Lawmakers Mull Whether Depression-Era Laws Could Break Up Big Tech

Illustration for article titled Lawmakers Mull Whether Depression-Era Laws Could Break Up Big Tech
Photo: Graeme Jennings-Pool (Getty Images)

Last month’s marathon tech antitrust hearing was half the circus that some of us were anticipating, and half cogent arguments that solidified just how desperately the tech giants need to be reigned in. But the one thing that both parties seemed to agree on was that tech CEO’s are terrible liars that have created some “deeply disturbing” monopolies over the years.

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That phrase is from David Cicilline, the Democratic chairman of the House’s antitrust subcommittee, who has been spearheading a year-long investigation into longstanding claims that Facebook, Google, Apple, and Amazon have steamrolled their way into becoming multi-billion dollar monopolies. Now that the probe is coming to a close, the hearings have wrapped up, and we’ve read story after story shedding light on these tech company’s chokeholds, Cicilline told Bloomberg that he’s gearing up to release some recommendations on how to reign them in—possibly as soon as next month. Whatever route Congress chooses has the potential to overhaul our current antitrust legislation.

“All of these companies engage in behavior which is deeply disturbing and requires Congress to take action,” he told Bloomberg. “The kind of common theme is the abuse of their market power to maintain their market dominance, to crush competitors, to exclude folks from their platform and to earn monopoly rents.”

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You just need to look at some of this month’s headlines to see Cicilline’s point. Amazon announced its foray into the luxury retail industry at the same time that its brick-and-mortar rivals are struggling to bounce back from Coronavirus closures. Apple is facing a lawsuit from Epic Games over the former’s money-grubbing app store policies. Google’s parent company, Alphabet, is stepping into the health insurance business right around the same time that European authorities are probing the company’s acquisition of the health-tech company Fitbit. And that’s not even touching on Zuckerberg’s latest probe by the FTC over Facebook’s potential flouting of our country’s antitrust laws.

The way Cicilline sees it, one potential legislative salve might be to model the limitations for tech companies around how other problematic industries were dealt with in the past—specifically,1933's Glass-Steagall Act. Glass-Steagall was passed as a way to decouple investment banks from their consumer-facing counterparts. At the time, these laws kept the latter from freely using the public’s funds for their own potentially risky investments, and let the Federal Reserve actually regulate the commercial banking sector effectively, without potential insider interests muddying up deals between the two sides.

In a post-depression America, these laws were just what the country needed to reduce risk and bump up consumer’s confidence that their banks wouldn’t be screwing them (or their money) over. (Under president Clinton, much of Glass-Steagall was repealed in 1999, and the absence of those protections may have exacerbated of the country-wide financial crisis a decade later.)

Cicilline wouldn’t go into details of what this sort of church-and-state separation might look like, but he did tell Bloomberg that it was an “interesting idea” worth considering. “It would be one way to try to separate out what is a relationship fraught with conflicts that I think is promoting tremendous market dominance and bullying behavior by Amazon, as an example,” he said.

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And for a company like Amazon or Apple, this would make sense. Amazon doesn’t only net billions by taking a cut of the third-party sales on its marketplace, but also offers a bevvy of its own private label brands on that same marketplace. Because Amazon has incentives to keep those labels thriving alongside that consumer-facing marketplace, we’ve seen the company pull some shady stunts in the past, like allegedly jacking its algorithms to suggest its own products for shoppers, or hoovering data from its third-party sellers to create its own competing products. Slicing those two sides of the business down the middle might put a stop to this sort of self-dealing.

Google, too, has its grip on both sides of a market. Just like the world of retail, advertising has buyers and sellers: advertisers who want to pop their ad onto a site, and digital publishes that want to sell ad space. Google Adsense, its core publisher-facing product, remains one of the most popular choices for websites and apps looking to make money off of their digital real estate. The company’s buyer-side operation (literally called Google Ads) has become the biggest name and most popular option around for advertisers looking to reach folks across the web, in Google search, on Youtube, or just about anywhere else. During last month’s antitrust hearing Rep. Pramila Jayapal laid out the start iniquity of this arrangement, citing a recent study which showed Google controlling 50-60% of the publisher side market, and 50-90% of the buyer side.

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Despite its varied holdings, Google earns more than 70% of its yearly revenue off the back of those digital ads. And just like Google, Facebook runs both the immensely popular buy- and sell-sides of its multi-billion dollar ad empire.

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The case against Apple is... less obvious. In the US, sales for the iPhone make up just about half of the smartphone market. As an increasing number of critics have pointed out, that means an app developer needs to be on the App Store in order to have any chance at succeeding in the mobile space. And when you’re in the App Store, Apple charges a good 30% of any in-app fees you might be collecting from your product—and it’s pretty hard to stay competitive when you’re forking over more than a quarter of your earnings to a company worth more than $2 trillion as of this year.

While that certainly shows monopolistic tendencies of the exact sort Cicilline seems intent to clamp down on, it’s not clear how a Glass-Steagall 2.0 would be the right set of tools for this job.

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Likewise, even a version of Facebook not simultaneously engaged in both sides of the ad market could still maintain a stranglehold in its own way, even with its icky reputation. Beyond running three of the most popular apps on the planet— Facebook, Instagram, and WhatsApp—it also has access to the real estate of a seemingly endless array of apps through the Facebook Audience Network, or FAN for short. The allure of being able to target so many eyeballs with the detailed targeting that comes with Facebook’s insanely invasive practices has, in effect, made Facebook too tough to quit, even if advertisers want to. Back in June, we found that even advertisers who swear they’re leaving Facebook’s ad machine on moral grounds are typically the same ones feeding their money into FAN on the back end.

Separating the buy- and sell-side for Facebook—just like separating those sides for Google—is only half the battle. This sort of break-up would only be effective if lawmakers could make sure the two sides stayed severed, and that would mean keeping a close eye on the deals between them and the potentially thousands of middlemen they might be working with. And considering how these middlemen aren’t that well regulated to begin with under our current legislature, it’s worth guessing they won’t be equipped for that particular job.

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Furthermore the tech sector—and the adtech sector in particular— is notoriously rife with mergers and acquisitions, with companies cropping up every day that seem to only exist to be gobbled up by a larger player further down the line (or those that reject acquisitions only to have their core features copied by larger rivals.) This sort of break-up would do little to stop the anticompetitive tendencies of big tech to either kill or devour any threat to its market share.

We’ve reached out to all of these companies for comment on how they would feel about this kind of setup. But if you haven’t guessed from the tweet above—or hell, any of the equally insane charts we’ve used to describe these systems—severing the two sides of these ad giants might take more legwork than congress is anticipating. Facebook, Google, Amazon, and Apple, despite ostensibly representing the giants of a single economic sector, operate in vastly different ways that one blunt tool might not be capable of dismantling.

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This might be why Cicilline was light on the details of this potential plan when Bloomberg pressed him earlier. But it underlines that the one-size-fits-all approach that manage to curtail other industries in the past isn’t necessarily equipped to curb the tech giants of our time. And even if lawmakers do come up with some sort of approach that effectively tampers their respective market dominance, they have to work uphill against an administration that’s been, let’s say, a bit wishy-washy on deciding whether that dominance is worth breaking up.

I cover the business of data for Gizmodo. Send your worst tips to swodinsky@gizmodo.com.

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DISCUSSION

bkilburn
ArtistAtLarge

It’s wasn’t long after all the Depression Era financial regulations were dismantled that we had the Great Recession.

But America never learns.

https://www.theatlantic.com/ideas/archive/2020/08/gofundme-economy-was-never-going-work/615457/