Break up tech giants? No, just level the field

Facebook, Google and Uber should be held to the same rules as older rivals

People in the US, not just in the European Union, are finally getting worried about tech sector leaders’ market dominance and the political power it confers. Unfortunately, the solutions gaining traction are the kind of anti-monopoly regulations that address the symptoms of the problem, not its root cause.

Some 45 per cent of American adults get news from Facebook. Google’s search market share in the US approaches 86 per cent. About 43 per cent of all online retail sales in the US last year went through Amazon. So no wonder people get concerned when Facebook reports that, during the US presidential campaign, hundreds of fake accounts, possibly operated from Russia, bought and ran about $100,000 worth of political ads from the social media company. It’s no surprise that there’s an outcry about Google’s treatment of free speech inside the company and, likely, in a think tank the company funds. It’s natural that Amazon’s Whole Foods acquisition raises alarms.

How can these benign, universally loved innovators be stopped from turning into evil, soulless corporate behemoths? Break up companies such as Facebook, Google and Amazon, some say, or at least stop them from buying up companies that allow them to consolidate their dominance. Or perhaps recognise them as utilities — the approach advocated by Barry Lynn, head of the Open Markets programme cut loose by the New America think tank after Google executive chairman Eric Schmidt complained about Lynn’s work. The catch-all name for all the proposals, popularised by George Mason University law professor Joshua Wright, is “hipster antitrust”.

Neither makes sense in most cases. The European Union’s antitrust commissioner Margrethe Vestager has only gotten involved with the US tech giants because European monopoly and state aid law provided some relatively low-hanging fruit. That doesn’t mean US regulation should follow the European path of least resistance. Besides, the case for increasing the regulation of some companies is better than for others.

The fundamental problem with the tech leaders is that they have, for many years, succeeded in presenting themselves as something different than they are. Amazon (minus its commercial cloud business) is a big retailer with a strong distribution network that other retailers also choose to use. Google and Facebook are media corporations because their business model, based on selling ads, puts them squarely in that sector; it doesn’t matter that they don’t themselves create the content they sell to advertisers or that they collect lots of behavioural data about users — the money-for-eyeballs model remains essentially the same as for old-school media companies. Uber is a taxi firm. Airbnb is a hospitality company.

As Robert Haslehurst and Alan Lewis of L.E.K. Consulting wrote in the Harvard Business Review last year, a market is only new if the transaction that occurs in it didn’t previously exist; thus, cellular communications constituted a new market when they were first offered to consumers. But Amazon, Uber, Airbnb, and even Google and Facebook don’t, as a rule, offer such fundamentally new transactions. “We believe,” Haslehurst and Lewis wrote, “that these businesses have not redefined industries in a fundamental way; instead they are ‘old wines in new bottles’. They have more similarities than differences with traditional businesses, and should be regulated accordingly.”

The Silicon Valley firms have managed to convince regulators that they are something completely new — platform companies that enable the transfer of goods and services. European regulators have swallowed this concept whole and are trying to define what is permissible for platforms and what’s not. The argument for defining the firms as utilities, as well as the calls for Facebook and Google to maintain political neutrality, also come from this idea of “platforms”: If the companies are merely facilitators and marketplaces, they should treat everything and everyone using them exactly the same.

This is an approach that could, in theory, eventually lead to the break-up of Amazon into a retail company and an eBay-like online marketplace company that also offers logistics and delivery services. It has spawned, for example, an Indian law passed last year that only allows 100 per cent foreign ownership of companies that operate mainly as a marketplace, with no more than 25 per cent of their sales coming from one vendor, such as the company itself. It could also limit Google’s ability to offer certain services that others advertise on its “platform” — the next step after this year’s European Commission ruling that it stop prioritising its own shopping comparison service over others.