Many tech companies have seen tremendous growth during the ongoing COVID-19 pandemic. Nicholas Nicoli of the University of Nicosia and Petros Iosifidis of City, University of London, write here about the limitations of using antitrust policy to curb the power of the ‘tech trust.’
Seven of the ten largest companies in the world belong to the digital technology sector – Apple (#1), Microsoft (#3), Amazon (#4), Alphabet (#5), Facebook (#6), Tencent (#7) and Alibaba (#9). Combined, their market capitalisation is calculated at over nine trillion dollars, a number slightly higher than the collective GDPs of the UK, Germany and France. In a further boost to the sector, during the pandemic digital technologies quickly became our only viable options for working and communicating with colleagues, family and friends. According to MIT professor Sinan Aral, usage of Facebook’s Messenger, Live and WhatsApp each increased by 50%, while Netflix increased by 66% and YouTube by 30%; unsurprisingly, group calls had by far the most significant uptake growth – a whopping 1000%. This surge in usage has left even the largest and the wealthiest digital companies unprepared to handle the demand as shown by Mark Zuckerberg’s somewhat untimely comment, “we’re just trying to keep the lights on over here”.
The Tech Trust
The above organisations make up what Columbia Law Professor Tim Wu calls the tech trust. Antitrust and antimonopoly policies, Wu argues, were established during the Gilded Age (the late 19th century) as antidotes to the growing ideals of Social Darwinism that threatened US economic democracy. This was followed, according to Wu, by a neoliberal economic turn ushered in by Chicago School economists’ Milton Friedman and George Stigler, which ultimately subdued antitrust policies. With a frail antitrust ethos and a lack of understanding of the sector, concentration levels in big tech have risen resulting in increased markups, decreased wages and overall price increases. Furthermore, while critics and scholars disagree on the extent of the so-called tech trust’s culpability, its involvement in the decline of socio-economic and political state of affairs across liberal democracies is undeniable. The trust uses its power to stunt innovation and undermine (or buy out) competitors and has contributed to the spread of surveillance capitalism, has hooked users with its appeal, has been used as a tool to promote polarisation, has spread hyperpartisan, nationalistic populism, and has become the catalyst for the dispersion of digital disinformation. Antitrust enforcement seems only a matter of time if the misgivings about the tech trust continue and coincide with their growth rates.
Noticeable changes in antitrust enforcement policies can be seen around the world, although they have thus far failed to tame the trust in a meaningful way: a 2004 EU decision to fine Microsoft €497.2 million for abusing its ‘near monopoly’ with its Windows operating system, and the launch of the EU’s three antitrust investigations into Google since 2010 for violating competition laws, resulting in a fine over €8 billion issued in 2020. The EU’s General Data Protection Regulation (GDPR), which went into effect in May 2018, creates updated data protection rules and aims at checking on how giants like Facebook process, handle, store and use personal data about individuals. The EU is considered by many as the world’s watchdog regarding digital technologies, yet on the other side of the Atlantic, Facebook has also been under increased regulatory scrutiny in the US since the Cambridge Analytica scandal in 2017. The US Federal Trade Commission (FTC) continued its investigations into Facebook’s privacy policies, which in March 2018 resulted in a $5 billion fine, the largest fine ever given to a technology company. Further, the FTC has filed an antitrust lawsuit against Facebook for its ‘anticompetitive conduct and unfair methods of competition’, including its 2012 acquisition of Instagram and 2014 acquisition of WhatsApp.
Yet, in its current form, antitrust policy does not guarantee curtailing the tech trust. There are two reasons why: the first concerns the network effects the trust has built up, while the second involves news media’s reliance upon the trust.
Network effects
AOL, Friendster and MySpace have all been cited by non-interventionist advocates as entities that once had large network effects, but gradually eroded to their current state. Network effects, they argue, do not constitute a threat to economic democracy. Yet the tech trust’s powerful network effects are incomparable with any prior organization, digital or otherwise. Apart from the sheer difference in size, another major distinction is that today’s platforms have built network effects within the platforms (groups, pages), without offering users with options to transfer them to other platforms (highlighting a lack of policies pertaining to interoperability). In addition, users today willingly share much of their data with the companies that comprise the trust, further exacerbating the utility of these networks. These layered network effects reinforce a ‘winner takes all’ environment. From a business to consumer perspective, Google’s Gmail and photos services and Amazon’s Kindle are cases in point. It will be difficult, for example, to untangle Amazon’s e-commerce services from their cloud computing services (AWS). This is compounded in the intangible web of interrelatedness within AWS’s business-to-business and business-to-government landscapes. Some of Amazon’s largest clients include Netflix, LinkedIn, Facebook, BBC and Baidu; on Amazon’s AWS government section of its website the first sentence reads, “With over 6,500 government agencies using AWS, we understand the requirements U.S. government agencies have to balance economy and agility with security, compliance, and reliability”.
Further challenges in the application of current antitrust policies can be seen via the trust’s emergent two-sided network effects with content creators. Most users willingly share content for free, allowing the trust to reap the advertising rewards. Yet a nascent cluster of digital creators are vying to generate funds via their content, and numerous platforms are positioning themselves to accommodate them. These fast-growing players include Tik Tok owner Bytedance, Snapchat, Spotify, Twitter and Silicon Valley’s live chat darling Clubhouse. Behind them, another tier of less popular digital entities such as Medium, OnlyFans, Quora and YouNow have been growing at a steady rate over the past several years.
With so many digital entities breathing down the neck of the tech trust, a laissez-faire approach might seem fitting. Yet the trust has swiftly taken actions ensuring it keeps its user-base intact. Amazon has created Twitch, Instagram and Facebook have moved closer toward e-commerce business models while establishing a content market, YouTube has for years sustained its own content economy, and Apple is establishing its podcast and iTunes divisions. Microsoft is also looking to move in this direction, having investigated its options of purchasing Tik Tok and is moving into social gaming. If it does, it will undoubtedly seek to establish partnerships with creators.
News media
The ongoing health pandemic triggered massive personnel redundancies and organisational downsizing across media firms worldwide. According to the New York Times, roughly 37,000 workers at news companies in the USA were laid off, furloughed or had their pay reduced in the first months of the pandemic, while some ad-supported publications had shut down. However, these figures reinforce trends observed from a longer-term structural decline in news media, which is happening not because of the tech trust but in spite of it. The current market for news consists of a high number of news outlets with low market power over advertisers, and this situation would be similar even without social media. As such, the case supporting antitrust policy in order to save a dying advertising-supported news media industry is not so straightforward.
In contrast to news media, the trust defied global economic fallout and is prospering in the face of the pandemic. There are increasing calls on behalf of traditional news publishers, who lack bargaining power against the tech platforms, to governments and regulatory agencies to introduce laws that would obligate tech giants to pay for content that the latter carry on their web sites. Without doubt, there has been a shift in the underlying economics of the global media (especially print) industry due to the unprecedented rise of advertising-fuelled online platforms, resulting in the distress of old-media moguls who have witnessed the erosion of their former near monopoly status in news. It is no secret that news publishers globally have been in need for cash for some time now, but should regulators from around the world intervene to introduce a so-called ‘pay culture’ in a typically free internet, or even worse, as we put it, to ‘bail out press barons’ who have enjoyed monopolistic conditions for decades?
On 25 February 2021 Australia passed a law to create a ‘News Media and Digital Platforms Mandatory Bargaining Code’ that obliges large tech platforms that operate in the country to pay local news publishers for the news content made available or linked to on their platforms as part of online search or social media services. As stated in the Australian Competition and Consumer Commission (ACCC)’s recent Digital Platforms Inquiry Report that underpins the bill, Google was used for 95% of search queries in Australia in 2019, while it and Facebook combined took in 61% of the country’s $9.1 billion online ad market. This means that nearly two-fifths of the time Australians spent on the Internet on that year was on Google and Facebook, which is similar to the situation in many other countries.
Australia’s bill is a move in the right direction as it aims to safeguard public interest policy and regulation in the news media ecology and not mere laissez-faire global market interests. Various scholars and policymakers are skeptical, however. In a recent Deutsche Welle article, media management scholar Christian Wellbrock notes, “these types of deals essentially entrench the status quo” leading to less diversity. While criticism is reasonable, according to Professor Dwayne Winseck, Australia’s bill has far-reaching implications for search and social media platform regulation around the world. As he puts it, ‘it makes for a popular “David vs Goliath” tale of a small nation-state using its sovereignty to curb the power of big American platform giants’. Undoubtedly, the agreement to pay these taxes in the relatively small markets of Australia (25 million) and Canada (38 million) may not be seen as a large financial burden for the likes of Facebook and Google, yet this sets a precedent that may leave them more vulnerable in the bigger markets of the US, EU, China and India if similar laws come into effect.
This article represents the views of the authors, and not the position of the Media@LSE blog, nor of the London School of Economics and Political Science.
Featured image: Photo by James Yarema on Unsplash
