Should tech companies be worried about DoJ's antitrust review?
The US Department of Justice (DoJ) has announced a wide-ranging antitrust review of “market-leading online platforms”, suggesting that long-awaited action may finally be taken against some of the world’s largest companies.
But the confirmation of the investigation is sparse on detail, revealing only that the review “will consider the widespread concerns that consumers, businesses and entrepreneurs have expressed about search, social media, and some retail services online”.
Who could they be talking about? What concerns could people be expressing? It isn’t hard to read between the lines: here’s who should be looking over their shoulder in the coming months.
Alphabet
Google’s parent company dominates multiple sectors: online advertising, where it and Facebook are known as the “duopoly”, online search and YouTube. It also has a significant amount of market power in mapping (Google Maps), webmail services (Gmail) and mobile phone operating systems (Android).
Google has a strong defence on search: unlike many other businesses under discussion, “competition is only a click away”, as the Google founder Larry Page put it in 2012, when the company was first getting nervous about antitrust. Switching operating systems is an arduous task; switching social networks almost impossible. But all you need to do to stop being a Google searcher is type ddg.gg into your address bar and you’re done.
Jim Killock, the head of the Open Rights Group, thinks the ad market will ultimately be the hard fight for Google to win. “These companies are ultimately making money from ad revenues. That’s a big problem, because the money isn’t necessarily flowing to the people who are producing the content.
“That’s clearly a result of market
dominance: Google, Facebook and the IAB partners, are all eating that revenue. That does look kind of abusive to anyone with common sense.”
Amazon
Amazon is clearly the provider of “retail services” that the DoJ is examining. The US treasury secretary, Steve Mnuchin, said on Wednesday that Amazon has “destroyed” the US retail industry and its success has “limited competition”. Amazon says its market power in the sector is far from absolute: it takes about half of all dollars spent online, and just 5% of US retail. Walmart’s revenue in 2018 was twice that of Amazon’s. And the strategies that have earned Amazon criticism, from in-house brands to paid promotion, are the norm across retail.
But the question is where the line is drawn. Amazon’s dominance of the ebook industry is near total, for instance; its power in print retailing isn’t far off And then there’s Amazon Web Services, still barely known outside the IT industry, which provides the technical infrastructure for a substantial portion of the web, even in the face of competition from Google and Microsoft.
Apple
The US is Apple’s strongest market. But even there, it’s hard to argue it has a monopoly in any of its flagship products: it’s the second-place mobile operating system, the second-place desktop operating system, and the second-place music streaming service. It leads the market in smartwatches and tablets, but the success of the iPad and Apple Watch is only relative to the failures of their competitors.
Instead, the question for the DoJ is whether Apple’s power is being abused within the markets that it has created. The company may only have half the smartphone market, for instance, but it certainly has 100% of the market for iOS app stores. When that market is, as Apple proudly points out, worth $300m a day, the company still wields an awful lot of power – as Spotify has been complaining, loudly, to the European commission.
Facebook has one monopoly, and it’s a big one: thanks to Facebook itself, Messenger, Instagram and WhatsApp, the company ownsmost of the largest social networks in the US. Mark Zuckerberg’s argument in response has been that there is still competition in the broader field the company operates in, telling US lawmakers last year that “the average American … uses eight different communication and social apps”. But if half of those apps are made by Facebook, and the other half include email, text messages and business communication services, it’s hard to take that as a reason to go easy on the company.
Uncomfortably for Zuckerberg, Facebook also has the most compelling cause for action: its two largest acquisitions, Instagram and WhatsApp, remain relatively separated, and spinning them off would be technologically feasible. Tech analyst Ben Thompson argues that the Instagram acquisition is “the greatest regulatory failure of the past decade”, in part because of the damage it did to the ability of Snapchat to compete on an equal footing.
The rest
The DoJ would be remiss if it left its inquiries at just the largest companies, argues Killock. All across the tech sector, he says, “you have a series of small monopolistic practices.” From Netflix in streaming video, to Uber in car sharing and enterprise offerings like Cloudflare’s website demand management or Stripe’s payment processing the goal is to build platforms that crush the competition.
“The underlying problem is the industry works like this: people get embedded at particular layers. The DoJ need to look at the fundamentals of the IT sector, and ask themselves what the drivers are for that behaviour, then start to think about more general questions as to how you ensure a reasonable level of competition.
“That’s partially ownership, partially capital accumulation, partially intellectual property, and partially interoperability: how well can you replace services like for like?”