Dismantling Big Tech: A User's Manual

the conversation turned to something a little different. Center Gram's up next, Thank you. This you here is a senior Republican senator from South Carolina, Lindsay Graham. If I buy a Forward and it doesn't work well and I don't like it, I can buy a Chevvy. If I'm upset with Facebook, what's the equivalent product that I can go sign up for? Well, there's the second category that I

was going to talk about. Something at categories I'm talking about is a real competition you face because car companies face a lot of competition. If they make a defective car, it gets out in the world. People stop buying that car. There By, Another one is an alternative to Facebook in the private sector. Yes, Senator, the average American uses eight different apps, ranging from texts, email service. You provide, well, we provide a number of differencess Twitter the same as

what you do. It overlaps with the portion don't think you have a monopoly. It certainly doesn't feel like that to me. Okay, that moment turned out to be a harbinger for the next eighteen months, not just for Facebook, but also for its biggest piers in the industry. And it's all come down to the same question, stated in different ways, where in this very serious monopoly moment, Google is a culminating in a storm of antitrust investigations and a sweeping proposal from who is now one of the

leading candidates in the Democratic presidential primatis. It's time and today in the show, reporter Eric Newcomer will brief us on the current state of play in Washington and how a Democrat in the White House could take it even further. So stay with us, Amaki Ito, and you're listening to Decrypted Eric. How's it going great? Great? How are you doing? You know, our longtime listeners will recognize you as our

uber reporter, but you've recently changed beats. Yeah, in February, I defected from San Francisco, moved to New York, followed Uber through the I p O, and now I'm diving into the hot story of the day, anti trust. You know, I want to start our conversation today with how we got here in the first place, which is maybe another way of talking about how your beat has become so interesting and so timely right now, So here's how I'm

going to set it up. Just a few years ago, no one talked about technology and monopolies, right, it was the last thing on Washington's agenda, And it's really over maybe the last year two that we started hearing the steady drumbeat of how these companies have gotten too big. So set the context for us. Yeah, so we I mean, we talked about anti trust, but I think where this really started is just with a lot of anger towards technology companies. I love this country, thank you, thank you

very much. Probably the biggest force in that is the election of Donald Trump and the role that Russian interference might have played in getting him elected. They allowed the private information of fifty million Americans to be harvested by the Trump campaign's consulting firm, and the role that Facebook played through the Cambridge Analytica scandal and advertising and just sort of the rise of bots, and just like that force I think has animated some of this which created

all these spill on effects. My problem is with Facebook. So they're all these forces of frustration with tech that are now I think manifesting in this anti trust furor in different parts of the government. On a really basic level, what is antitrust. They're the rules to protect capitalism, right to stop price fixing, to block cartels. You know, it's what makes competition work. And you know, it really dates

back in the United States to the eighteen hundreds. There were these small railroad companies that all consolidated and formed this giant conglomerate. And so then the government looked at that. They created the Sherman Antitrust Act, and there was this whole push, you know, we think about trust busting to

crack down on big conglomerates. And then Standard Oil is perhaps the most famous historic example where all these oil companies were cobbled together to create this huge oil company that used its power to control the market, and the government cracked down on that and then in more recent history we have the breakup of A T and T, and then probably in very recent memory, the fight against Microsoft and the attempted breakup of that company, which ultimately failed.

You know, Microsoft had a few rules imposed against it, had to open up some of its data to third parties, but you know it wasn't broken up. So let's the rule of thumb that tells us when companies violate these

antitrust anti monopoly laws is very complicated and evolving. So I think, really, if you want to understand what happened from the nineties seventies today is this focus on consumer harm and the worry that antitrust should mostly be concerned with whether monopolistic behavior hurts consumers, whether it drives up prices, and much less oriented around whether consolidation makes it impossible for other businesses to compete or has some other harm,

more focused on the competitive environment. What's happening today is a reconsideration in sort of the academic world, and then that's trickling over to the enforcement agencies that says, okay, it's not just about consumer harm. There are even if your Facebook right and you give your product away for free,

there can be a problem. There are other harms there besides an obvious I have to pay more, you know, eric On a really broad level, Facebook and Google and Amazon, and maybe to throw an Apple there too, They're all really different business models, which I think makes it a

little bit confusing. But what if our colleagues Ali was explaining to me recently that if you really abstracted out, you can think of them as all having created services that attract a lot of consumers, and then they use that pool of consumers to charge businesses access to those consumers, which I thought was really interesting. And you know, maybe in Facebook and Google's case, they make this free service that attracts billions of people and then they charge advertisers

for access to these consumers. In Amazon's case, they charge sellers on the site access to Amazon's customers. And in Apple's case it feels a little different, but they're still charging app developers access to iPhone users through the app store. So I guess the way to think about it is that the victims here in this case are not the consumers like us, but they're actually the advertisers, the Amazon sellers,

the app developers, right. I mean, the only caveat that I would give to that is, you know, even if consumers get something for free, competition might mean that they could choose between services with different values. You know, people talk a lot about it more privacy oriented social network. That would be my only caveat. So let's walk through the thing that each company did to attract regulator scrutiny. You want to start with Facebook, all right, even before

we talk about antitrust. It's a five billion dollar settlement with the FTC and Facebook and Facebook just settled with the Federal Trade Commission over a five billion dollar privacy violation. So the ft now is investigating Facebook over its acquisitions because Facebook bought Instagram when it was then a small but promising photo sharing app, and obviously bought What's App, this messaging service, and that's effectively allowed it to block

the formation of new competitors. Then Facebook also faces a new anti trust investigation coming against Facebook. Eight states are included in this investigation, which a multi state attorneys general investigation led by the New York Attorney General's office. They're looking at whether their tactics limited consumer choice, and also they're looking at whether what they did increase the cost of advertising. So that's another one and then Congress is

also investigating in Facebook. And then the Department of Justice is also investigating Facebook. So yeah, we've got it. Yeah, we've got the FDC, a multi state attorneys general investigation, the Department of Justice, and Congress. Uh yeah, they're all looking at it. And and so for Facebook, these are related to the acquisitions it's made, specifically What's App and Instagram. Yes,

got it, talk us through Google. So Google's already had to fend off and paid fines in the European Union, and now the United States is really turning its attention to the company. We now have a clearer sense of just how sweeping this action will be. Fifty attorney general's forty states, plus the District of Columbia and Puerto Rico are announcing this investigation into Google over concerns of antitrust.

In the United States, the largest investigation against Google is being led by the Texas Attorney General's Office, who's brought together fifty states and localities. This huge coalition of attorneys general looking into how Google's add exchange works and what there how it sells ads blocks other competitors from the markets. They have very detailed questions asking about how they influence prices potentially in an advertising market. Then the Department of

Justice is looking at Google. I think they're looking at history of antitrust complaints and trying to get more information there. And then what about Amazon. With Amazon, it's really a question of how they use their market power to manipulate or control sellers on their platform. The Federal Trade Commission is looking at, you know, how much revenue do these sellers get just from Amazon? Are they dependent on Amazon or they really able to go to eBay and other

companies to make enough revenue. And we should know that Apple, even though it's an older company than Facebook and Amazon and Google, is somewhat of a target to I think it's the key, the key to understand Apples, the app store issues, and just the amount of control that running this app store could give the company. Is it hurting Spotify by placing Apple's own products way above and it's app store listing? So a lot of these inquiries are about the Apple App Store and how it throws around

its weight and controls that store to its advantage. Presumably it'll take a while for these investigations to conclude. But you know, let's say any one of these agencies finds that, you know, one of these companies did engage in anti competitive behavior. What happens then? You know, there are all

sorts of remedies. I think the one everyone thinks about is breaking them up, and that's something that Elizabeth Warren has talked a lot about and I think is on people's minds and would solve of or attempt to solve this sort of just they're too big and politically powerful and influential, so breaking them up as one. But then they're all sorts of remedies that that could be constructed.

I was talking to a professor who suggested the data portability would be a potential remedy for Facebook, because the idea was, you know, if I split up Facebook into three or four different companies, the network is still a powerful force. So maybe one of those companies then just becomes the new monopoly. Because I want to go where my friends are, we all sort of migrate to to one of the four new companies, And does that really

solve the problem. On the other hand, if the requirement is that I need to be able to easily move my data from Facebook to another company, then I could simultaneously use different social networks and would foster more competition. We'll be right back. So before the break, Eric, you walked us through the various investigations into the big tech companies. These are ongoing, but things could change a lot if

a Democrat wins the White House. In uh, We're not going to go through all ten plus candidates who are running right now in the Democratic primary, but I do want to focus on a few of the top contenders who've talked about what they want to do with this issue. Walk us through some of the moderates first, the candidates who scare the industry a little bit less. What It's

sort of interesting. I think Joe Biden. The consensus among people watching this issue is that what he would be comparatively friendly to the tech companies relative to sort of what i'll call the Bernie Warren wing. He's from Delaware, a famously pro corporate state, and he's got this reputation as just being a much more moderate candidate who's not out there on the stump saying, let's, you know, destroy all these companies and not taking on as an antagonistic

role with the CEO. So he's definitely the candidate that if you're running Facebook's uh anti trust policy shop. You would probably be happy if he won't because it means you're gonna be okay. And then there's i'd say Pete Buddhaicech who's talking about this issue in a more cooperative way, but it's definitely surfacing the issue of antitrust. And Eric, what about Kamala Harris. She's a California Senator, so of

course she represents Silicon Valley. Harris has been more of a moderate generally and hasn't come out very vocally on anti trust issues. She seems open to looking at it, but I don't think she's going to be the hardest driver on this set of issues. Then there's Bernie Sanders, who, true to form, is created using the bully pulpit. He's been pretty proud about saying that he wants to crack down on companies that are too big and tech is a part of that, but but it's much broader. And

then there's Elizabeth Warren. Yeah, in March, she held this huge rally in Queens after Amazon had just given up on its vision of coming to New York tech conies. That is, they tell to tell city stays and pulay everyone doing what they want. So it is this very iconic, you know, American flag celebration of you know, the failure basically of Amazon. And it came while she was putting out this medium post that really documented her crusade against

big tech das time. You know, she names Facebook, Google, Amazon and outlines exactly how she wants to break them up. Her idea sort of isn't two buckets. I'd say one is just simply unwinding mergers that have helped make these companies too big, the popetitions. So that's Instagram and what'sapp for Facebook, that's Nest and ways for Google, that's Zappos

and Whole Foods for Amazon. And then the other part is that you know, a platform company with that generates more than billion dollars in revenue should not be allowed to also compete on the platform it operates. And so then she identify buys Amazon marketplace as a platform, meaning that it shouldn't be allowed to sell its own goods against other competitors on its marketplace. And we also want

to run, so are you you can't to go? So those are the two real buckets, unwinding mergers that allowed companies to get too big and then policing platforms that are trying to compete with companies that operate on their platforms. Could you do it just by directing the federal agencies as president or would you actually have to push through new legislation through Congress. That's definitely a big question that um,

the Medium Post does not answer. The Federal Trade Commission certainly has the power to look at old mergers, so I think that's part of the explanation for the focus there. But ultimately, you know that authority comes from Congress and things like the Sherman Act. But that Act is, as we've said, pretty vague, so then the courts have a lot of authority to interpret whether the agency really had

the power to do what they're doing. I mean, Mark Zuckerberg in his leaked all hands meeting, like Elizabeth Warren who thinks of the right answers to break up the companies. Um, you know, if she gets elected presidents, then I would I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge. But good luck. At the end of the day. If someone's gonna try to threaten something that existential, you go to the act and fight. Basically says, we can challenge

these things in court. Then they're going to take years and years to play out, could be a decade. You know, A law would give her a lot more authority to expand their power. And you can imagine, you know, this is now an issue with bipartisan support. Maybe Republicans and Democrats come together to expand antitrust law in some ways that allows the FTC and d o J to go after tech companies. Obviously, like you said, there's so many

ifs at this point. Right, it's if Warren wins the presidency, if she's then potentially able to push through new legislation that may or may not be necessary through Congress, if whatever she decides to do survives the courts. But let's say all of these ifs do happen. How bad would that be for Facebook, Google, and Amazon? They wouldn't be the iconic companies that they are today. What is Facebook without Instagram when so much of its growth coming from Instagram?

What's Google without all its exciting projects? You know, if it doesn't have nest or ways, or if a big part of its advertising business has split off of it now competing with it that's a different company. And Amazon, you know, its identity isn't just this marketplace for sellers. It's the fact that it's buying whole foods and selling products cheaply of its own. And for these CEOs and founders, they wouldn't have this sort of sweeping power that they

have today. So it would just really change how these men occupy and control aspects of our society. In the meantime, I wonder if the scrutiny alone will make them a little bit more cautious, Like I wonder if it will make them think twice before they buy the next Instagram.

It's definitely possible. I mean, if you think about the case of Microsoft, that was a company that didn't have the most extreme end result in its antitrust battle with the government, but it still seemed to move slower afterwards, and it really missed, you know, the mobile era, for example. And I think there are a lot of people who think that the scrutiny alone made it just much more cautious, much more legally sensitive, and that type of thinking slowed

it down. On the other hand, I think, you know, Mark Zuckerberg at Facebook has shown, you know, a willingness to continue to be bold even when there's a lot of critics. You know, he proposed Libra, this cryptocurrency. His company put that out in a time of massive government scrutiny, so I don't think it's a company that's been bound by pressure so far, Eric Newcomer will continue posting your stories on Bloomberg dot com, slash tech. Where else can

our listeners follow this ongoing story. You know, I'm on Twitter at Eric Newcomer E R I C N E W C O M E R. And I'm sure I'll be writing about this every week for Fully Charged, our newsletter. There's so much to say. Thanks for making the time today. Of course, Decrypted is produced by me and Ethan Brooks, with helped him toil for Foreheads, and Laura Carlson. Our story editor is Anne Vandermain. Francesco Leavie is ahead of Bloomberg Podcasts. We'll see you next week. M