resist going further, turning tech companies into political footballs. One politician in particular — senator and Democratic presidential candidate Elizabeth Warren — is ready to play ball with a single-minded strategy: Break them up! In doing so, however, she may inadvertently dismantle years of economic and technological progress in the name of regulation.
Warren’s master plan for unwinding years of tech consolidation is the sharp snap at the end of the techlash whip.
Warren’s master plan for unwinding years of tech consolidation is the sharp snap at the end of the techlash whip. I could almost see the millions of fists shooting up into the air when Team Warren posted its manifesto to break up big tech on Medium last week. I groaned when I saw the on-the-nose headline and as I read some of the article’s frankly ignorant lines.
After detailing Microsoft’s efforts to dominate the internet in the 1990s by including Internet Explorer with every copy of Windows, Warren adds as an aside: “Aren’t we all glad that now we have the option of using Google instead of being stuck with Bing?”
Here’s a tech history lesson for the senior senator from Massachusetts. Microsoft launched Bing years after the company had decoupled Internet Explorer from Windows (albeit under government pressure). Bing was built in an effort to compete with Google — which really does have an effective monopoly on internet search. Also, Senator Warren, Bing is a perfectly decent search engine!
Her praise for Googling notwithstanding, Warren’s post also targets Google, Amazon (which she accuses of copying successful products outright), and, of course, the easy target that is Facebook. Notably, she left out Apple, although when asked by the media about whether that company should be able to sell its own apps on its App Store, Warren didn’t hesitate to swing her anti-trust ax.
“So, it needs to do one or the other,” Warren responded on MSNBC’s Morning Joe. “Either it runs that platform, the App Store, or it’s selling its own products on the App Store, but it doesn’t do both of those simultaneously. Because whenever it does, it has this enormous competitive advantage that wipes out all the other little businesses.”
At another point, Warren used a sports analogy to explain her issues with companies owning platforms and the businesses on those platforms.
“You can be the umpire—that’s the platform—or you can have a team in the game that’s running these individual businesses that meet on the platform,” she said. “But you don’t get to do both simultaneously. So, I think those ought to be broken apart.”
Perhaps not coincidentally, Warren’s statements echo an argument that the music-streaming service Spotify recently made against Apple. The Stockholm-based company filed a complaint with the European Commission arguing that it is impossible to compete fairly against Apple because Apple effectively owns both the store and a major Spotify competitor, Apple Music. In an accompanying blog post, Spotify CEO Daniel Ek calls Apple’s 30 percent fee a “tax” and a “discriminatory tariff.” He also expresses frustration that if Spotify’s premium service doesn’t use Apple’s payment system, the company can’t communicate with or market to its customers through the Spotify app on iPhones.
“The competition issue here is not black-and-white.”
In an animated video the company posted, the company echoes Warren’s case, arguing that in both owning the App Store and running Apple Music, Cupertino is acting as both tennis player and court line judge. (This is a case of European versus American sports analogies.) Even though Spotify claims to hold no direct ill will toward Apple, the animation does make the company look particularly nefarious.
So, is Apple taking unfair advantage of its competitors?
“The competition issue here is not black-and-white,” Greg Francis, managing director at Access Partnership, a global public policy consultancy for the tech sector, tells me. The issue is more complex, he adds, because there are other content rights holders involved here beyond Apple and Spotify—namely the artists creating music and, through their representatives, enabling the relationship with Apple.
Both Warren and Spotify’s Ek call Apple’s 30 percent cut on all App Store transactions a “tax.” But as I’ve written before, a tax implies a charge on top of the listed price of goods or services. In the case of App Store transactions, consumers see only one price and so do not recognize a post-sales tax.
“The idea of tax is a bit of nonsense,” Francis says. The 30 percent that Apple charges app makers “is the cost of doing business.”
While Apple didn’t respond to my request for comment on Spotify’s claims, it did post a lengthy answer on its website. Apple calls Spotify’s claims misleading and says the music-streaming service wants the benefits of being in the App Store—and drawing revenue from it—without paying its own way. From the post:
Spotify seeks to keep all the benefits of the App Store ecosystem — including the substantial revenue that they draw from the App Store’s customers — without making any contributions to that marketplace.
The question of competition and control is intertwined with size and scope. Regardless of industry, companies with symbiotic technologies and market strategies tend to pool together like mercury. They get larger and shinier and inevitably consolidate control. For more than a century, government and watchdog groups have kept tabs, seeking to manage natural industry expansion and contraction without stifling growth and innovation. As Warren sees it, big tech has gone well beyond acceptable levels of size, reach, and control.
Fundamental to the question of whether tech companies have gotten too big or powerful is how their existence affects innovation, especially in the startup space. According to Warren, first financing rounds for tech startups have tumbled 22 percent since 2012. That stat contradicts a recent CrunchBase report on tech venture capital, which identified 2012 as “a year of superlatives: the most amount of money invested in the highest number of private tech company financing events on record; the largest venture capital deals in history.”
Warren insists these big tech companies are hurting the startup community by duplicating competing products and acquiring companies and technologies they cannot easily build on their own. In my experience, though, the preferred endgame for some startups is acquisition. I don’t see a lot of long faces when a small tech firm gets bought up by Apple, Google, or Amazon. Eero, for example, sounded almost gleeful when Amazon absorbed its mesh networking hardware business.
There was some concern with existing Eero customers (including me) about how Amazon might change the brand, technology, or privacy protections, and Eero has sought to reaffirm its commitment to privacy. We’ll have to see how that plays out.
It’s hard to find anyone — including the leaders of Facebook, Google, and Apple — who does not, at least grudgingly, support some form of tech regulation, which most people expect to arrive over the next year. But Warren’s strategy takes the notion further, layering on the assumption of guilt and giving local governments and consumers new rights to sue and even the right to block products or services from the marketplace.
Warren’s point of view works only if you paint these companies as evil. But for all the bad press tech has gotten recently, there’s not much evidence that Americans view big tech companies negatively.
“I don’t think the average individual regards tech as malevolent,” says Francis, who regularly advises governments and companies in developing and executing public affairs strategies. Even as some consumers support Warren, Ek, and others railing against the largest tech companies and their alleged monopolies, most people cannot live without their smartphones and the services on them — nor would they want to.
Warren has some legitimate points. Facebook, in particular, has played fast and loose with consumer data across a broad swath of its products — most recently in storing hundreds of millions of user passwords in plain text for years. Was it done maliciously? Probably not. Carelessly? Absolutely. What’s more, Spotify and Warren do have a point about Apple. The company cannot deny its viselike dominion over the App Store, a strategy that controls millions of apps and affects billions of users, or the fact that it develops and owns multiple apps that compete directly with apps and services in its store.
On the other hand, I can’t think of a single supermarket that doesn’t stock its shelves with its own brand of cereal, juice, meats, and frozen pizza. These products are invariably cheaper, if not always better. As far as I know, no one is seeking to stop ShopRite from selling its store-brand chicken next to Perdue’s.
What if Warren is elected president in 2020? Could she enact her sweeping tech reform? Francis is blunt: “No, she couldn’t. When those companies start to mobilize against process, they could stall it for decades.”
The danger for tech companies is that they simply ignore Warren and allow her rhetoric to stick with the public. Francis suggests that tech companies get out ahead of this and explain to the public why they don’t deserve the treatment she’s prescribing.
Senator Warren is an exciting politician who isn’t afraid of big ideas, but I’m glad she wasn’t running for president 30 years ago. She would’ve killed the internet—and all the innovation that has come with it—in its crib.