The EU starts hassling US tech companies again

Facebook and Qualcomm look set for another round of scrutiny from the European Commission around their business practices.

According to the WSJ, Facebook is being asked to hand over internal documents to EU antitrust investigators so they can have a deeper look into whether or not it used dirty tricks against its competition. The allegation is that Facebook made use of its users’ data to skew the market in its favour by bribing partners to stay loyal.

That’s the sort of thing Qualcomm has got into trouble with the European Commission about in the past and, according to Reuters, lightning may be about to strike twice. Qualcomm revealed in a regulatory filing accompanying its recent quarterlies that the EU is investigating whether it abused its dominant position in radio frequency front-end chips.

It seems the EU is concerned that Qualcomm is using its near monopoly in 5G modems to strongly encourage customers to buy its RF chips too. Apparently sales of RF chips were a factor in issuing a better than expected forecast. As ever this will all drag out as lawyers and antitrust types get bogged down in the minutiae of it all, but it seems clear that the EU’s appetite for hassling US tech companies is undiminished.

France fines Google another €150 million

The French antitrust authority has fined Google €150 million for applying opaque and difficult to understand rules in an inconsistent manner.

The Autorité de la Concurrence is now pressing the internet giant to clarify the rules and working of Google Ads, as well as the accounts suspension procedure. Google has said it will appeal the decision in the country where it has faced regular criticism and fire.

“The way the rules are applied give Google a power of life or death over some small businesses that live only on this kind of service,” said Isabelle de Silva, President of the watchdog.

While Google has a significant market share position in the country, in the region of 90%, it seems there is not much the search giant can take away from this decision aside from wide-sweeping changes.

Not only are the rules being challenged in terms of the complexity and accessibility, but the operations of the company are also being heavily criticised. Strict and complex rules are not necessarily a bad thing, assuming they are applied in a consistent and predictable manner. This does not seem to be the case here, which will perhaps be the most frustrating area for French businesses who just want to make money.

Although this is news today, what should be noted is that the investigation was launched four years ago. Gibmedia, a company which operates a range of websites including weather forecasts, challenged the rules after Google suspended its account immediately and without explanation. This might be seen as a win for Gibmedia, though the fact it took four years for French authorities to come this conclusion is nothing short of embarrassing.

Google giving up on Turkey

Google has announced that new Android devices sold in Turkey will no-longer be sold with its own applications pre-installed following an antitrust dispute with authorities in the country.

“We’ve informed our business partners that we will not be able to work with them on new Android phones to be released for the Turkish market,” Google confirmed in a statement.

“Consumers will be able to purchase existing device models and will be able to use their devices and applications normally. Google’s other services will be unaffected.”

Android will of course be still available in the country, it is an open-source operating system after all, though Google has informed business partners in the country it will no-longer be able to work with them thanks to the friction with the Turkish Government.

The words Google and antitrust do of course sit together as comfortably as Bill and Ben, though it seems there is little chance of resolving this conflict in the immediate future. Google was found to be in the wrong following an antitrust investigation, though it has been unable to align itself to the demands of the authorities to move forward.

As part of the antitrust conclusion, Google was forced to pay 93 million lira ($17.4 million) and make changes to contracts with its business partners. Google complied, though on November 7, Turkey’s competition board said the changes were not sufficient.

The original complaint was filed by Russian search firm Yandex, with Turkish authorities hoping Google would allow consumers to choose which search engine was default on new devices. This was never going to be something Google would agree to, it undermines the business model after all, hence the situation today.

Google now has 60-days to appeal the decision, and while it might be uncomfortable for the moment, we cannot see the Turkish authorities winning this battle. Google holds the cards here; if it doesn’t like the situation it can always threaten to abandon Turkey, leaving Yandex the opportunity to distort competition. We struggle to see this being a palatable outcome for the Turkish competition board.

Report: FTC expands scope of Amazon antitrust probe to include AWS

Amazon has been offered an early Christmas present from the Federal Trade Commission (FTC) by extending an existing antitrust probe to include its burgeoning cloud business.

According to Bloomberg, FTC investigators have begun questioning customers about AWS, allegedly focusing on whether the dominance of AWS is impacting competition in the cloud segments. While this probe does not necessarily mean any action against the company, Amazon executives will not be thrilled at the attention.

As it stands, AWS is the clear market leader in the cloud computing market, largely thanks to being first to market with services but also due to the significant infrastructure footprint it has developed over recent decades. Although estimates vary, AWS has been deemed the market leader, with just below 50% market share, with Google and Microsoft the other players with significant market share.

It is believed the probe is looking at how potential competitors interact with AWS customers and the company itself. One area the probe will address is whether AWS is effectively punishing software companies who work with its cloud rivals and incentivising others to work with AWS exclusively.

This investigation is part of a larger, sweeping trend with greater scrutiny being placed on Big Tech. Amazon’s retail business is at the heart of an existing FTC antitrust probe, while Google, Apple and Facebook are also facing their own competition investigations from a variety of authorities. Some might presume these enquiries are being made as the first steps towards diluting the influence of Big Tech, and in some cases, breaking-up the internet giants.

Although significantly younger than the retail business units of Amazon, AWS has been collecting the lion’s share of profits for the firm in recent years. Amazon was famously known as the technology giant which never generated profits, though that changed in recent years, partly thanks to the rise of AWS.

Looking at the most recent quarterly earnings report, total revenues for Amazon increased to $70 billion for the three months ending September 30, with operating income at $3.1 billion. AWS accounted for $2.2 billion of this operating income on net sales of $8.9 billion for the quarter. Across the year to date, AWS accounts for 61% of the total operating income of Amazon.

Antitrust probes are of course nothing new to Amazon, though a few executives and investors might get a bit twitchy that it is the profit machine which is facing enquiries now.

Intel fires one final bullying accusation at Qualcomm

Months following the well-publicised sale of its smartphone modem business to Apple, Intel has hit out at Qualcomm, accusing the semiconductor giant of market dominance misbehaviour.

Intel has now filed a brief with the US District Court of Northern District of California supporting the Federal Trade Commission (FTC) and opposing Qualcomm’s appeal, as the semiconductor giant fights against the condemning decision it is unfairly destroying market competition.

“Intel agrees with the District Court’s findings,” said Intel General Counsel Steven Rodgers.

“Intel suffered the brunt of Qualcomm’s anticompetitive behaviour, was denied opportunities in the modem market, was prevented from making sales to customers and was forced to sell at prices artificially skewed by Qualcomm. We filed the brief because we believe it is important for the Court of Appeals to hear our perspective.”

The anti-competition spat between the FTC and Qualcomm has been going on for years now, though it did seem to come to a head over the summer. The District Court ruled Qualcomm was abusing its position as market leader, strangling competition with unfair pricing models to effectively maintain a monopoly, though Qualcomm filed an appeal in July to reverse the decision.

Although Intel now has no skin left in the game, it sold its own 5G modem business to Apple earlier this year, reportedly for $1 billion, it is seemingly attempting to throw one last bitter barb at Qualcomm.

Intel has said in the filing that it was forced to exit the market because of the anti-competitive behaviour of Qualcomm. Through complicated and suspect contract negotiated with customers, Intel could not make the business profitable, which it now argues ultimately creates a negative gain for the consumer.

Interestingly enough, this is not the only voice of support for the FTC and in opposition of the Qualcomm appeal. Trade groups representing the likes of BMW, Continental, General Motors and Ford have also said if Qualcomm wins the appeal and is allowed to continue its current business model, it would create a precarious position for the emerging connected car segment.

On the other side of the fence, Qualcomm is mustering its own support. The US Department of Justice, the Cause of Action Institute and the Alliance of US Start-ups and Investors for Jobs have all filed amicus briefings in support of Qualcomm, and a reversal of the original antitrust decision from the US District Court.

While being found guilty of anticompetitive behaviour is nothing new for Qualcomm, it has faced already faced hefty fines in Korea, Taiwan and Europe, this legal work is bread and butter for Qualcomm. This is a company which has an army of lawyers and seemingly specialises as much in the legal world as the technology one. Qualcomm will fight this ruling to the dying breath, as while a fine is certainly unattractive, the decision fundamentally undermines the business model which has brought billions to the firm.

Zuckerberg comes out swinging in face of break-up tension

Via a leaked audio-recording of a Facebook townhall meeting with employees, Facebook CEO Mark Zuckerberg has taken a combative position in the face of increasing pressure.

Taking questions from Facebook employees, Zuckerberg has taken a much more forthright and confident stance than he generally does when in the shiny lights of the public domain. The leaked audio files, courtesy of the Verge, paint a picture of a man who is prepared to go to war to protect the gargantuan company he has built over the last decade.

“So, there might be a political movement where people are angry at the tech companies or are worried about concentration or worried about different issues and worried that they’re not being handled well,” Zuckerberg said.

“That doesn’t mean that, even if there’s anger and that you have someone like Elizabeth Warren who thinks that the right answer is to break up the companies … I mean, if she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge.”

Presidential hopeful Elizabeth Warren, the Democrat Senator representing Massachusetts, is looking like the biggest political opponent of Silicon Valley. And it is becoming increasingly clear Facebook is enemy number one.

But perhaps these comments indicate just why Washington and its political leadership is acting so aggressively towards the likes of Facebook, Google and Amazon. These are companies who no-longer fear the political establishment. They are arguably more influential, and as you can see from the comments above, they believe they have the upper-hand when it comes to legal arsenals.

As we have mentioned before, this is one of the reasons we suspect politicians are taking such a firm stance against Silicon Valley in 2019. Not only are the actions and business models of these firms’ easy pickings for PR points, Washington DC seemingly does not like it is not the most influential neighbourhood in North America anymore.

On the other side of the debate, Warren has not kept her opinions about Facebook to herself or even attempted to disguise that some of the tweets have been directed towards Zuckerberg.

“We have to fix a corrupt system that lets giant companies like Facebook engage in illegal anticompetitive practices, stomp on consumer privacy rights, and repeatedly fumble their responsibility to protect our democracy,” Warren said in one tweet.

“Zuckerberg himself said Facebook is ‘more like a government than a traditional company’. They’ve bulldozed competition, used our private information for profit, undermined our democracy, and tilted the playing field against everyone else,” she said in another.

“Facebook’s anti-competitive mergers mean they face no real pressure to tackle disinformation. They won’t even do the bare minimum to improve transparency. Tech giants shouldn’t be able to wield enough power to undermine our democracy,” a final one read.

Facebook seems to be the focal point of Warren’s anger, though this might be down to the leaked audio, as well as the concentration of power at Facebook. Zuckerberg himself has admitted that his voting power at the company has made him a target for the politically ambitious, though this is not the only company which is facing pressure.

All of the major players in the Big Tech fraternity are becoming targets and it the raising temperature might hit boiling point before too long. Some of these companies might be willing to accept fines simply because they don’t make that much of a dent in the spreadsheets, but it would not be a surprise to see some aggression coming back the other direction before too long.

Silicon Valley and Washington DC both have ambitions to be the most prominent voice in the ears of the US consumer, but only one can secure that mantle.

US general public in favour of breaking up Big Tech

The technology industry has caught the sharp-end of the stick from point-scoring politicians in recent months, however it does appear the aggressors are representative of the people.

It should not be considered unusual to see some of the rhetoric stepped-up a level with the Democratic Presidential Candidate heating-up, though that could only be the tip of the iceberg. Recent election campaigns have seemingly specialised in grand promises, see Brexit and 2016 Presential Election, and there is little evidence sanity will be restored to the political arena.

The technology industry is an easy target for these imposing statements, and this seems unlikely to change.

According to research from think tank Data for Progress, almost two-thirds of the US general public support the notion of breaking-up big tech. And worryingly for the residents of Silicon Valley, the boundaries of political divide seem to matter very little. It does appear everyone has it in for Big Tech.

Of those who identify as in support of the Democrat party, 29% and 34% either strongly or somewhat support the break-up of big tech to encourage more competition. For Republican supporters, the numbers are 29% and 31%, and for those who identify as independent, 32% and 34% support the move.

These questions are quite generalist, but there is support to tackle the growing influence of Silicon Valley and its powerful residents. One of the reasons for this might be the highly-publicised data scandals which has dominated headlines over the last 12-18 months. The frequency of these incidents does not paint a favourable light on the ability or attitude of Big Tech.

More interesting research which builds this momentum comes from research firm Morning Consult.

Morning Consult research

As you can see from the graph above, the majority of respondents to the survey either support the continuation of the current scrutiny of the technology industry or would want to see it increased. Considering the current political position is uncomfortable for Big Tech, these numbers will not be soothing.

Interestingly enough, perhaps the biggest aggressor from the Democrat side of the political arena is gathering momentum in the battle for a nomination. Former Vice-President Joe Biden might have been the bookies favourite for the Democrat nomination for some time, though it appears Massachusetts Senator Elizabeth Warren is putting-up a very credible challenge.

Polling data from CNN suggests Warren is leading the race for the Democrat nomination, though this position could gather momentum as the process unfolds. As more potential nominees drop out of the race, votes will be dispersed amongst the remaining contenders; 20% have selected Warren as their next-best choice, with Biden only collecting 10% of the reshuffled votes.

It is way too early to make any predictions regarding the nominees or the outcome of the 2020 election, though there is another forecast worth bearing in mind. According to Real Clear Politics, a website which aggregates polling opinions from different news outlets in the US, if the election was to be held tomorrow, Warren would beat Trump, however Biden would lose comprehensively.

Again, this data has to be taken with a pinch of salt, there is a lot which can change over the next twelve months, but some will be sitting uncomfortably in Silicon Valley. Traditionally, the Democrat party has been much more politically aligned with the emerging technology segment, though Warren is one of the most aggressive critics.

Announcing her intention to compete for the keys to the White House in March, Warren has made the issue of Big Tech the focal point of her campaign. This is the big-ticket promise that we mentioned earlier in the article; Warren was one of the first to suggest the break-up of Big Tech and the reversal of acquisitions which look anti-competitive with the benefit of hindsight.

Since this point, the critical crowd has grown. The FTC is investigating Facebook for its acquisitions of WhatsApp and Instagram, as is the House Judiciary Committee. Google is at the centre of a      Department of Justice and House Judiciary Committee enquiry. The Apple App Store is facing an anti-competition probe, and Amazon’s eCommerce platform is under investigation as well.

Although all of these investigations are geared towards the activity of a single company, the outcome will set precedent which can be applied throughout the rest of the industry. If one loses, everyone in Silicon Valley is exposed to the same dangers.

Big Tech bosses might have expected the criticism and scrutiny would have continued, though these individuals might not have thought the general public would care so much.

50 US Attorney Generals sign-up to Google antitrust investigation

Usually, when you put 50 lawyers in a room together, it’s a bloodbath, but Google has seemingly done the impossible; united them all behind a single cause.

Led by Ken Paxton, the Attorney General representing the State of Texas, the coalition brings all except two State Attorney General’s on board, California and Alabama, as well as the legal minds representing Washington DC and Puerto Rico.

“Now, more than ever, information is power, and the most important source of information in Americans’ day-to-day lives is the internet,” said Paxton. “When most Americans think of the internet, they no doubt think of Google.

“There is nothing wrong with a business becoming the biggest game in town if it does so through free market competition, but we have seen evidence that Google’s business practices may have undermined consumer choice, stifled innovation, violated users’ privacy, and put Google in control of the flow and dissemination of online information. We intend to closely follow the facts we discover in this case and proceed as necessary.”

Paxton has pointed out in the statements that the Government and its agencies does not have an issue with a dominant market player (we don’t believe this however), but it must maintain this dominance by playing within the rules. This is where Paxton believes Google has become non-compliant with US law; it is stifling competition and the choice for consumers.

The difficulty the legal coalition will face in this investigation to start with is the reason behind Google’s market domination; it offers the best search service on the web. Some might disagree, but we believe it is the most effective and accurate internet search engine available. This will be one of the reasons behind the continued dominance, though there are of course others; these other factors will determine whether Google is abusing this position of dominance.

One area which might become of interest to the Attorney Generals is the roll of acquisitions in maintaining this leadership position. Of course, M&A is a perfectly valid means of growing a business, though should such transactions be deemed as a means for Google to kill off any competition which could potentially emerge, this would be a violation of antitrust laws.

This is where the probes will find it very difficult to fight against Google and the other giants of Silicon Valley; can anything be done against potentially anti-competitive acquisitions? In the Google case, some might suggest it shouldn’t have been allowed to acquire both Android and YouTube to supplement its PC search advertising business. This suggestion is of course made with hindsight, though there will be some who will attempt to do something about it.

Elizabeth Warren, the Democrat Senator for Massachusetts and potential opponent for President Trump in the 2020 Elections, has already promised to break-up the tech giants. FTC Chairman Joe Simons is another who has the divestment ambition, though he has stated it would have to be done sooner rather than later, as Big Tech is manoeuvring assets and operations in an attempt to make any divestments almost impossible.

What this investigation does offer is another layer of scrutiny placed on the internet giants. This investigation might well be directed at Google, but any precedent which is set could be applied to the other residents of Silicon Valley.

When you actually stand back and look at the investigations which are on-going, the US Government is creating a swiss cheese model of legal nightmares for the internet giants. The more layers which are applied, the less likely Big Tech can squeeze through the legal loopholes and come out unscathed on the other end. The likes of Google will have the finest legal minds on the payroll, but the legal assaults are coming quickly, and from all angles.

Aside from this investigation, Google has also recently confirmed it is at the centre of a Department of Justice probe and is also facing the House Judiciary Committee’s examination into big tech antitrust. And then it will have to consider the potential implications of other enquiries.

Facebook is being investigated by the FTC for its acquisitions of WhatsApp and Instagram, as is the House Judiciary Committee. New York Attorney General Letitia James is asking whether the social media giant has damaged the consumers lives through its operations. Finally, the House Financial Services Committee as well as the Senate Banking Committee is investigating the Facebook push into cryptocurrency.

At Amazon, the FTC is investigating how the eCommerce giant competes against and aids third-party sellers on its platform, while at Apple, the House Judiciary Committee probe is attempting to understand whether the commission it takes from developers through the App Store is anti-competitive.

Each of these investigations will create precedent which can be applied to others in the Silicon Valley fraternity. It also gives any failed attempts to limit the potential of Big Tech another opportunity. There are plenty of irons in the fire and Silicon Valley will do well to avoid a branding altogether.

With the sheer volume, breadth and depth of investigations scrutinising the business models of the internet giants, it is starting to become impossible to believe the regulatory status quo will be maintained. The sun might be setting on the Wild West Web.

To date, Silicon Valley has enjoyed what should be considered a very light-touch regulatory environment. For us, there are two reasons for this.

Firstly, regulators and legislators simply could not keep up with the progress being made by the technology industry, or perhaps did not foresee the influence these giants might be able to wield. Whether it is a shortage of bodies, skilled workers being snapped up by private industry or simply too many different segments to regulate, the progress of technology leapt ahead of the rules which were supposed to govern it. The internet giants have been profiting greatly off this regulatory and legislative void.

Secondly, you have to wonder whether regulators and legislators actually wanted to put the reigns on the digital economy and the power houses normalising it in the eyes of the consumer. These companies are driving economic growth and creating jobs. The US is at the forefront of an industry which will dominate the world for decades to come; why would the Government want to stifle the industry which is keeping the US economy at the head of the international community.

With both of these explanations, perhaps it has gotten to a point where excess is being realised. The technology industry has become too powerful and it needs to be reigned in. Some might argue that Silicon Valley has more influence than Washington, which will make some in Government feel very uneasy.

Google confirms it is in the DoJ crosshairs

The technology industry is facing regulatory and legislative assaults from all angles, and Google has confirmed it is attempting to help the Department of Justice with its own investigation.

It should perhaps be considered second-nature for Google to be dealing with some sort of investigation. It has been the subject of dozens of probes over the last few years, though there are some weighty ones on the horizon.

“We have answered many questions on these issues over many years, in the United States as well as overseas, across many aspects of our business, so this is not new for us,” said Kent Walker, SVP of Global Affairs at Google.

“The DOJ has asked us to provide information about these past investigations, and we expect state attorneys general will ask similar questions. We have always worked constructively with regulators and we will continue to do so.”

In July, the Department of Justice announced an antitrust investigation, though the subjects were not explicitly named. The probe will focus on how online platforms achieve market dominance and whether they are stifling competition and therefore innovation.

Aside from this probe, momentum is gathering to attack Silicon Valley. New York Attorney General Letitia James is looking into antitrust violations at Facebook, which could set some pretty damaging precedent. The House Judiciary Committee’s antitrust subcommittee is also conducting its own investigation, and soon enough Texas might be entering the fray.

Texas Attorney General Ken Paxton has asked the press to gather on the steps of the United States Supreme Court Building in Washington DC later on today to be briefed on yet another antitrust investigation. Details are thin here for the moment, however it is another headache for Silicon Valley to consider.

The next couple of weeks will offer much more colour to the investigations, however it is becoming increasingly obvious the technology industry is going to be very different in a few years’ time. It does appear the days of the Wild West Web are coming to a close.

Multiple US states open Facebook antitrust investigation

An investigation has commenced in the US into possible abuses of Facebook’s market dominance regarding data, advertising and consumer choice.

The leader of the investigation is New York Attorney General Letitia James, but she has got her contemporaries from Colorado, Florida, Iowa, Nebraska, North Carolina, Ohio, Tennessee, and the District of Columbia to muck in too. They all, apparently, are uneasy about the effect Facebook’s dominant market position has on all kinds of competition.

“Even the largest social media platform in the world must follow the law and respect consumers,” said James. “I am proud to be leading a bipartisan coalition of attorneys general in investigating whether Facebook has stifled competition and put users at risk. We will use every investigative tool at our disposal to determine whether Facebook’s actions may have endangered consumer data, reduced the quality of consumers’ choices, or increased the price of advertising.”

Yet to be announced by James, but widely reported nonetheless, is a parallel and similar investigation by the same AGs into Google. Of particular interest in both cases seems to be the digital advertising market, which is dominated in the US by the companies in question, as you can see from the chart below from eMarketer.

emarketer us digital ad spend

Since digital now accounts for the majority of ad spending it’s legitimate to be concerned about such a large market being dominated by so few players. Having said that it’s also reasonable to note that Google and Facebook have reached this position by competing in the open market and to the victor go the spoils. But however you achieve a dominant market position, once you do different rules apply to you and there’s plenty of precedent for such companies facing significant sanctions.