Sen­ti­ment has shifted on ef­fort against Big Tech

Amer­i­cans seem quite re­cep­tive to plans to break up mo­nop­o­lies

The Buffalo News - - BUSINESS - By David Stre­it­feld

SAN FRAN­CISCO – A decade ago, when the greed and care­less­ness of the fi­nan­cial in­dus­try came close to de­stroy­ing the U.S. econ­omy, the over­whelm­ing re­sponse by politi­cians and the pub­lic was: Meh. Al­most in­stantly, all was for­given and for­got­ten.

Now the tech in­dus­try – which, among other im­pres­sive in­no­va­tions, pro­vides the world’s knowl­edge on de­mand, lets peo­ple freely broad­cast their di­verse opin­ions and has made shop­ping as easy as push­ing a but­ton – has made some mis­takes of its own. It has abused pri­vacy, squeezed the com­pe­ti­tion and ca­su­ally spread hate. And that’s just the be­gin­ning of the list.

Google, Face­book, Ama­zon and Ap­ple might not get away as cleanly as Gold­man Sachs and Cit­i­group. Sen. Eliz­a­beth War­ren, D-Mass., who is seek­ing the Demo­cratic pres­i­den­tial nom­i­na­tion, re­leased pro­pos­als this month that would force tech breakups and im­pose se­vere re­stric­tions on what re­mained. An­other Demo­cratic pres­i­den­tial can­di­date, Sen. Amy Klobuchar of Min­nesota, cov­ered more briefly some of the same ground, say­ing, “We have a ma­jor mo­nop­oly prob­lem.”

At a mo­ment when nearly ev­ery­thing in Amer­ica seems wildly con­tentious, an­titrust ac­tion against tech is get­ting a sober look. An­titrust is the nu­clear bomb of reg­u­la­tory pol­icy, but the re­ac­tion to War­ren’s and Klobuchar’s ideas was sur­pris­ingly re­cep­tive.

“We’ve got to break these guys apart,” War­ren said in an in­ter­view on “Face the Na­tion.” The show could name only one critic of her pro­posal: Howard Schultz, the Star­bucks mogul, who is flirt­ing with an in­de­pen­dent run for pres­i­dent to the deep dis­re­gard of vot­ers.

“A bil­lion­aire,

War­ren noted.

For decades, a politi­cian who men­tioned “an­titrust” was es­sen­tially ar­gu­ing for more gov­ern­ment over­sight, which has been dan­ger­ous ter­ri­tory at least since the Ron­ald Rea­gan ad­min­is­tra­tion. “An­titrust” was rel­e­gated to the shelf with “so­cial­ism” and “wealth in­equal­ity” and “higher taxes for higher in­comes.”

It didn’t help that what could be called “max­i­mum an­titrust” – when the Jus­tice De­part­ment de­cides a com­pany is abus­ing its mo­nop­oly power and should be bro­ken up – has a mixed his­tory. The gov­ern­ment dropped such a case against IBM in 1982 after more than a decade. It set­tled its case against Mi­crosoft in 2001. Only AT&T, which agreed in 1982 to dis­solve it­self into a long-dis­tance com­pany and the seven Baby Bells, could be con­sid­ered an un­qual­i­fied suc­cess from the gov­ern­ment’s point of view.

The po­lit­i­cal land­scape is shift­ing, how­ever, at a speed that dumb­founds even an­titrust ex­perts. Pres­i­dent Barack Obama thought of right?”

the tech com­pa­nies in the way they think of them­selves: as pro­gres­sive, smart en­trepreneurs who want what’s best for Amer­ica. His ad­min­is­tra­tion de­clined to pur­sue Google on an­titrust charges and hired from the tech in­dus­try for top posts. Top staff mem­bers later went to work for the tech in­dus­try in top posts, too. It was a cozy re­la­tion­ship.

“Some­thing has def­i­nitely changed,” said Ge­of­frey A. Manne, founder of the In­ter­na­tional Cen­ter for Law and Eco­nomics, a think tank in Port­land, Ore. “Most vot­ers are very fond of Ama­zon, Ap­ple, Google and even Face­book. But I think there’s also a grow­ing sense of skep­ti­cism about all these com­pa­nies. The shine has come off.”

Manne, who has been a critic of the an­titrust ar­gu­ments against Google and has re­ceived fund­ing from the search gi­ant as well as from some of its com­peti­tors, in­clud­ing Com­cast and AT&T, evis­cer­ated War­ren’s pro­posal with his col­league Alec Stapp in a re­cent blog post.

They wrote that the se­na­tor’s plan to turn the top com­pa­nies into heav­ily reg­u­lated “plat­form util­i­ties” would make them as re­sis­tant to im­prove­ment as sewer sys­tems or Am­trak.

And yet, Manne con­ceded in an in­ter­view, in­creased reg­u­la­tion is an idea whose time may have come.

“There is a long his­tory in Amer­ica – just not a re­cent one – of us­ing the power of the state to coun­ter­act the eco­nomic power of pri­vate en­ter­prise,” he said. “We may be at that mo­ment again.”

The fi­nan­cial firms were preda­tory last decade, ex­ploit­ing weak spots in the mort­gage mar­kets in a way that un­der­mined their vi­a­bil­ity. Google and Face­book, by con­trast, of­fer their ser­vices for free, while Ama­zon built its rep­u­ta­tion on sell­ing as cheaply as pos­si­ble.

That makes it hard to reg­u­late them by the an­titrust con­sen­sus, which for a cou­ple of decades has held that there is no in­jury un­less con­sumers suf­fer by pay­ing higher prices.

Noth­ing is ever really free, of course, and there has been a dawn­ing re­al­iza­tion among some con­sumers that they are pay­ing for these ser­vices with in­for­ma­tion about them­selves. How most users feel about this seems up in the air, as ev­i­denced by a Sur­vey­Mon­key poll done for the news site Ax­ios.

The head­line find­ing was that “a grow­ing ma­jor­ity now views our on­line pri­vacy as a cri­sis.” But deeper in the sur­vey was the rev­e­la­tion that more than half the re­spon­dents said they were un­will­ing to pay to keep from be­ing tracked by a ser­vice they were us­ing. Twenty-one per­cent said they would pay less than $1 a month, and no more, for the right.

Users, it seems, want it both ways: pri­vacy and free ser­vices. This is the con­tra­dic­tion at the heart of the in­ter­net.

Daniel Crane, an an­titrust ex­pert at the Uni­ver­sity of Michi­gan, said War­ren’s pro­posal might be a hard sell to vot­ers. “The me­dian con­sumer prob­a­bly feels that she gets lots of free good­ies from Big Tech and will worry about what it would mean to go after them,” he said.

But Crane noted that be­ing bro­ken up was the least of the com­pa­nies’ wor­ries. “A like­lier con­se­quence is that the next ac­qui­si­tion they want to make will be re­jected,” he said.

That is al­ready hap­pen­ing. One of the anti-com­pet­i­tive com­plaints about Ama­zon is that it pro­hib­ited its mer­chants from sell­ing more cheaply else­where. That pre­vented a new plat­form from un­der­selling Ama­zon and gain­ing a com­pet­i­tive edge. Ama­zon brands as “A for Awe­some” chil­dren’s wear don’t stand out, the study found. Kaz­iuke­nas is sched­uled to present his find­ings Mon­day at the Pros­per Show, an an­nual meet­ing of 1,500 Ama­zon ven­dors, mer­chants and con­sul­tants in Las Ve­gas.

Ama­zon sells more than 550 brands, both its own pri­vate-la­bel goods and brands sup­pli­ers have agreed to sell ex­clu­sively on the site, ac­cord­ing to TJI Re­search in Den­ver. Most of the Ama­zon brands have been in­tro­duced within the past two years, prompt­ing crit­i­cism that the Seat­tle-based gi­ant has an un­fair ad­van­tage as the owner of the plat­form that makes the rules.

In her call to break up tech com­pa­nies, War­ren cited a 2016 Bloomberg story about a lap­top stand maker whose sales plum­meted after Ama­zon be­gan sell­ing a very sim­i­lar prod­uct un­der the Ama­zonBa­sics name. Ama­zon shouldn’t be able to sell prod­ucts on a mar­ket­place it con­trols, War­ren says.

Ama­zon has also emerged as a top on­line bat­tery brand to the detri­ment of En­er­gizer and Du­ra­cell.

Ama­zonBa­sics bat­ter­ies ap­peared in the top three search po­si­tions on Ama­zon more than half the time for bat­teryre­lated key­word searches, more than En­er­gizer or Du­ra­cell, ac­cord­ing a Septem­ber study by Kan­tar Me­dia. A 2016 study by 1010data es­ti­mated that Ama­zon cap­tured 94 per­cent of all on­line bat­tery sales, which en­abled it to build its Ama­zonBa­sics bat­tery into a cat­e­gory leader.

These are ex­cep­tions that demon­strate Ama­zon’s strength sell­ing generic al­ter­na­tives in cat­e­gories where brands don’t com­mand much value, Kaz­iuke­nas says. Ama­zon hasn’t been able to win over con­sumers with its fash­ion la­bels and other cat­e­gories with more brand loy­alty.

Pop­u­lar di­rect-to-con­sumer in­ter­net brands like Casper mat­tresses and Harry’s shav­ing prod­ucts have used so­cial­me­dia cam­paigns to pro­mote their prod­ucts, while Tar­get Corp. uses com­pelling dis­plays in its phys­i­cal stores to pro­mote its fash­ion brands. Ama­zon just puts house brands on the site with­out giv­ing shop­pers a com­pelling rea­son to buy them.

“Sell­ing cheap bat­ter­ies is very dif­fer­ent than build­ing brands,” Kaz­iuke­nas says. “Even when Ama­zon says ‘check out our own brands,’ con­sumers don’t know what it means and won­der why should they buy this thing they never heard of be­fore.”

New York Times file photo

“We’ve got to break these guys apart.”Sen. Eliz­a­beth War­ren, a Demo­cratic pres­i­den­tial hope­ful, speak­ing about tech com­pa­nies in an in­ter­view on “Face the Na­tion”

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