FTC Chair kicks off race to tackle big tech before it’s too late

A race seems to be heating up in the US. On one side, government officials are looking to tackle the influence of big tech, and on the other, Silicon Valley is trying to make it as difficult as possible.

Speaking to the Financial Times, Chairman of the FTC Joseph Simons has stated he believes efforts from Facebook CEO Mark Zuckerberg to more intrinsically integrate the different platforms could seriously complicate his own investigation. Back in July, it was unveiled the FTC was conducting a probe to understand whether competition has been negatively impacted by the social media giant.

However, Facebook has gone on the offensive and Simons is clearly not thrilled about it.

“If they’re maintaining separate business structures and infrastructure, it’s much easier to have a divestiture in that circumstance than in where they’re completely enmeshed, and all the eggs are scrambled,” said Simons.

This is the issue which the FTC is facing; Facebook is more closely integrating the separate brands. From a commercial perspective, this will allow the social media giant to cross-pollinate the platforms, potentially increasing revenues and enhancing the data-analytics machine, though it will also make divestments much more difficult to enforce.

Looking across the big names in Silicon Valley, this is a common business practice. The commercial benefits are of course very obvious, but it could be viewed as a defensive strategy in preparation for any snooping from government agencies.

At Google, with the benefit of hindsight, some regulators and politicians might have wanted to have block the acquisitions of Android, YouTube or artificial intelligence firm DeepMind. These acquisitions have led Google to become one of the most influential companies on the planet, though it does appear regulators at the time did not have the vision to understand the long-term impact. Now the services are so deeply embedded and inter-twined it is perhaps unfeasible to consider divestments.

Amazon is another company some of these politicians would love to tackle, but how do you go about breaking-up such a complex business, where the moving parts are becoming increasingly reliant on each-other?

Going back almost two decades, this is not the first-time regulators have attempted to tackle an overly influential player. Thanks to dominance in the PC arena, Microsoft was deemed to be negatively influencing competition when it came to software and applications. Despite Microsoft being forced to settle the case with the Department of Justice in 2001, the concessions stopped far short of a company break-up.

As part of the settlement, Microsoft agreed to make it easier competitors to get their software more closely integrated with the Windows OS, by breaking the company into two separate units, one to produce the operating system, and one to produce other software components. This was a tough pill for Microsoft to swallow, but it was a favourable outcome for the internet giant.

One view on this outcome is that Microsoft managed to structure its business in such a way it became almost impossible to split-up. If the technology giants of today can learn some lessons from Microsoft, they might well be able to circumnavigate any aggression from the US government.

Although the FTC is stealing the headlines here, it is not the only party looking to tackle the influence of Silicon Valley.

The House Judiciary Committee’s subcommittee that deals with antitrust has already summoned Apple, Amazon, Facebook and Google to testify. This investigation is also looking at the potential negative impact these monstrously large companies are having on competition. A couple of weeks later, the Department of Justice also opened its own probe.

Of course, there are also posturing politicians who are aiming to plug for PR points by slamming Silicon Valley. This is a very popular strategy, with the likes of Virginia Senator Mark Warner and Presidential hopeful Elizabeth Warren taking a firm stance. President Trump has rarely been a friend of Silicon Valley either.

Another interest element to consider are the lawyers. Reports have emerged this morning to suggest as many as 20 State Attorney Generals will also be launching their own investigation. The threat of legal action could be very worrying for Silicon Valley, with a number of the lawyers already suggesting they do not like the way the digital economy is evolving, with the concentration of power one of the biggest problems.

The US has generally tolerated monopolies or an unreasonable concentration of power in economic verticals to a point, generally until infrastructure has been sorted, though the pain threshold might be getting to close. This has been seen with a break-up of Standard Oil’s monopoly, as well as splitting the Bell System, a corporation which was a monopoly in some regions for more than a century, into the Baby Bells across North America in the 1980s.

The internet giants will never publicly state they are participating in strategies which in-effect act as a hindrance to government agencies, but it must be a pleasant by-product. First and foremost, the internet giants will want to integrate different products and services for commercial reasons, operational efficiencies or increased revenues for example, however one eye will be cast on these investigations.

It does appear there is an arms race emerging. Government agencies and ambitious politicians are collecting ammunition for an assault on Silicon Valley, and the internet giants are shoring up defences to ensure a continuation of the status quo. This is a battle for power, and its one the US Government could very feasibly lose.

The big promise of politics just got bigger

The Senator Elizabeth Warren campaign roadshow is officially underway, and the tech giants are sitting in the crosshairs.

We might be slightly protected from it in the UK, but politics in the US has become much more about theatre than concrete issues of today. For every campaign launched, there needs to be a monumental promise made which will shake the foundations of society. For Donald Trump, the wall proved to be that divisive point, and for Warren, it is the spearhead of US political and economic dominance on the global stage; the internet economy.

“I want a government that makes sure everybody – even the biggest and most powerful companies in America - plays by the rules,” Warren said in a Medium post.

“And I want to make sure that the next generation of great American tech companies can flourish. To do that, we need to stop this generation of big tech companies from throwing around their political power to shape the rules in their favour and throwing around their economic power to snuff out or buy up every potential competitor.

“That’s why my administration will make big, structural changes to the tech sector to promote more competition — including breaking up Amazon, Facebook, and Google.”

And just like Trump’s wall, in reality this promise is nothing more than a PR plug to grab headlines.

Stepping up the hubris game

President Donald Trump is the master and current reigning champion of this competition.

In 2015, Trump entered the world of politics with wide-sweeping messages of hate, xenophobia and borderline racism. These political sound bites, designed to rouse in Middle America and drive forgotten voters to the polls, culminated in the claim he would force Mexico to pay for a wall which would span the width of the US southern borders. Three years into his presidency, Trump is still searching for the wall’s funding, and Warren could be walking into the same problem.

Breaking up the internet giants, the very companies who drove the US economy for years and have now become the world’s punching bag, is a daunting task. It might sound attractive to voters, the people who seek fortunes but cannot congratulate those who have found them, but what happens if Warren is unable to deliver on the marquee promise of her campaign?

This is the very dilemma which Trump is currently facing. His campaign was built on the promise of the wall, but the world still awaits the delivery. Warren is now promising an outcome which will not come easily, potentially becoming the architect of her own downfall, offering ammunition to critics and opponents.

Big promises = big problems

Warren’s promises are a threat to the giants of Silicon Valley, and you can guarantee the lobby machine has already been kicked up a gear.

First, Warren is promising new legislation which will designate some business activities as ‘Platform Utilities’. Facebook is an example, and it does appear Warren’s vision is to separate the functional aspect of the platform from participation activities. It sounds very logical, but you have to consider that the platform in these companies is essentially run as a loss leader; these platforms are free for the consumer and would not exist if the parent company was not entitled to monetize the user.

“These companies would be prohibited from owning both the platform utility and any participants on that platform,” said Warren. “Platform utilities would be required to meet a standard of fair, reasonable, and non-discriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.”

It would be interesting to hear how Warren thinks Facebook or the Google search engine would continue to function if the ability to make money was removed.

The second major point to consider from this post is the unwinding of what could be perceived as anti-competitive mergers.

At Google, Waze, Nest and DoubleClick are the three transactions which are considered anti-competitive, and therefore under these new plans would be reversed. We believe there are two major issues with this promise.

Firstly, removing these aspects of the business would be incredibly difficult, verging on impossible. This might not be the case for some, Nest for example, however DoubleClick is now so deeply embedded in various different functions of the Google business where do you even start?

Secondly, hindsight is an issue. Some of these transactions are only deemed as anti-competitive because of the success. DoubleClick may well not have been a success without the scale and power of Google. The company is being punished for being good at what it does.

In this case, 1+1+1 = 4. This transaction has been deemed as anti-competitive because of the sum of the parts. Google has collected several different components to make a greater result. Individually, each component is powerful, but the outcome is greater.

The not-so-slumbering giants

Google, Amazon, Facebook and numerous others will not take this aggressive attack on the basic business principles of Silicon Valley lying down.

Warren will not be the only politician to make a move against the wealth, power and influence of the internet giants, but the lobby and legal challenges will be astronomical. Should this promise get anywhere near a draft bill or even legislation to pass through the House, legal challenges will be lodged, PR propaganda will be launched, and in-direct, passive-aggressive threats will be made.

Lawyers are excellent at slowing the wheels of progress, and many of the world’s best lawyers call Silicon Valley home.

We suspect the Warren campaign team has not thought this strategy through entirely, there are too many holes and illogical conclusions. From a conceptual perspective, this is the Mexico wall promise in shape-shifting form. It is a promise which sounds attractive to voters but will be almost impossible to deliver.

That said, theatre in US politics works, and Silicon Valley is home to the bad guys right now. We suspect a political administration hell-bent on breaking-up the internet giants will fail, but it could be a big enough promise to attract votes.