Some time ago a friend sent me an email message with <<DO NOT SHARE>> in the subject. In it was a spreadsheet with the names of the latest Y Combinator companies, their monthly spend on AWS, and some growth calculations.
Wanting to make a name for himself at Amazon, he was mining data and evaluating business models Amazon could copy internally. In a big disservice to entrepreneurship, I helped him.
My only exposure to anti-competitive behavior came from high school textbooks, but now I was an accomplice. And I felt dirty. This is the anti-competitive behavior detailed in Senator Elizabeth Warren’s now infamous proposal.
Warren’s Proposal: Dismantling Big Tech
Warren’s proposal is simply that—a proposal, a Medium article. A policy idea completely independent of the other efforts to study the issue: one with the FTC and the other with the European commission. Not to mention that Spotify filed this week a complaint against Apple that hits at the proposal’s core.
It’s a brilliant move on her part to spark a debate (and to stimulate donations, which we’ll revisit at the next FEC filing). The substance of her proposal is still being tested in the marketplace of ideas, but here it is:
- Pass legislation that requires large tech platforms to be designated as “Platform Utilities” and broken apart from any participant on that platform.
- Appoint regulators to reverse illegal and anti-competitive tech mergers, rolling back many of the major tech acquisitions this decade. Amazon and Whole Foods; Facebook and WhatsApp or Instagram, and Google and Waze, Nest and DoubleClick.
“You can be an umpire—a platform—or you can own teams. That’s fine. But you can’t be an umpire and own one of the teams that’s in the game.” —Elizabeth Warren at South by Southwest.
There are some things she got right
It takes a few decades for governments to recognize and rebalance concentrations of market power. The US built 167,000 miles of rail in the four decades prior to the Sherman Anti-Trust Act of 1890, versus the 103,000 miles afterwards. Four decades of unbridled building before the anticompetitive nature of monopoly and price-gouging compelled the government to act.
Reality is it takes a while for the laws to catch up with technology.
All of the big tech leaders knew that - it was always a land-grab. At some point, there will be a diminished return of how big a company can be before it attracts the attention of regulators. You didn’t even need the below-the-belt selfie to do that.
But here’s what she gets right:
“What is anticompetitive with Amazon is using data against its own customers.”
Amazon is impressive in its execution and how it can ruthlessly gut the competition. They mine their customer data to find a promising business model, set up a 2-pizza team to validate, and scale. Rinse. Wash. Repeat.
Anecdotal spreadsheet notwithstanding, there is clear evidence they don’t give a fuck about your business partnership.
The same goes for Google demoting search results, or Facebook not giving a fuck about privacy because they own everything and your mother.
But we shouldn’t throw away the baby with the bathwater
There are some things Elizabeth Warren got right, but there are some things she seriously got wrong.
First, dismantling big tech will have unintended consequences due to inefficiencies. For instance, Amazon’s low prices and Google’s abundant free services are both benefits of being big.
Second, there isn’t a strict monopoly. The traditional arguments of current American antitrust legislation—all of which are over 100 years old—aren't sufficient enough to declare Amazon anti-competitive.
Its share of e-commerce is a staggering 49%, but overall it is still dwarfed by Walmart in total revenue. It isn't a monopoly. Neither Amazon nor Whole Foods have achieved monopoly market share in the sectors in which they compete.
Finally, Big Tech didn’t get big because of acquisitions, or platform utilities. The problems highlighted by Senator Warren were post-acquisition, post-dominance: neither Google, Facebook, Amazon, nor Apple achieved their power by “using proprietary marketplaces to limit competition.”
That’s the ONE BIG THING Senator Warren got wrong. Big Tech dominates because consumers like them.
Google, Facebook, Amazon, and Apple dominate because consumers like them.
Additionally, the traditional argument against trusts is price gouging. Both Amazon and Walmart are unrelenting in their customer-centric pursuit of the lowest price. As far as the consumer is concerned, they’ve never had it better.
Yes, they used their domination to cement market positions and grow. That’s what WE MUST be sceptical about.
“The merger issue is a real one, but only when it comes to propagating power.” - Ben Thompson
What Europe can teach the US
There is a rich history of successful anti-trust heritage in both the US and the EU.
Last year, when Facebook’s Chief Executive Officer Mark Zuckerberg faced the European Parliament, a German member, Manfred Weber, said it was “time to discuss breaking up Facebook’s monopoly, because it’s already too much power in only one hand.”
But even though Europe is in a much better position to dismantle tech giants, it hasn’t done it yet. The real question is why.
To start, these tech platforms are even more dominant in Europe than in the U.S. Only Amazon, according to some incomplete data, isn’t as widespread in Europe (it’s a maturing e-commerce market).
Google and Facebook are beyond any competition in their narrowly defined markets of search and social networking.
Second, the EU has made some strong antitrust rulings against the internet giants. Google has been tangling with regulators in Europe for years, and in July was slapped with a record $5 billion fine by the European Commission, which found that the company violated the European Union's antitrust rules.
On top of that, there’s the unquestionably reality that Europe is better positioned than the U.S. to disband the tech monopolies because they have less lobbying power in Brussels than in Washington.
Europe is presenting an alternative, and the US should listen.
What would a tech-monopoly-free future look like?
It’s interesting to see the impassioned defence of the unbridled free market, mostly from anyone who has looked at themselves in the mirror and saw a future Billionaire (with a capital B).
I’m guilty of it too.
But I’m also a student of history, and I just don’t believe copycatting businesses on your marketplace is a sustainable practice over the long term.
While it is difficult (or near-impossible) to prove consumer harm, the goal is not just to give consumers more of the same, but to maximize the possibility of something better coming along.
That, to me, is innovation.
Imagine a future where AWS is spun off and focuses on uptime versus copying your business model, Apple opens up domain APIs to give consumers more control and Facebook gets defanged–its ad business plateaued by unrelenting data privacy protections–so it trades its dominance as an integrated platform into a plurality of more independent networks (Instagram, Whatsapp, Facebook), giving an opportunity for more niche and community-focused networks to thrive in growing margins.
But that scenario is far-reaching.
The implications of tampering with private property rights should never be taken lightly, especially considering that consumers currently experience very little harm. There are more mainstream tools.
Softening our ‘dystopian’ vision of an enforced social-market economy, perhaps alternatives are a combination of:
- Strong pro-startup regulation to allow them to compete in all markets, financed by higher taxes on big tech
- Regulating data access to protect the consumer against far reaching, all-seeing tech companies
- Bigger fines based off stronger regulatory oversight to deter malpractice.
Motivation and the right side of history
I hope this a real proposal out of concern for technology, versus a shameless attempt to parlay anti-Tech and anti-capitalism sentiment ("I’m sick of freeloading billionaires,” mentioned Elizabeth Warren) into a Democratic presidential nomination.
While nobody with a layperson’s knowledge of tech can agree with every component of Warren’s proposal ("Is Senator Warren seriously proposing that smartphone be sold with no apps at all?” asked Ben Thompson), there are more than enough illegal oligarchies today and the spirit of the proposal, I believe, is on the right side of history.
The debate has become more public, more detailed. It has truly just begun. The process of any anti-trust action will take years (or at least months, until we see more fines). Assuming American legislation passes shortly after a 2020 electoral win, anti-trust acts historically are animated by the courts over the course of years, culminating in a definitive Supreme Court ruling in the middle of the next decade.
Until then, you’ll have plenty of time to stock up on AmazonBasics.