Pattern Matching

Democrats aren’t the only ones ready to rewrite the antitrust rules for internet platforms

Will Oremus

Oct 10, 2020·10 min read

Never in world history has one sector of the global economy risen to such global dominance, so fast, as Big Tech has in the past 20 years.

In 2000, Amazon was an online bookseller, Apple was still an underdog, Google was a scrappy startup with little revenue, and Facebook didn’t exist. Today, along with Microsoft, they are the world’s five most valuable companies, and their decisions carry a level of global influence rivaled only by nation-states. They exert control over what we can say, how we can say it, what we buy, and what we read, and they wield unilateral power over the countless smaller businesses that rely on their platforms.

Until about five years ago, a prevailing 21st-century view was that the internet sector was so dynamic that upstarts could come along at any point and depose the giants: Just look at how Google and Apple blew past Microsoft, or how Facebook conquered MySpace. That view is no longer tenable, as the top platforms’ network effects, lock-in, access to data, diversification of business lines, and ability to buy or copy rivals has given them advantages that now appear nearly insurmountable. The relevant business question is no longer, “Will they stay on top?”, but rather, “What markets will they conquer next?” (The one competitive threat that still looms is that China-based giants could outmaneuver them with products such as WeChat and TikTok. But the Trump administration’s crackdown on Chinese tech has abruptly curtailed that threat domestically, and India’s crackdown has mitigated it in the largest non-aligned market.)

What to do about that concentration of power, if anything, is a question that has rapidly grown in urgency. There is an emerging consensus that antitrust action in some form is warranted, including among Republicans who are naturally skeptical of government intervention in markets. But there has been little clarity or agreement as to what form that action should take — until now.

The Pattern

We finally have a blueprint for regulating Big Tech. Or rather, two blueprints.

• What would robust antitrust regulation of Big Tech look like? We got a concrete and comprehensive answer this week, in the form of a 449-page report (PDF) from the Democratic staff of the House Judiciary Committee’s antitrust subcommittee. The landmark document is the culmination of a nearly two-year investigation that included a highly publicized July hearing involving the CEOs of Amazon, Apple, Facebook, and Google — and it shows. The report serves as both a comprehensive catalog of those companies’ anticompetitive behavior over the years and an ambitious blueprint for what to do about it.
• Anyone who doubts that there’s a real problem should read the report, or at least one of the quick summaries of its most damning takeaways. I’ve written before about how these companies use their market power to tilt the playing field, focusing on Amazon and Apple in particular. The Democrats’ report makes that case definitively, addressing the nuances of how it works for all four companies, which is not a surprise given the amount of work and brainpower that went into it.
• The core issue, as the report makes clear, is not simply that Google dominates search, Facebook dominates social networking, Amazon dominates online retail, or Apple and Google hold a duopoly over mobile apps. The sophisticated group of antitrust experts who staffed the committee — profiled here by Protocol’s Emily Birnbaum — recognize that trying to chop up these core products would be futile. After all, a big part of why these products are so successful is that so many consumers have chosen them. Rather, the report’s crucial insight is that their dominance in one realm, however merited and hard-earned it may be, gives them an unfair advantage in others. Think of how Apple Music competes with Spotify, abetted by Apple’s rules that place a 30% tax on Spotify subscriptions for iOS users and prevent Spotify from even telling users how to pay directly. Think of how Amazon’s own products compete with those of third-party sellers, helped by Amazon’s godlike access to real-time data on consumer behavior and its recommendation algorithms. Unchecked, these advantages will only compound over time.
• After some 370 pages of laying out the case against the four companies, the report shifts to making concrete recommendations for legislation. The most potent, and controversial, is the recommendation for “structural separations” and “line of business restrictions” that would constrain dominant platforms’ ability to leverage their market power in one realm (say, mobile operating systems or social networking) to compete in another (say, browsers or digital payments). This is the proposal that has been dubbed by some a “Glass-Steagall for tech,” referring to the 1932 law that separated commercial banking from investment banking. I wrote about that in detail here.) Other key recommendations include new laws that would prevent self-dealing by dominant platforms, require certain forms of interoperability between platforms, update and strengthen antitrust laws and clarify how they apply to digital markets, and empower the agencies that enforce them.
• In the past week, much has been made of the antitrust subcommittee’s partisan split. The report was initially meant to be bipartisan, but it ended up being authored only by the staff of the Democratic majority. The fracture was first reported by the New York Times, which noted that the ranking Republican on the House Judiciary Committee, Rep. Jim Jordan of Ohio, had intervened to prevent his party members from signing onto it. Instead, four Republicans on the House Judiciary Committee signed a separate, smaller report authored by Rep. Ken Buck of Colorado, titled “The Third Way.” It detailed points of common ground, but also delineated a set of recommendations from the main report that it called “nonstarters,” and expressed frustration that the Democrats didn’t address claims of anti-conservative bias in social media.
• Those “nonstarters” for the Republicans included the structural separations and line-of-business restrictions that were key to the report’s recommendations. “We are concerned that sweeping changes could lead to overregulation and carry unintended consequences for the entire economy,” Buck wrote. “We prefer a targeted approach, the scalpel of antitrust, rather than the chainsaw of regulation.” Bloomberg quoted analysts who described those partisan differences as a “brick wall” that would stand in the way of any bipartisan legislation. That seemed to reinsure investors, as the four companies’ share prices showed little impact from the report.
• But the Republicans actually agreed with quite a lot from the Democrats’ report, a fact that has been generally overlooked. For starters, the four Republicans who signed Rep. Buck’s “Third Way” document agreed with essentially all of the core findings of fact and analysis as to the nature of the problem, and the need for Congress to address it. That is, they agreed with the first 370 pages of the 449-page report. The Buck report is very much worth reading for the way it states a compelling Republican case for antitrust, framed in terms of conservative values such as fair play, the interests of small businesses, and aversion to multinational corporations. “The majority staff accurately portrays how Apple, Amazon, Google, and Facebook have used their monopoly power to act as gatekeepers to the marketplace, undermine potential competition, and pick winners and losers, all while simultaneously cozying up to unfriendly nations like China in order to further expand their global footprint,” it concludes.
• On top of that, the Republicans agreed with recommendations that would dramatically overhaul antitrust enforcement of the industry. Perhaps most notably, Buck’s group of four signed on to the recommendation that mergers and acquisitions by dominant tech platforms be presumed anticompetitive until proven otherwise. That’s a reversal of the current framework, in which the presumption is that they’re kosher and the burden rests with the oversight agencies to prove that they’re anticompetitive. The report detailed hundreds of acquisitions by the big four platforms that went unchallenged by the Federal Trade Commission and Department of Justice; almost every one of those would have come in for serious scrutiny under the proposed new standard, and many would likely have been blocked. Those include Facebook’s acquisitions of Instagram and WhatsApp, which have enabled it to entrench its dominance of social networking and quash threats from rivals such as Snapchat.
• The Republicans also agreed with a recommendation to clarify that antitrust enforcement does not require “market definition,” a hurdle that is often hard to overcome, because defining the market a company competes in is notoriously slippery. The broader the market definition, the less they look like a monopoly. For instance, Amazon defines its market share in relation to the whole retail sector, rather than just online retail, and Facebook defines its market as the entire attention economy. (Laughable as they might sound, some serious analysts agree with these characterizations, including Stratechery’s Ben Thompson.) Under the report’s recommendation, however, antitrust enforcers could skip the step of haggling over the definition of the market in which an online platform competes, as long as they find direct evidence of a company abusing its market power.
• Given the timing, actual laws in response to these reports are unlikely to be passed until at least next year, with a new Congress and potentially a new president. But if Buck’s “third way” ends up garnering any support at all from the wider Republican party, it will clear a path to bipartisan legislation that would represent a sea change in antitrust enforcement in the tech industry, even without bipartisan agreement on the Democrats’ more controversial recommendations. And if Democrats take both the White House and the Senate in November, all of the recommendations from the 449-page report could be on the table.
• Joe Biden has yet to weigh in on the report, as Alex Kantrowitz reported in a piece that explores what a Biden administration might do with it. But Luther Lowe, Yelp’s senior vice president of public policy and a longtime advocate of antitrust action against Google in particular, told me he’s seen the Democratic party’s mainstream and even moderate factions come into alignment recently with the progressive wing that was initially pushing these aggressive antitrust reforms. “If there’s a clean sweep, then yeah, I am optimistic we’ve got a real shot,” Lowe said in a phone interview.
• The majority report is in many ways a visionary document, an aspirational blueprint for a strong antitrust regime. It may yet end up being implemented. But the Buck report is a blueprint for short-term reforms that could go a very long way in themselves. In short, if either report can gain support outside the House antitrust subcommittee, the rules of the road for the largest tech platforms will never be the same. They’ll still be huge, and they’ll still dominate their core markets, but their seemingly unlimited potential to eat the entire economy will vanish.
• Finally, the majority report carries implications beyond the realm of antitrust, as several analysts were quick to note. “Let this House investigation forever end the idea that members of Congress are too clueless to effectively oversee big tech companies,” the New York Times’ Shira Ovide proclaimed. In his newsletter BIG, antitrust pundit Matthew Stoller argued that the report amounts to “the most aggressive and important legislative document on corporate power and monopolies in decades.” Beyond its domestic impact, he argued, “It will immediately empower regulators all over the world who have been waiting for the U.S. to legitimize real action against large technology platforms.” And in The American Prospect, David Dayen made the case that the report’s impacts on the tech industry are just the tip of an antitrust iceberg. The report, in his mind, is “really about Congress taking back its power to govern,” using tech as “a case study on what an invigorated legislative body can do to rein in corporate power of any type.”
• Not all of the reactions were enthusiastic, of course. In Stratechery, Ben Thompson contended that the report is wrong to view “aggregators” such as Facebook through the same antitrust lens as Apple and Amazon. And in a report published last month, Sarah Oh of the industry-friendly Technology Policy Institute argued that the documents published as part of the subcommittee’s investigation don’t really show the harms that everyone thinks they do.

Undercurrents

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

• Facebook and Twitter are taking some precautionary measures ahead of the U.S. election. The most interesting came from Twitter, which announced on Friday that it will take three previously untried steps to pump the brakes on misinformation and polarizing content, starting October 20. First, it will default to a quote-tweet when you go to retweet something, encouraging you to stop and think about what you want to add to the conversation rather than simply amplifying a viewpoint. Second, it will stop surfacing tweets from people you don’t follow in your feed or notifications. Finally, it will only show trending topics that come with editorial context. You can read its full announcement here. Facebook, for its part, announced an indefinite ban on political ads starting after November 3, along with other measures aimed at thwarting misinformation around who won the election or incitements to violence in its wake.
• Cambridge Analytica didn’t unduly influence Brexit, a U.K. commission concluded, wrapping a three-year investigation into the political consultancy’s use of Facebook data in the campaign. The Financial Times reports that probe found that the methods used by a Cambridge Analytica affiliate were “in the main, well recognised processes using commonly available technology,” and that the resulting targeting of voters was not uniquely effective. The report was taken as vindication by some who felt the Cambridge Analytica scandal was overblown all along. Some privacy advocates were quick to reply that the real scandal was always more about how the data was gathered and obtained than how it affected election outcomes. (Both can be true; I made a version of this argument in 2018.)

Headlines of the week

Five Years of Tech Diversity Reports — and Little Progress
— Sara Harrison, Wired

How Excel may have caused loss of 16,000 Covid tests in England
— Alex Hern, The Guardian

QAnon high priest was just trolling away as a Citigroup tech executive
— William Turton and Joshua Brustein, Bloomberg