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Pattern Matching

How ‘Breaking Up’ Apple and Amazon Might Actually Work

A banking law from 1956 offers a realistic model for regulating dominant internet platforms

Photo: Pool/Getty Images

Welcome back to Pattern Matching, OneZero’s weekly newsletter that puts the week’s most compelling tech stories in context.

“Break up Big Tech” has become a rallying cry for some, especially on the left, who see the largest tech companies’ power as a threat to innovation, small business, and perhaps even democracy. The call made headlines last year when Elizabeth Warren, who was then a leading contender for the Democratic presidential nomination, outlined an aggressive plan to do just that. And it drew fresh attention with last month’s widely publicized antitrust hearing, which featured the CEOs of Amazon, Apple, Facebook, and Google. I wrote at the time about the parallels (and differences) between that hearing and the Big Tobacco hearings of the 1990s.

Along the way, more moderate critics of the technology industry, along with its defenders, have tried to pump the brakes on the breakup train. “Breaking up big tech companies is the nuclear option,” Jeff Bercovici argued in Inc last year, in response to Warren’s proposal. “Why not try fixing what’s broken before pushing the button?” In January, a Wired op-ed’s headline implored, “Don’t Break Up Big Tech.” Author Zachary Karabell warned, “‘Break them up’ is an easy slogan, and an appealing one; but like so many easy things, it will solve little.” Some experts with impressive credentials agreed. “Just ‘break them up’ is an oversimplified sound bite, not a real policy that would restore competition in digital markets and benefit consumers,” wrote Fiona Scott Morton, a Yale economist who specializes in antitrust, in the Washington Post last year. (Only later did she disclose that she has a side gig as a paid adviser to Amazon and Apple.)

What might not be obvious from this discourse is that there are ways to break up Big Tech that amount to both far more than a “sound bite” and far less than a “nuclear option” — and which have the potential to address specific competition concerns in a coherent and carefully targeted way. This week, the chair of the House antitrust subcommittee hinted that at least one of those might soon be in the offing.

The Pattern

The antitrust assault on Big Tech is taking shape.

  • Bipartisan recommendations for antitrust action against the tech giants could come as soon as September, Rep. David Cicilline, D-MA, told Bloomberg on Wednesday. Cicilline chairs the House antitrust subcommittee that has conducted a year-long antitrust investigation, including last month’s high-profile antitrust hearing. That hearing was the sixth in the ongoing probe, which is expected to culminate in a report to Congress.
  • In an interview with Bloomberg TV’s Emily Chang, Cicilline got specific for the first time about what that report might say. The subcommittee is developing a “menu of options,” he said, that include updating old antitrust statutes aimed at oil and railroad monopolies; reforming federal antitrust agencies and making sure they have the resources to prosecute companies; and revitalizing private-sector enforcement.
  • Most interestingly, he hinted at two potential pieces of legislation that would target the tech sector in particular. One would seek to enforce principles of portability and interoperability. The second, he said, would be more ambitious in scope: “a sort of Glass-Steagall of the internet, saying you can either be a platform or you can be a producer of goods and services. You cannot do both, because they’d be in conflict.”
  • The Glass-Steagall Act, passed in 1933, required the separation of commercial banking from investment banking. It was crafted to address the conflicts of interest that arose when banks invested consumers’ assets in securities. The legislation divided financial institutions into investment banks such as Goldman Sachs and commercial banks such as Bank of America. Its 1999 repeal was cited by some economists as a precipitating factor in the 2008 financial crisis. A “Glass-Steagall of the internet,” in Cicilline’s analogy, would address the conflicts of interest that arise when companies that own dominant tech platforms also compete with the third parties who use those platforms.
  • For instance, Apple presumably would no longer be allowed to both control iOS and offer services such as Apple Music that go head-to-head on iOS with rivals such as Spotify. Amazon might no longer be allowed to produce its own lines of clothing and household goods to rival those of third-party sellers on its site. (Its cloud division, Amazon Web Services, has similar issues.) Google, perhaps, would have to give up on services such as Google Shopping, which allegedly benefits from high placement in its own search results. It’s less clear to me which of Facebook’s existing products would run afoul of it, if any. Likely, Facebook’s social networking dominance would be targeted through some of the other mechanisms Cicilline mentioned; he specifically called its acquisition of Instagram “illegal.”
  • At the risk of getting wonky, an even better analogy than Glass-Steagall might be the Bank Holding Company Act of 1956, which banned banks from holding ownership stakes in non-banking industries. The concern was that bank holding companies could boost their own non-banking businesses over those of rivals with favorable loan terms, or nudge their loan clients to patronize their other businesses. That sounds a lot like how Apple, Amazon, and in some cases Google allegedly tilt their platforms to favor their own services.
  • If this sort of legislation came to pass, the result would be a form of “breaking up Big Tech,” as some of the giants would likely be required to sell off or shutter some of their business lines. It echoes at least one part of Warren’s plan, which called for “large tech platforms to be designated as ‘Platform Utilities’ and broken apart from any participant on that platform.” Yet it would likely leave intact the core of each business, and would not necessarily require the tortuous untangling of, say, Apple’s hardware products from iOS, or Amazon.com from Amazon Web Services, which seems to be what some opponents of breakups have in mind. No doubt the details would still be tricky and heavily litigated. But they’d be unlikely to cripple the tech giants in the ways that would leave them unable to compete globally with Chinese rivals, which is a fear that the U.S. tech companies have been busy stoking.
  • There are some persuasive arguments for going much farther than a Glass-Steagall or Bank Holding Company Act to rein in the internet’s behemoths. Longtime digital rights activist and blogger Cory Doctorow made the case for robust antitrust action in a new book published on OneZero this week, called How to Destroy Surveillance Capitalism. The book is especially worth reading for anyone familiar with Shoshana Zuboff’s influential 2019 book The Age of Surveillance Capitalism, which Doctorow builds on and critiques. Zephyr Teachout’s book Break ’Em Up and Tim Wu’s book The Curse of Bigness are two other recent works that view size itself as the crux of the antitrust problem.
  • But Cicilline’s comments to Bloomberg suggest that a full dismantling of Silicon Valley’s dominance is unlikely to be an outcome of the current investigation. That may disappoint critics such as Doctorow, Teachout, and Wu. At the same time, it should puncture the notion that breaking up Big Tech is something to be feared — at least, by anyone other than the tech giants themselves.

Undercurrents

Under-the-radar trends, stories, and random anecdotes worth your time

  • Epic Games and Apple have deadlocked in their fight over the latter’s iOS App Store policies, and it looks like Apple users who play Fortnite will be the losers. I wrote two weeks ago that Epic had baited Apple into a losing battle. Faced with a choice to back down or escalate, Apple chose the latter, emphatically. It stood by its Fortnite ban, lodged its own legal filing against Epic Games, and threatened to cut off the company’s access to developer tools altogether, which would have torpedoed the Unreal Engine platform that numerous other, third-party games rely on. A judge granted Epic’s request for a temporary restraining order to protect the Unreal Engine ahead of a hearing next month, but Apple terminated its main developer account. Meanwhile, Facebook on Thursday became the latest major developer to go public with complaints about Apple’s behavior, telling Reuters that Apple rejected its attempt to inform users about the 30% cut Apple takes from most App Store purchases. It’s telling that Apple is willing to go to the mat to protect the fees it extracts from even the most powerful developers on its platform: It suggests that the company views this form of rent-seeking, no matter how unpopular or legally risky, as crucial to its future growth. That seems like not a great sign for those who would prefer to see Apple grow by creating new products that people love, rather than by squeezing every last dime from its stranglehold on the iOS ecosystem.
  • Facebook may have helped to persuade Trump to ban TikTok. The Wall Street Journal reported this week that CEO Mark Zuckerberg told President Trump in a private meeting last fall that the rise of Chinese internet companies represents a threat to American business, and that he should focus on reining them in rather than Facebook. (Facebook and its lobbyists have been making that case across D.C. for a while now.) While it’s hard to assign causation, that might help to explain Trump’s controversial bans on TikTok and WeChat, neither of which have gone down smoothly. TikTok is now suing the U.S. government, and so is a group of WeChat users who rely on the app. Meanwhile, TikTok’s CEO announced this week that he’s stepping down after just three months, and the New York Times reported on Friday that Walmart is joining Microsoft’s bid to buy the company. Facebook’s lobbying might be an example of “be careful what you wish for:” The Verge’s Casey Newton notes that the TikTok ban could come back to bite Facebook by setting an example for other countries. I made the case in Pattern Matching earlier this month that Trump’s move might represent a tipping point for digital nationalism.
  • Amazon’s surveillance devices are getting more intimate, and harder to avoid. I wrote last fall about how the retail giant is becoming an “everywhere store,” producing a profusion of Alexa-powered gadgets that listen and watch you and your environs. This week, the company announced Halo, a fitness band that makes 3D scans of your body and can even monitor your tone of voice. What could go wrong? My OneZero colleague Emily Mullin reports that at least one major life insurer, John Hancock, is already offering its members a free Halo and discounted subscription in exchange for handing over their data, which it will use to award “discounts” on its premiums. You don’t have to squint very hard to see that this amounts to higher rates for people who decline to participate in Amazon’s health surveillance program.

Threads of the Week

Senior Writer, OneZero, at Medium

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