Breaking up big tech has become a key 2020 issue, but how would that actually work?
Bernie Sanders told Politico this week that he wants to break up big tech companies. Elizabeth Warren is also adamant about it and has laid out a fairly comprehensive plan for it in a Medium post. In a New York Times interview series, a number of Democratic candidates for president including Amy Klobuchar, Pete Buttigieg, Kirsten Gillibrand and others at the very least expressed interest in exploring antitrust investigations into tech's biggest companies. For 2020 and onward, it appears as though Amazon, Facebook, Google and other tech giants may finally find themselves in the crosshairs of legislators. But assuming these companies were broken up, what would they look like? And what would that mean for consumers who have grown reliant on the products and platforms from these dominant forces in the industry?
The case for breaking up big tech is pretty clear: these companies all hold a massive share in their market that make it next to impossible for a competitor to gain any ground. Nearly half of all online shopping goes through Amazon, with the next biggest share of the market belonging to eBay at a paltry 6.6 percent, according to eMarketer. Google owns a staggering 90 percent of the search engine market, and none of its competitors have cracked more than a five percent share. In 2017, programmer André Staltz noted that more than 70 percent of all internet traffic goes through sites and services owned or operated by Facebook and Google.
Staltz called the coalescence of online activity around just a handful of companies the "beginning of the Web’s death." That's a troubling proclamation, but there is reason to believe it may be true. Services that aren't directly associated with tech's biggest companies — even some that are their competitors — still rely on those giant firms in some way. Amazon's cloud hosting platform Amazon Web Services (AWS) owns nearly 35 percent of the market, with Microsoft and Google among the next biggest in the business. When one of those platforms goes down, as happened with AWS in 2017, so too do services like Netflix, Spotify, and Pinterest. A report from Gizmodo deemed it essentially impossible to completely cut Amazon out of one's life online because of its immense reach, both as an e-commerce company and as the spine for much of the internet.
The short of it is this: these companies are huge, perhaps bigger than ever intended, and they run the risk of monopolizing services that we rely on. The damage of that is already evident for most consumers. While the products and services offered by these giants have largely been good for consumers, they have slowly turned their power toward killing competition. Amazon regularly points people toward its own products rather than cheaper or higher-rated alternatives, according to a Pro Publica investigation. Google has used its search dominance to position its own products ahead of competitors in results — a practice that got it a massive $2.7 billion fine from the European Union. Facebook owns multiple services that boast more than one billion users on Facebook, Instagram, and WhatsApp, which it has used to amass a basically unassailable dominance in social advertising, all the while it bought up and shut down dozens of competitive apps that could have eaten into its market share without once being challenged by the federal government.
So what would breaking up these companies actually accomplish? Sanders doesn't have a clear plan as to how he would handle splitting tech giants into separate businesses, but Warren does and history shows a few worthwhile examples.
Warren's plan starts at requiring tech platforms to be designated as "platform utilities." By doing so, companies would no longer be able to both own a platform and participate on that platform — something that enables them to provide an undue advantage to their own products. Under this, the Amazon marketplace would become a "platform utility" and the part of Amazon that makes products like the AmazonBasics line or the company's extensive line of smart speakers would be spun out into another business. If it wanted top billing on the Amazon marketplace, it would have to spend money for sponsored listings just like any other business would. Likewise, Google would have to spin off Android into its own company responsible for creating the popular mobile operating system. Google the company would no longer be able to pre-load all of its apps onto the devices or set its search engine as the default option without paying, just like it currently has to do to make Google the default search engine on Apple products.
The other major benefit of this for consumers would be cutting off the endless flow of data between apps and services owned by just a few companies. If Facebook was forced to make Instagram and WhatsApp their own separate businesses rather than simply apps owned by Facebook, the company's ability to track users across the platforms would be cut off. So too would Facebook's ability to endlessly track users across the web if it was forced to separate its advertising business from its social media arm. If companies violated these government-mandated lines of demarcation, they could face significant fines from regulators — ones that could have a much bigger impact on the suddenly smaller businesses than the essentially tiny penalties currently levied against these giants. Facebook has reportedly set aside $3 billion for an expected fine from the Federal Trade Commission for privacy violations and Wall Street didn't even flinch, with the company's stock essentially unaffected by the threat.
There are potential trade-offs that may come from cracking down on tech's monopolistic practices. Some services may not be able to continue operating as they do currently without being in the pocket of a company piling cash quarter after quarter. Economist Tyler Cowen warns that a service like WhatsApp may have to change its practices to maintain profit expectations, which may mean selling advertisements. Prices for Amazon products may go up. Advertising may become more expensive as stand-alone ad businesses attempt to generate more revenue, making it more expensive for small businesses to attract attention. There's also the risk of some real technical challenges in splitting up these companies, as their services are massive and largely intertwined with one another. Splitting them up will not be a simple task.
There are without question unintended consequences looming with any attempt to crack down on big tech. We have grown increasingly reliant on the products and services belonging to just a handful of companies, many of which are provided for free. That may change. Things that we are used to accessing without cost could go away or require a fee to use.
The more likely outcome, though? That the companies created by the breakup continue to grow in their own, new markets — albeit with more chance of competition and innovation along the way. When the government broke up AT&T in the 1980s in response to the monopoly it achieved in both local and long-distance phone markets, it only temporarily put a stop to the company's growth. Bell Operating Companies, the regional providers that were spun off as part of the breakup, eventually were reunited over a series of mergers and now AT&T is as big as it ever was, if not even bigger. But along the way, competitors were able to gain footing. Companies like Sprint and MCI made inroads in the long distance business that drove down the exorbitant prices AT&T was charging for the service. It also forced the previously closed telephone networks to be opened up, allowing interconnection between different carriers. Those changes have had lasting effects in the telecom industry, and while the business is once again controlled by just a few businesses, some of the worst anti-consumer practices have remained dead and gone. Breaking up big tech may only delay companies from claiming massive shares of markets, but it may also put an end to some of the most beleaguered practices that hurt users along the way.