Analysis

Is Big Tech’s Problem Competition, or Just a Bad Rep With the Elite?

There are legitimate grievances against Facebook & Co., but the U.S. Justice Department isn’t the one to address them with an antitrust probe

Facebook CEO Mark Zuckerberg pauses while testifying before a House Energy and Commerce hearing on Capitol Hill in Washington, April 11, 2018.
Andrew Harnik,AP

The U.S. Justice Department’s announcement on Tuesday that it’s launching an antitrust investigation against the giants of big tech is being touted as a long-overdue crackdown on an industry that was allowed to ride roughshod over consumers for years.

That is certainly one way of looking at it. As Europe was routinely fining America’s tech giants for violations of privacy and fair competition, Washington gave a virtual free hand to the likes of Google, Facebook, Amazon and Apple. Today, they are near monopolies and/or routinely abuse the vast quantity of data they control. The time for change has arrived.

Another way of looking at the whole affair is the 1% under attack by the 20% – while the other 80% look aside indifferently.

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Excuse the rounding, but we’re not talking about exact segments of the U.S. population, rather rough approximations of interest groups. The 1% is well known as the most wealthy and powerful, in this case the titans of high-tech – the Zuckerbergs and Bezoses, who were once idols and are now goats.

The ones responsible for this image shape-shifting are the 20%. They’re composed of the chattering class of politicians, journalists, activists, academics, startup entrepreneurs and social media opinion leaders. They resent big tech because it’s big and powerful, and they’re outraged at how it abuses people’s data and how it serves as a conduit for fake news.

Interestingly, in an era when the old political divisions of left and right are falling by the wayside, the 20% of big-tech grumblers encompasses people from the left (like Democratic presidential candidate Elizabeth Warren) and on the right (no less than Donald Trump).

The left hates the titans because it hates big corporations of any kind; the right because it thinks that Silicon Valley is a bunch of liberals who censor conservatives online. No matter, they have found common cause.

The other 80% is the great mass of people who gladly do their shopping on Amazon, communicate with their friends on Facebook using their iPhones and upload videos of their pets on YouTube. They routinely post family pictures (or racier material), list their likes and dislikes, and generally advertise their private lives for the world to see. Privacy is something for the elite to be outraged over.

And, if the 80% do find any of the companies’ behavior objectionable, they aren’t angry enough to do anything about it: A day after the DOJ announced its probe, Facebook reported quarterly earnings which once again showed that neither users nor advertisers are abandoning its platform, despite all the regulatory scrutiny and bad publicity the company has endured.

You could argue that the Big Four of tech have such a grip on the market that consumers have no choice. But you would be hard-pressed to make that argument. There are plenty of alternatives to shopping on Amazon or doing your internet searches through Google. You can send your funny cat clips by email if they’re that important to you.

The fact is that the services Big Tech provides are free or low cost, they are fast and efficient, and designed to give the consumer what he or she wants. And they have remained that way even though conventional antitrust theory holds that the minute a company acquires monopoly power it will begin ripping off its customers.

And that’s a problem for the 20%. Antitrust is supposed to target businesses that use their market power to harm consumer welfare, not simply cut giants down to size for being giants.

Given this dilemma, the 20% has been working overtime to expand the scope of antitrust. In an address given in Israel last month Makan Delrahim, the DOJ official in charge of antitrust, offered up some ideas, among them that the abuse of privacy amounted to “diminished quality” of services, because in a truly competitive market companies would be incentivized to provide protections. Another idea is that Big Tech is stifling innovation by making it impossible for upstart startups to compete.

I doubt conventional antitrust remedies, such as breaking up companies or restricting their ability to sell products across their platforms, will be able to address these problems. They may not be problems at all.

The digital giants’ business model is based on amassing data for targeted advertising – it’s how they make their money. You might force Facebook to divest WhatsApp and Instagram, but then you’ll have three companies amassing data instead of one. The alterative would be to charge for their services, which would not be a welcome change for users.

The solution isn’t antitrust but in creating better protections for privacy because it’s obvious that whatever dangers privacy abuse presents, the public doesn’t care enough. By itself, a more competitive market won’t incentivize companies to police themselves.

The argument of stifled innovation – one that should be of great concern to Israel – is pretty weak. In the digital universe no one’s position is safe, not even monopolists’: Tech giants have to keep their fickle audiences engaged and their investors happy with steadily growing revenues and earnings. They do that through innovation or they risk becoming the next Yahoo.