Our lives are massively influenced by a handful of technology companies, and their monopoly is no secret. The likes of these tech companies also have a market acronym to them: FAANG (Facebook, Amazon, Apple, Netflix, and Google), referring to them in the context of consistent stock performance. But how influential exactly are these companies that we all know are influential to everyday life? A lot, according to a report from the United States Subcommittee on Antitrust, Commerical and Administrative Law.
Brief History
In June 2019, the United States Senate Committee on the Judiciary (a group of lawmakers that oversees the Department of Justice) initiated an investigation into the “state of competition in the digital market“. This investigation was conducted by the Subcommittee on Antitrust, Commerical and Administrative Law. As part of the investigation and review of the market, the Subcommittee was tasked with the examination of the dominance of a few influential technology companies, namely Amazon, Apple, Facebook, and Google. The thought behind the review was to determine how the power held by these companies affects the US economy and democracy (and which, by extension of the influence of the companies’, affects technology across the world). As part of the investigation, the Subcommittee even received testimony from Jeff Bezos, Tim Cook, Mark Zuckerberg, and Sundar Pichai, with questions posed around business practices of the companies, as well as the company’s exercise of power over digital markets in anticompetitive and abusive ways.
The Report
The Subcommittee just released their conclusion and report on this investigation, and it contains scathing remarks on how these companies have indulged in anticompetitive, monopolistic, and dominating behavior. While the complete report runs into a good 450 pages, we strongly recommend reading at least the Chairs’ Foreword (pages 6-9) and the Executive Summary (pages 9-21) for an overview.
In its report, the Subcommittee notes that even though Amazon, Apple, Facebook, and Google are different companies that operate across different segments, their business practices have some common problems:
- Each platform serves as a gatekeeper over a key channel of distribution.
- By controlling access to markets, the giants can pick winners and losers throughout the US economy.
- They not only wield tremendous power as a gatekeeper, they also abuse the position by:
- Charging exorbitant fees
- Imposing oppressive contract terms
- Extracting valuable data from people and businesses that rely on them.
- Each platform uses its gatekeeper position to maintain its market power.
- The companies control infrastructure and use this control for surveilling other businesses to identify potential rivals.
- These rivals are then either bought out, copied, or have their competitive threat cut off.
- Each platform has abused its role as an intermediary to further entrench and expand its dominance. This can take the form of self-preferencing, predatory pricing, or exclusionary conduct. The end result is that dominant platforms have exploited their power to become even more dominant.
The report leaves no punches behind.
“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. Although these firms have delivered clear benefits to society, the dominance of Amazon, Apple, Facebook, and Google has come at a price. These firms typically run the marketplace while also competing in it — a position that enables them to write one set of rules for others, while they play by another, or to engage in a form of their own private quasi regulation that is unaccountable to anyone but themselves.”
For the companies individually, here are some of the key points that the report notes.
Amazon
- Amazon has a 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.
- Amazon achieved its current dominant position, in part, through acquiring its competitors, including Diapers.com and Zappos. It has also acquired companies that operate in adjacent markets, adding customer data to its stockpile and further shoring up its competitive moats.
- The company’s control over, and reach across, its many business lines enables it to self-preference and disadvantage competitors in ways that undermine free and fair competition.
- Amazon’s dual role as an operator of its marketplace that hosts third-party sellers, and a seller in that same marketplace, creates an inherent conflict of interest. This conflict incentivizes Amazon to exploit its access to competing sellers’ data and information, among other anticompetitive conduct.
- Alexa: Amazon has expanded Alexa’s ecosystem quickly through acquisitions of complementary and competing technologies, and by selling its Alexa-enabled smart speakers at deep discounts. The company’s early leadership in this market is leading to the collection of highly sensitive consumer data, which Amazon can use to promote its other business, including e-commerce and Prime Video.
Apple
- Apple has significant and durable market power in the mobile operating system market. Apple’s dominance in this market, where it controls the iOS mobile operating system that runs on Apple mobile devices, has enabled it to control all software distribution to iOS devices.
- Apple leverages its control of iOS and the App Store to create and enforce barriers to competition and discriminate against and exclude rivals while preferencing its own offerings.
- Apple also uses its power to exploit app developers through misappropriation of competitively sensitive information and to charge app developers supra-competitive prices within the App Store.
- Apple has maintained its dominance due to the presence of network effects, high barriers to entry, and high switching costs in the mobile operating system market.
- As the market for hardware products like the iPhone have matured, Apple has pivoted to rely increasingly on sales of its applications and services, as well as collecting commissions and fees in the App Store. 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.
Facebook
- Facebook has monopoly power in the market for social networking, with competition within its own family of products considered more than the competition from any other firm.
- The company acquired competitive threats to maintain and expand its dominance.
- Facebook has also maintained its monopoly through a series of anticompetitive business practices. The company used its data advantage to create superior market intelligence to identify nascent competitive threats and then acquire, copy, or kill these firms.
- Once dominant, Facebook selectively enforced its platform policies based on whether it perceived other companies as competitive threats. In doing so, it advantaged its own services while weakening other firms.
- In the absence of competition, Facebook’s quality has deteriorated over time, resulting in worse privacy protections for its users and a dramatic rise in misinformation on its platform.
Google
- 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.
- Google maintained its monopoly over general search through a series of anticompetitive tactics. These include an aggressive campaign to undermine vertical search providers, which Google viewed as a significant threat.
- Google used its search monopoly to misappropriate content from third parties and to boost Google’s own inferior vertical offerings while imposing search penalties to demote third-party vertical providers.
- Since capturing a monopoly over general search, Google has steadily proliferated its search results page with ads and with Google’s own content, while also blurring the distinction between paid ads and organic results. As a result of these tactics, Google appears to be siphoning off traffic from the rest of the web, while entities seeking to reach users must pay Google steadily increasing sums for ads. Numerous market participants analogized Google to a gatekeeper that is extorting users for access to its critical distribution channel, even as its search page shows users less relevant results.
- Android: Google has also maintained its monopoly over general search through a series of anticompetitive contracts. Google used contractual restrictions and exclusivity provisions on Android to extend Google’s search monopoly to mobile. Google required smartphone manufacturers to pre-install and give default status to Google’s own apps, impeding competitors in search as well as in other app markets.
- Chrome: Google now owns the world’s most popular browser—a critical gateway to the internet that it has used to both protect and promote its other lines of business.
- Google Maps: Google now captures over 80% of the market for navigation mapping service—a key input over which Google consolidated control through an anti-competitive acquisition and which it now leverages to advance its position in search and advertising.
- Google Cloud: Google has another core platform in which it is now heavily investing through acquisitions, positioning itself to dominate the “Internet of Things,” the next wave of surveillance technologies.
- Each of its services provides Google with a trove of user data, reinforcing its dominance across markets and driving greater monetization through online ads. Through linking these services together, Google increasingly functions as an ecosystem of interlocking monopolies.
The Way Forward
The comprehensive report does not simply point out market deficiencies and corporate dominance and leave it at that. It goes on to examine the effects of market power in the digital market. For instance, one of the submissions states that Google and Facebook have an outsized influence over the distribution and monetization of trustworthy sources of news online. Whereas, investors have said that they avoid funding entrepreneurs and other companies that compete directly or indirectly with dominant firms in the digital economy, effectively stifling innovation and entrepreneurship. And of course, there is always the looming issue of privacy — persistent collection and misuse of consumer data, with often the only options being available to the user being poor privacy or foregoing the use of the service altogether.
While the Subcommittee is rather confident and unanimous in its findings and conclusions, there are a few different opinions on how to proceed forward. Largely, it calls upon the US Congress to define a new standard for antitrust violations. It also suggests:
- Structural separations and prohibitions of certain dominant platforms from operating in adjacent lines of business.
- Prohibiting dominant platforms from engaging in self-preferencing and putting in place non-discrimination requirements.
- Presumptive prohibition against future mergers and acquisitions by the dominant platforms. Under this change, any acquisition by a dominant platform would be presumed anticompetitive unless the merging parties could show that the transaction was necessary for serving the public interest.
The report, at the end of it, is a report. The onus now shifts onto lawmakers in the USA to actually put these suggestions into actual laws and regulations. Both Google and Apple also have on their hands a high-profile lawsuit from Epic Games on their app distribution monopolies. Further, on the other side of the world, in India, there is also a growing sentiment of discontent over the app distribution monopoly of Apple and Google, brought to light by the recent kicking off of Paytm from the Google Play Store. It remains to be seen how progress is made on these ends in light of this report, both through the legislature and through the judiciary.
The Response
As expected, the companies have put out statements in response to the report. Some excerpts are mentioned below, and we recommend that you read the complete statement:
Amazon:
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. And yet, despite overwhelming evidence to the contrary, those fallacies are at the core of regulatory spit-balling on antitrust. The flawed thinking would have the primary effect of forcing millions of independent retailers out of online stores, thereby depriving these small businesses of one of the fastest and most profitable ways available to reach customers. For consumers, the result would be less choice and higher prices. Far from enhancing competition, these uninformed notions would instead reduce it.
Apple:
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. Our company does not have a dominant market share in any category where we do business.
Facebook:
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 Facebook 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.
Google:
We disagree with today’s reports, which feature outdated and inaccurate allegations from commercial rivals about Search and other services. The goal of antitrust law is to protect consumers, not help commercial rivals.
What are your thoughts on the report by the Subcommittee on Antitrust? Let us know in the comments below!
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