What Google, Apple, Amazon, and have at stake in the antitrust fight
On Tuesday afternoon, the House Judiciary Committee issued its final report on its investigation of competition in digital markets, the end result of years of research and hearings.
Technically, there were three reports: a majority opinion from Democrats and two others from different Republican factions, part of an ongoing split in congressional efforts to bring tech companies in line.
But while the politics of the documents are byzantine, the message of the majority report is crystal clear: Apple, Amazon, , and Google have gotten too powerful. Over 449 pages, the report lays out a playbook for how to pare back that power and use the conventional tools of antitrust law to reshape the digital world.
The report is comprehensive, and it takes on each company from a different angle, laying out different problems and proposing different solutions.
Despite the “Big Tech” moniker, these are four very different companies, and the usual antitrust remedies will affect them very differently.
In the piece below, we’ll walk through each step and break down exactly what the Democrats’ antitrust plan could mean for their future.
Amazon has significant and durable market power in the U.S. online retail market…The platform has monopoly power over many small- and medium-sized businesses that do not have a viable alternative to Amazon for reaching online consumers.
The new wave of antitrust efforts started with Amazon, so it’s no surprise that this latest report has the best feel for how to take on the e-commerce giant.
The case is roughly what legal scholar Lina Khan laid out in her pivotal 2017 paper “Amazon’s Antitrust Paradox” — no surprise since Khan served as senior counsel to the committee.
(Amazon offered a lengthy rebuttal to the argument on Tuesday, arguing it faces stiff competition from brick-and-mortar stores and that the sprawling business lines benefit consumers.)
“The dominant platforms collect real-time data … akin to near-perfect market intelligence.”
The paper and the report both argue that Amazon is controlling the path to market for e-commerce goods. If you want to sell socks online, the best place to do it is Amazon.
com, which makes it awkward when Amazon starts its own white-label socks business.
In the words of the report, this means “market participants that depend on Amazon’s retail platform are effectively forced to accept its demands—even in markets where Amazon would otherwise lack the power to set the terms of commerce.”
Amazon’s counterargument has traditionally been to refer to brick-and-mortar competitors Walmart, which have no problems offering store-brand cereal alongside name-brand competitors. But the judiciary report argues the broad scope and far reach of digital markets makes Amazon different.
“The dominant platforms collect real-time data which, given the scale of their user-base, is akin to near-perfect market intelligence,” the report argues. “Whereas firms with a choice among business partners might seek to protect their proprietary data, the platforms’ market power lets them compel the collection of this data in the first place.”
By the standards of tech antitrust, the problem here is fairly simple: Amazon is running too many businesses at once. The report proposes new rules that would prevent intermediaries Amazon from competing with firms that depend on their infrastructure and, in some cases, prevent them from entering certain businesses at all.
(These are the “structural separations and line of business restrictions” described on page 377.) On the platform side, the report calls for new non-discrimination rules that would prevent the company from privileging its own products over competitors — and hold it legally liable if it does.
Both are classic anti-monopoly measures, previously applied to railroads, cable companies, and banks.
But while we know what this kind of regulation looks for railroads, it’s a harder question what it would mean for Amazon. The company has run a successful white-label business with Amazon Basics, but it’s not that hard to imagine those brands being spun off or pared back. Amazon’s balance sheet would certainly take a hit under non-discrimination rules, but the Amazon.
com homepage might come out looking more or less the same. The impact would be even harsher for Amazon Prime, which began with special deals and accelerated shipping from the commerce platform, but has sprawled out into a full-fledged streaming service and in-house movie studio. It’s hard to say what an unbundled Prime would look , and it might simply cease to exist.
The strong network effects associated with have tipped the market toward monopoly such that competes more vigorously among its own products—, Instagram, WhatsApp, and Messenger—than with actual competitors… ’s monopoly power is firmly entrenched and unly to be eroded by competitive pressure from new entrants or existing firms…. In the absence of competition, ’s quality has deteriorated over time, resulting in worse privacy protections for its users and a dramatic rise in misinformation on its platform.
In contrast to Amazon, gets off strangely light from the antitrust report.
As longtime Google antagonist Luther Lowe pointed out on , the report’s “Dominant Online Platforms” section spends the fewest pages on : just 37, compared to 68 pages for Amazon and 71 for Google.
In large part, that’s because the committee isn’t dealing with data privacy (where much of the regulatory action against has focused), and the company’s monolithic network power is a poor fit for traditional anti-monopoly action.
“In the absence of competition, ’s quality has deteriorated over time.”
The biggest bombshell to emerge from the hearing was a new look into the circumstances surrounding the Instagram acquisition, which internal emails cast as a play to stifle a potential competitor before it could become a threat. The report’s section mostly covers the same ground, unpacking exactly what it means and why ’s market power as a social network is so difficult to challenge.
But splitting up and Instagram is more of a job for the Justice Department, and few of the report’s suggested remedies would change that situation.
The report proposes tougher scrutiny for future acquisitions, along with interoperability rules that would bring US law more in line with Europe’s General Data Protection Regulation (GDPR) — but nothing that would impact the day-to-day dominance of .
The most significant measure is the non-discrimination rules, which would place limits on how is allowed to manage its network. But compared to Google search or Amazon’s Everything Store, ’s platform simply isn’t that important for competitors. As a result, the Judiciary Committee mostly leaves the problem to other agencies.
Apple exerts monopoly power in the mobile app store market, controlling access to more than 100 million iPhones and iPads in the U.S…..
In the absence of competition, Apple’s monopoly power over software distribution to iOS devices has resulted in harms to competitors and competition, reducing quality and innovation among app developers, and increasing prices and reducing choices for consumers.
When Tim Cook appeared before the Judiciary Committee in July, there were few prominent examples of the company using its App Store powers to crush rivals — but it only took two weeks for that to change.
On August 13th, Apple had a high-profile split with Epic Games, ultimately cutting off the iOS version of Fortnite over a payment processing dispute.
The dispute is still working its way through the courts, but it has made Apple’s monopoly over iOS software impossible to ignore.
“Our company does not have a dominant market share in any category where we do business.”
The Fortnite case is only mentioned a few times in the report, but it looms in the background of most of the report’s analysis, alongside similar complaints from Basecamp and Protonmail.
It also casts a shadow on power plays that might have previously seen as benign, making Safari the permanent default browser for iPhones until iOS 14.
There’s a long history of Apple Sherlocking popular iPhone apps, and the judiciary report makes it clear that some lawmakers see every case as a potential monopoly claim.
As you might expect, Apple vigorously contested the idea that it was a monopoly. “We have always said that scrutiny is reasonable and appropriate but we vehemently disagree with the conclusions reached in this staff report with respect to Apple,” a representative said. “Our company does not have a dominant market share in any category where we do business.”
Still, the proposed non-discrimination rules would have a fairly immediate impact on Apple. For years, Apple has refused to let third-party apps use NFC on the iPhone — a crucial barrier for any third-party payment apps hoping to compete with Apple Pay.
Default apps for music and weather would get a close look from regulators, and it’s ly that the App Store rankings would become more transparent and equitable. But while the disruption would be significant, Apple’s core hardware business would ly remain untouched.
Even services Apple Music and Apple TV Plus would ly remain unchanged, although they would have to work that much harder to fend off rivals.
The bigger question is what happens to Epic and all the other companies hit by the so-called “Apple Tax.” The committee talked to Match Group, Spotify, and lots of other companies pushing for some kind of rollback on Apple’s 30 percent App Store commission, but the judiciary report stops short of calling for an end to the fees.
In theory, the “structural separations” language could apply to the App Store, but it’s a stretch, and the committee’s language doesn’t single out Apple as a particular offender. And un Google and or and Instagram, it’s hard to imagine a regulator spinning off the App Store into a separate company from the iPhone.
The two products are too closely linked, and for the most part, the judiciary report doesn’t attempt the difficult work of separating them. If Epic gets relief from Apple, it’s most ly to come from the courts, which will probably rule on the issue long before Congress has a chance to act on these recommendations.
In the meantime, the Apple Tax seems to be outside the scope of the antitrust crusade.
Google has a monopoly in the markets for general online search and search advertising.
Google’s dominance is protected by high entry barriers, including its click-and-query data and the extensive default positions that Google has obtained across most of the world’s devices and browsers.
A significant number of entities—spanning major public corporations, small businesses, and entrepreneurs—depend on Google for traffic, and no alternate search engine serves as a substitute.
Of the four companies at the antitrust hearing in July, Google is probably the one that has been investigated the most.
For years, European antitrust regulators have been paring back the company’s powers, and the US Department of Justice is expected to launch its own massive investigation in a matter of weeks.
For other tech companies, regulatory action is a hypothetical threat, but for Google, it’s an everyday reality.
“No alternate search engine serves as a substitute.”
Because of that, Google seems to have done the most lawyering work on the specific details of the report.
Longtime critics of the company have marveled at Google’s maneuvers in dealing with the committee — first denying that it held dominant market share and then claiming that it didn’t track the metric, even as internal emails seemed to show otherwise.
On some level, it’s ridiculous: of course, Google is the most popular search engine, and Chrome is the most popular browser. Why beat around the bush?
But if you accept that Google holds a central position on the web, a lot of other conduct starts to look more suspicious. The report details intense data-scraping from sites Genius and Celebrity Net Worth, essentially turning the sites into data-feeders for Google search.
Google’s own products Maps and Shopping have been steadily eating up real estate on the search page. At the same time, Google has been striking an ever-harder bargain with its business partners.
One partner testified that the price of using the Google Maps API skyrocketed in late 2018, changing their bill from $90 to $20,000 a month from October to December of that year. To would-be regulators, that looks a lot monopoly power at work.
There is a lot of soft power at work in these deals, and most of it has simply never been visible before, which makes it hard to say what Google would look without them.
The remedies proposed by the judiciary report look an awful lot what’s happening in Europe already — and what’s ly to be pressed as part of the Justice Department’s case.
most antitrust actions, they would be bad for their target and good for the competition — but how much of Google would be left on the other side? Would Chrome still be a dominant browser if it wasn’t getting a boost from Google search? Would search have faced more competition if it wasn’t bundled into Android? It’s a puzzling question, as much for Google as for the industry-watchers around it. But with House Democrats pushing this hard, it’s more ly than ever that we’ll find out.
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The Big Tech antitrust report has one big conclusion: Amazon, Apple, , and Google are anti-competitive
CEO Mark Zuckerberg testifying in Congress in 2019.
Bill Clark/CQ-Roll Call, Inc via Getty Images
A long-awaited report from top Democratic congressional lawmakers about the dominance of the four biggest tech giants had a clear message on Tuesday: Amazon, Apple, , and Google engage in a range of anti-competitive behavior, and US antitrust laws need an overhaul to allow for more competition in the US internet economy.
“To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons,” the report’s introduction states.
The 400-plus page report, written by the majority staff of the Democratic members of the House Judiciary Subcommittee on Antitrust, is the result of a 16-month investigation into whether these corporate giants abuse their power, and whether the country’s antitrust laws need to be reworked to rein them in.
The report released Tuesday cites numerous examples of each tech titan engaging in acts that the lawmakers believe have hurt innovation and impede competition.
While the anti-competitive behaviors cited vary from company to company, they are all linked by the allegation that the four giants abuse their gatekeeper status in various internet industries to secure and grow their market power in those sectors and others.
So what’s the solution? The report recommends creating new laws that would potentially break up tech companies and make it harder for them to pursue acquisitions; it also calls for clarifying existing antitrust laws with the goal of making them easier to enforce, particularly for tech companies. For now, the report’s recommendations are only high-level guidance to Congress for potential future legislation; it won’t lead to immediate action against these companies.
The release of the report was complicated on Tuesday by news that the Republican lawmakers in the House Antitrust Committee refused at the last minute to sign the report with their Democratic colleagues. Instead, Rep. Ken Buck (R-CO) and Jim Jordan (R-OH) each plan to release their own reports.
Buck’s report, a draft of which Politico published on Monday, largely agrees with the Democrats’ conclusion that the big four tech firms have amassed too much power.
But he disagrees with Democrats on how to fix the problem: Instead of creating new laws, Buck’s memo calls on Congress to fund and empower regulatory agencies and government departments the Federal Trade Commission (FTC) and Department of Justice (DOJ) to go after Big Tech under existing laws.
Jordan’s report hasn’t yet been released, but Reuters coverage indicates it will focus on so-far unproven claims of tech companies’ supposed anti-conservative bias, which he has shouted over his colleagues about in previous hearings.
These partisan divides are somewhat besides the point: Regardless of the specifics of how they advise to go after Big Tech, the fact that Republicans and Democrats agree that these companies pose a threat to the free market is significant.
“This is the first time since the 1970s that a congressional committee has devoted this kind of attention to dominant firms … and changing the structure of a major American industry,” said William Kovacic, the Republican former chairman of the FTC.
Here’s a breakdown of some of the key claims the report makes about each of the four major tech giants:
With Amazon accounting for nearly 40 percent of all e-commerce sales in the US — making it more than seven times larger in this arena than No. 2 Walmart — the Democrats’ report argues that the tech giant has used its powerful position in anti-competitive ways.
(The report also alleges that Amazon’s US e-commerce market share is closer to 50 percent or more in the country, rather than the near-40 percent figure commonly cited estimates from the research firm eMarketer).
The report argues that the company unfairly gleans data and information from its third-party sellers that it uses to strengthen the retail side of its business, including favoring its own product brands over those of competitors, giving this merchandise exclusive merchandising space on its virtual shelves, and prioritizing it in search results.
Another criticism is that Amazon can charge sellers ever-increasing fees because of its dominant position, and that most sellers and brands have practically no negotiating power due to their reliance on the Amazon sales channel. Amazon also penalizes sellers for selling their merchandise for lower prices on other retail sites.
Amazon released a company blog post in response to Tuesday’s report, calling it “flawed thinking” that Amazon is engaging in anti-competitive business practices, and that antitrust regulatory action “would have the primary effect of forcing millions of independent retailers online stores.”
“All large organizations attract the attention of regulators, and we welcome that scrutiny. But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong,” reads the post.
Tuesday’s report argues that has expanded its monopolistic power in the social media industry by using a “copy, acquire, kill” strategy against its competitors, and by unfairly hurting rival companies Instagram (which the company purchased in 2012).
Specifically, the report argues that ’s acquisition of Instagram was a blatant attempt to “neutralize a nascent competitive threat.” The report alleges that after bought Instagram, it intentionally stymied the photo-sharing app’s success so that it wouldn’t compete with internally.
The report cites a slew of internal emails, memos, and testimony from senior-level employees, including CEO Mark Zuckerberg, which support the argument that crushed Instagram by exerting monopoly power.
In one email, Zuckerberg told ’s former CTO that “ that he had “been thinking about … how much  should be willing to pay to acquire mobile app companies Instagram … that are building networks that are competitive with our own.” The report argues this proves that Zuckerberg had anti-competitive interests from the beginning.
The report also cites a former senior-level Instagram employee who told Congress that Zuckerberg oversaw “brutal infighting between Instagram and ” after the acquisition, with Zuckerberg slowing down Instagram’s natural growth to benefit proper. The Instagram whistleblower went so far as to call it “collusion, but within an internal monopoly. … It’s unclear to me why this should not be illegal.”
As part of their investigation, the subcommittee found an internal document called “The Cunningham Memo,” written in 2018 by Thomas Cunningham, a senior data scientist and economist at , which allegedly shows that has knowingly “tipped” its company toward becoming a monopoly, acknowledging that social media apps have tipping points where “either everyone uses them, or no-one uses them,” according to the memo. This memo was a key part of Zuckerberg’s acquisition strategy ahead of the Instagram purchase, according to internal documents and an interview the subcommittee conducted with a former employee involved with the project.
In a statement to Recode on Tuesday, Christopher Sgro, a spokesperson for , disagreed with the report’s conclusions. “ is an American success story. We compete with a wide variety of services with millions, even billions, of people using them.
Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people. Instagram and WhatsApp have reached new heights of success because has invested billions in those businesses. A strongly competitive landscape existed at the time of both acquisitions and exists today.
Regulators thoroughly reviewed each deal and rightly did not see any reason to stop them at the time,” Sgro wrote.
The Democrats’ report argues that Google has a monopoly in the online search and marketing industry, creating an “ecosystem of interlocking monopolies” — which it has maintained through anti-competitive practices in two key ways.
The first is by launching an “aggressive campaign to undermine” what the report calls “vertical search providers” — which are search engines for specific topics, such as Yelp for restaurants, or Expedia for travel. The report says Google uses its dominance to “boost Google’s own inferior” content over some of these other companies’ content in its search results.
The second major way that Google has demonstrated anti-competitive behavior, the report argues, is through “a series of anti competitive contracts” that pushed people to rely on Google search when using phones with the Android operating system (Google purchased Android in 2005).
“Documents show that Google required smartphone manufacturers to pre-install and give default status to Google’s own apps,” the report states.
Unsurprisingly, Google told Recode it disagreed with Tuesday’s reports, saying they “feature outdated and inaccurate allegations from commercial rivals about Search and other services.”
Americans simply don’t want Congress to break Google’s products or harm the free services they use every day,” read a statement in part from Julie McAlister, a spokesperson for Google.
According to Tuesday’s report, Apple exerts monopoly power through its oversight of software that’s downloaded on half of all mobile phones in the US.
That’s a direct reference to Apple’s App Store — if you have an iPhone, you can only use apps that you download from the company’s tightly controlled store.
The subcommittee staff investigating Apple say in the report that the company has exploited its dominance to exclude some rivals from its store, unfairly favor its own apps, and charge fees that some app developers told the subcommittee are “exorbitantly high.”
Such a battle between Apple and developers over in-app fees exploded into public spotlight earlier this year when the maker of Fortnite, Epic Games, told its users they could buy the game’s virtual currency directly from Epic rather than through the Apple iOS version of the app. The reason? Epic wanted to avoid the 30 percent fee Apple charges for such in-app purchases. Dueling lawsuits ensued, and Apple even banned the game from the App Store. This is just one example of many cases this that the report cites.
Apple, of course, refuted the conclusions in Democrats’ report, telling Recode in a statement, “Our company does not have a dominant market share in any category where we do business. …
Last year in the United States alone, the App Store facilitated $138 billion in commerce with over 85% of that amount accruing solely to third-party developers.
Apple’s commission rates are firmly in the mainstream of those charged by other app stores and gaming marketplaces.”
So what’s next?
Depending on the results of the November election, Democrats may not need Republicans’ support on antitrust legislation — if Democrats sweep Congress and win the White House. (The latest polls show Democrats and Biden currently have an edge, but poll-based predictions are far from certain.)
If Joe Biden does win the presidency, “this [report] is a roadmap for how you would tackle this under a President Joe Biden … administration,” a staff member for a Democratic member of the subcommittee told Recode.
Rep. Pramila Jayapal (D-WA), a member of the subcommittee, told Recode in an interview on Tuesday, “I do anticipate … that we will have signed pieces of legislation pass the House of Representatives next year.” The bipartisan subcommittee will meet later this year to debate and potentially amend the report.
Tuesday’s congressional reports are just the beginning of upcoming antitrust regulatory proceedings against Big Tech. The DOJ is imminently expected to file a lawsuit against Google for anti-competitive business practices, which several state attorneys general may sign on to. Separately, the FTC is also investigating the business practices of the tech giants over antitrust concerns.
“,”author”:”Shirin Ghaffary”,”date_published”:”2020-10-07T00:35:00.000Z”,”lead_image_url”:”https://cdn.vox-cdn.com/thumbor/bo-P6CJPNuaOWHSy22oA72BtSC8=/0x0:4551×2383/fit-in/1200×630/cdn.vox-cdn.com/uploads/chorus_asset/file/21941767/1177739755.jpg.jpg”,”dek”:”The report scrutinizes the ways the four biggest tech companies have amassed enormous market power.