Momentum grows to separate huge tech, as Amazon, Facebook, Google and Apple deal with examination

Last month, Facebook co-founder Chris Hughes laid into CEO Mark Zuckerberg with an almost 6,000-word New York Times op-ed that sounded the alarm on the social media network’s supposed monopoly.

“Mark’s power is unprecedented and un-American,” composed Hughes, who left Facebook in 2007 and offered all his Facebook stock in 2012. “It is time to break up Facebook.”

Hughes is far from alone in re-evaluating the tech world.

Just 5 years back, countless customers took a look at tech as an advantage, and United States regulators took a primarily hands-off method to the fast-growing market. Now both groups are much more suspicious of these huge corporations and far more thinking about what they finish with your information. This abrupt turn-around was induced particularly by Facebook’s lax personal privacy practices, which led to Russia disrupting the 2016 United States governmental election, also the information business Cambridge Analytica demolishing countless Facebook users’ info and exploiting it for targeted political advertisements.

Now the Federal Trade Commission is examining competitors in the tech market, consisting of previous mergers and possibly anticompetitive practices. State attorney generals of the United States are getting ready to examine huge tech, too. Sen. Elizabeth Warren, a Democratic governmental prospect, is requiring a separation of Apple, Amazon, Google and Facebook, arguing that they have actually ended up being so effective that they’re suppressing competitors and development. She even set up a “Break Up Big Tech” signboard in San Francisco, right in the heart of the tech market.

Last week, The Wall Street Journal reported that the FTC and Justice Department reached a brand-new contract, with the FTC getting authority to evaluation Amazon and Facebook, while the Justice Department has the ability to check out Apple and Google. This offer is viewed as an early action in these companies digging into possible anticompetitive practices by all 4 business.

President Donald Trump on Monday even recommended the United States might benefit by taking in a few of the billions of dollars in antitrust fines European regulators have actually imposed on Google and other tech business.

These business leviathans, which are all amongst the most important business on the planet, are now dealing with a much higher danger that they’ll be separated. Facebook might be required to eliminate Instagram and WhatsApp, Amazon may divest Zappos and Whole Foods, Google might lose YouTube, and Apple might part with its App Store.

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That could result in a flourishing of new services and features for consumers, giving them a lot more choices for e-commerce, social media and search. That change could also sow confusion, as sites that used to be part of the same company no longer work as seamlessly together.

“I think it is inevitable that they’ll get broken up,” said Stacy Mitchell, co-director of the advocacy group Institute for Local Self-Reliance. “You can’t mask the kind of structural power that these companies have and maintain that power in a democracy.”

Of course, while the drumbeat to investigate and regulate these tech titans has grown, the push to break them up remains a young movement that could fizzle. After all, breaking up any of these massive companies would be a huge undertaking the government wouldn’t take lightly.

For their part, many of these tech titans have called for additional regulation but disagreed that they have monopoly power or are unfairly competing against smaller players.

“I think scrutiny is fair. I think we should be scrutinized,” Apple CEO Tim Cook said in a CBS News interview last week. “But if you look at our – any kind of measure about is Apple a monopoly or not, I don’t think anybody reasonable is gonna come to the conclusion that Apple’s a monopoly.”

A short history of corporate breakups

Thirty-seven years ago, the government broke up a massive monopoly: AT&T.

For most of the 20th century there was only one company offering phone service in the US. By 1974 the Department of Justice decided this was a problem and deemed AT&T a monopoly. It hauled Ma Bell into court and sued under the Sherman Antitrust Act.

It wasn’t until 1982 that Ma Bell agreed to be broken up into seven regional service companies, the so-called Baby Bells. AT&T remained a provider of long-distance service.

The biggest lesson from the AT&T case is that regulation is still needed, even if you break up companies, said Charlotte Slaiman, a former FTC attorney now working for the public interest group Public Knowledge. 

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“Antitrust alone has never been enough to solve all the concerns that we have, not even all the competition concerns we have, especially in communication industries,” she said. “Antitrust and regulation need to work together.”

Slaiman argued that’s the same situation today with Amazon, Facebook, Apple and Google, adding that regulation would still have to address key issues, like privacy and user data, even with tech giants separated into smaller pieces.

“We need a meaningful baseline that every company is complying with,” she said.

It’s unclear whether existing antitrust law would even allow the government to break up these companies, Slaiman said, adding that it’s up to the Justice Department and FTC to determine if a case can be made. But if there’s reason to believe the companies’ behavior has harmed consumers and violates antitrust laws, Slaiman says the government should pursue those cases.

Hal Singer, an economist teaching at Georgetown University, argues that the current “consumer welfare standard” driving antitrust law isn’t sufficient to actually break apart most of these companies. Take Amazon as an example. 

The company uses algorithms to figure out what products consumers are buying from sellers on its platform, and then it copies those products and often sells them for less. In the short term, consumers are benefitting because they’re saving money. But over time this behavior is harmful because it drives competitors out of business, he said.

During a press conference last week, Jeff Wilke, head of Amazon’s consumer operations, disagreed that this was an issue. He said Amazon offers private-label products, just like most of its competitors and that these products account for only 1% of its sales. 

The company doesn’t use independent sellers’ sales data to create these products and it doesn’t have to — that information is publicly available on Amazon’s bestseller lists, Wilke added.

The 1992 Cable Act playbook

Regardless, Singer suggests a different approach to address this situation. He believes the FTC needs a new standard, outside of antitrust, to police big technology companies that have expanded into adjacent markets.

“Rather than invent something from scratch, Congress could steal a page from the 1992 Cable Act,” he said.

In this legislation, Congress included nondiscrimination rules banning cable providers from favoring channels they own or have investments in over competing channels.  Then it created a venue inside the Federal Communications Commission where companies who feel they’re being disadvantaged can file a discrimination complaint. Cable operators can now be forced to pay back lost profits and stop discriminatory behavior if they’re found to have violated this law.

Singer says creating a similar complaints process for online companies at the FTC wouldn’t require a massive overhaul of antitrust laws. He believes this process could help stop some of the potentially harmful practices of Google, Amazon and Apple, which have been accused of hurting smaller rivals that use their platforms.

For instance, Spotify has accused Apple of using its App Store to censor Spotify’s promotions and delay its app updates to draw more customers to Apple Music. Spotify has already filed a complaint with European regulators to address these allegations.

But Singer acknowledges his solution doesn’t fully address issues with Facebook, since its potentially anticompetitive activity is a little different: The company takes its smaller competitors’ most popular features, like Snapchat Stories, and adds them into its platform.

“Lawmakers need to consider other remedies, including potentially a breakup,” he said.

Singer said an obvious place to start would be unwinding the merger of Instagram and WhatsApp. But whether this would temper Facebook’s willingness to borrow competitors’ features isn’t clear.

Warren’s proposal to bar Facebook from adding such features may help, Singer said. Another option may be to revisit intellectual property protections.

An unlikely path

While the chatter around breaking up big tech is on the rise, the likelihood Facebook or Google will be torn apart still seems remote.

European regulators have taken a tougher stance on big tech than American agencies have — they’ve already fined Google billions of dollars, for instance. But even the EU hasn’t shown a strong interest in breaking up these companies. Margrethe Vestager, the EU commissioner for competition, last month said breaking up Facebook would be “a remedy of the very last resort.”

The FTC’s effort to break up Microsoft in the 1990s offers a good example of how difficult it can be to make such a change happen. The FTC opened an investigation into the software giant in 1990, looking into whether Microsoft was running a software monopoly with its Windows operating system. Ten years later, a federal judge ruled that Microsoft needed to be broken up into two companies. But, that decision was later overturned by an appeals court and Microsoft was allowed to remain intact.

New restrictions were put on the company, which many argue helped open the door for Google to flourish and other web browsers to take hold in the market. But that long fight may have made regulators gun-shy about attempting another huge breakup battle.

For its part, Facebook is calling for more regulation, likely in hopes of avoiding any government breakup efforts.

“I think the right answer is to set up the right rules for the internet, because you could break us up, you could break other tech companies up, but you don’t actually address the underlying issues,” Facebook Chief Operating Officer Sheryl Sandberg said in a CNBC interview last month.

She argued that consumers are interested in Facebook fixing privacy issues and election security, neither of which will be addressed by splitting up the company.

Apple didn’t respond to a request for comment. Facebook referred to Sandberg’s comments, as well as a New York Times opinion piece by Nick Clegg, the company’s vice president for global affairs and communications, in which he defended Facebook against Hughes’ attacks.

“What matters is not size,” Clegg wrote, “but rather the rights and interests of consumers, and our accountability to the governments and legislators who oversee commerce and communications.”

In an interview published Friday by CNN, Google CEO Sundar Pichai raised concerns about regulating big tech firms.

“I worry that if you regulate for the sake of regulating it, it has a lot of unintended consequences,” Pichai told CNN’s Poppy Harlow. He later added: “This doesn’t mean you don’t scrutinize large companies. But you have to balance it with the fact that you want big, successful companies as well.”

When asked if a company like Amazon should be broken up, Wilke last week firmly answered, “No.”

“I think that substantial entities in the economy deserve scrutiny,” he added. “And our job is to build the kind of company that passes that scrutiny.”

With all the new attention these companies are getting from regulators and elected officials, that standard Wilke mentioned may face its biggest test yet.

Originally published on June 11.
Updated, June 14: Adds Google CEO Sundar Pichai’s comments.