Breaking Up Big Tech: Will it Foster or Stifle Innovation?

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Tech giants like Facebook, Google, Amazon, and Apple have grown so big that they have dwarfed the rest of the US companies. Their impact is felt in every aspect of our daily lives, even as their market value continues to rise. With such scale and influence, they have somehow become monopolies that are hard to regulate. For this reason, they are under increased scrutiny from Washington. Recently, the US Justice Department launched a sweeping antitrust review to assess whether the tech giants are decreasing competition and stifling innovation. 

The debate of whether the government should step in and break up the big tech is still a large and complex one. But what’s clear is that Silicon Valley tech giants like Google and Facebook are in a situation where defending themselves could be more important than ever. And this brings us to the question: Will big tech break-up foster or stifle innovation?

Proponents and Opponents

Amongst the biggest supporters of big tech break-up is Democratic presidential candidate Elizabeth Warren, who proposed a sweeping plan that would subject big tech to regulation. Her focus has been concentrations of power and their effect on innovation. 

Warren’s proposal should resonate and echo America’s political history. Teddy Roosevelt became famous as the trust-buster when he went after the big monopolies at that time. 

Warren has made the antitrust proposal as one of her signature themes for her presidential campaigns. Her rationale is that tech giants act like monopolies and need to be broken down to promote innovation and a competitive business environment. She intends to use conventional antitrust instruments, such as the Sherman Act. 

While Elizabeth Warren is by no means the only legislator to call for the division of big tech, her proposal provides the most specificity regarding what needs to be done. Though controversial, her plan hinges on three main areas:

  • The first one is designating large tech platforms with annual revenue of $25 billion or more as platform utilities.
  • Secondly, preventing mergers and acquisitions by big tech in the future – for instance, the takeover of WhatsApp by Facebook or the purchase of Waze by Google. The proposition includes reversing these tech acquisitions.  
  • Ring-fencing platform companies from participating in their own platform – for instance, preventing Google from competing in the Play Store or prohibiting Amazon from selling its own diapers. 

We will look at each of the above proposed changes later on, especially with regards to their impact on innovation. For now, let’s also try to look at other similar (or opposing) sentiments. 

The heightened debate driven by leading political class and regulators seems to have emboldened long-time critics of naked capitalism, such as Robert Reich, a former US Labor Secretary and now a professor at the University of California Berkeley. 

In a recent opinion article for the Guardian Newspaper, Reich likened tech giants, such as Google, Amazon, and Facebook, to robber barons. The robber who built empires on innovations in the late 19th century, but were eventually broken up to foster more competition. 

The World Street Journal and the Washington Post reported in mid this year that the Federal Trade Commission has secured the authority to look into Amazon and Facebook over their anti-competitive business practices. 

Notwithstanding the increased call for the big tech break-up, other views support the current status quo. The ballooning Washington scrutiny is seen by some as a threat to the growth of Silicon Valley. Economists like Joseph Schumpeter have argued that monopolies encourage innovation through their promise of big margins. Likewise, Peter Thiel seems to agree, but his version of libertarianism is somehow polarizing. 

Worldwide Concern

The battle cry to break up big tech gets louder each day in the US, while other regions acknowledge that there is a problem. If this rally call continues, tech giants, such as Google, Facebook, Apple, and Amazon are likely to face it rough, as they extend their tentacles into new markets.  

Already, Spotify has filed an antitrust complaint in the EU region against Apple. According to the Swedish music streaming platform, the US tech giant is stifling competition through its control over the iOS platform and the App Store. 

As for Spotify, the beef with Apple revolves around a 30% tax that digital companies have to pay Apple to use its in-app payment system. The streaming company claims that this model makes Spotify subscription more expensive, thus giving Apple Music a competitive advantage. For the same reason, Netflix stopped accepting new sign-ups through its iOS app. 

Meanwhile, a UK study commissioned by the UK government calls for tighter rules on big tech. The 150-page report depicts tech companies in social media, search, e-commerce, and advertising as threats to innovation, competition, and personal privacy. Once again, the four tech giants are being cast as monopolies that have become too powerful for society’s good.

New Approaches for a New Technological Era

The UK report found out that existing laws are outdated and are not enough to regulate global tech giants, and therefore, need to be strengthened.  

The study acknowledged that the digital sector has brought along significant benefits, but these have come at the cost of control by a few companies, thus limiting consumer choice, competition, and innovation. While the current situation may appear inevitable, researchers believe that the UK can do better. In that respect, the report recommended some measures, which include:

  • Setting up a new digital market unit for giving users more control over their data. This way, people can share or move their personal information if they switch to a new digital service. 
  • The government should draw up a code of conduct that stipulates acceptable behavior for tech firms in their relationships with consumers. 
  • Introduce a regulation that allows big tech share key data with startups without compromising online privacy. 
  • Tighten rules to help authorities prevent digital mergers that are likely to damage future innovation, competition, and consumer choice. 

Looking at some of the recommendations, consumers need to be more keen on their privacy than before. While we are still waiting for the authorities to implement them, consumers can be safer if they understand how to protect their devices. Thankfully, there is a plethora of quality cleaner apps for Android. As for their computers, they need reliable Mac and PC cleaning software. The good thing is that most PC and Mac repair tools have data protection capabilities.  

Big Tech Response

So far, the targeted tech firms haven’t come out to respond to the new proposals or request for comment on the British report. While Apple and other tech giants haven’t responded to the latest accusation made against them, all of them have defended their business practices in the past. They have attempted to make cases that there is still room for competition within the markets they serve. 

The companies’ supporters, including lobbyists hired to influence policy making, have argued that there is little evidence that the actions of these tech giants hurt consumers. There are no worrying complaints about service degradation or unreasonable price changes. After all, most of their services are free.   

The Implications for Innovations

Not forgetting other questions around breaking up big tech, the ultimate battle so far has been the implications for innovation. We understand the issue can be more complicated than it sounds. Nonetheless, let’s look at the proposed changes from an innovation perspective: 

1. Preventing Tech Giants from Acquiring Competitors

If they will become dominant players, then there is every reason to regulate how large companies acquire competitors. But you have to consider how they make money. Most of the acquisitions by the likes of Facebook and Google may not necessarily hurt consumers or reduce innovation. Here are some considerations that we should evaluate when looking at the impact of mergers and acquisitions by tech giants on innovation:

  • Level-playing field: Does the merger or acquisition give a participant preferential access to the platform?
  • User experience: Will an increased sale add value to network participants?
  • Barriers to entry: How does the merger affect new market participants? Do they stand a chance post merger? 

2. Prohibiting Tech Companies from Competing on Their Platforms

There is an unresolved worry among platform participants that tech giants still want to overshadow them on their platforms. According to Warren’s proposal, Amazon cannot run a diaper business under the same roof as the e-commerce platform. 

With all fairness, Amazon understands diapers like no one since it has all the information it needs to market diapers effectively, which could create an unfair advantage. Amazon is not the only one that has had to deal with conflict of interest. Due to a conflict of interest, the EU fined Google $9.3 billion for giving preferential access to its own apps on Android and steering platform users towards its own shopping site.  

But Warren’s suggestions that platform utilities should not be allowed to share data with third-parties is likely to inhibit innovation. This prohibition will prevent smaller innovators from leveraging the vast amount of data that big tech has accumulated. Without data sharing, some innovations such as City mapper that run on top of Google Maps wouldn’t have seen the light of the day. 

So, if big tech could share data with third-parties, then there is no harm if they compete on their own platform. 

3. Designating Large Networks as Platform Utilities

Network effects are usually felt only where services rely on large data sets, creating an intended barrier to entry. So, designating tech giants as platform utilities will make it easier for the network itself to be classified as a monopoly, hence the need for regulation to defend the public interest. 

But from an innovative standpoint, it may not matter that much. New markers will still attract innovators. Also, taking into account the fact that Warren’s proposal only targets global businesses with revenue of more than $25 billion, there is still plenty of that pie to play with.  

What Next? 

As tech giants continue to grow, we are likely to see a more aggressive pursuit of antitrust enforcement against them, mainly from the EU regulators. Actually, if the prevailing pressure continues, then big tech regulation is inevitable. But the question remains how and when. Surprisingly, most of the major tech giants are based in the US, where the authorities are most likely to use traditional methods to pursue an antitrust case. 

With all said and done, the US tech firms can still smile since the DOJ’s antitrust division was vague about its plans. It only promised to look into the widespread concerns that businesses, entrepreneurs, and consumers have expressed about some tech giants.

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