To: Jeff Bezos
CC: Tim Cook
Dear Jeff, Mark and Sundar, if I may
...
Facebook and Google are responsible for nearly 80% of news publishers’ referral traffic. In 2017 they claimed around 80% of every new online-ad dollar in America. Google dominates as much as 85% of online-search-ad revenue worldwide. When you combine the stuff Amazon sells itself with the stuff others sell using it as a marketplace, the company controls some 40% of America’s online commerce.Read more here.
Many also believe you to be anti-competitive. Amazon is a retailer which is also a marketplace. Google determines the position that publishers get in search results and which ads are served to their patrons—as well as controlling the system that says if the ads were read and should be paid for. Ms Vestager fined it for hurting rival online-shopping services; it could face further charges for forcing smartphone makers using its Android operating system to include various Google apps.
All three of your firms have used insights from the data you gather to spot incipient rivals and buy them up. Facebook’s little-known app Onavo, which tracks users’ smartphone activity, helped it spot several potential threats, including Instagram, a photo app, which it bought in 2012; WhatsApp, a messaging service, for which it paid a stunning $22bn in 2014; and tbh, a social-polling app, which it acquired last year. When Snapchat rebuffed it in 2013, it responded by cloning the app’s most successful features. There’s a potential lesson from history here. Microsoft tried to buy the nascent browser company Netscape in the 1990s; when it failed, it put lots of the browser’s features into its own product, making it freely available to all. That got it into a lot of trouble. Some see the weak share price of Snap, Snapchat’s parent company, as proof that challenging Google’s and Facebook’s online-ad duopoly has become nearly impossible.
A further charge is that tech firms’ products are addictive. People argue about this, but many feel that people who spend time on social media, especially teens, are less happy than peers. Rates of teen depression and suicide have risen in some places; some adults have been shown to be more prone to insomnia, depression and anxiety due to online activities. Two of Apple’s shareholders—the California State Teachers’ Retirement System pension fund and Jana Partners, a hedge fund—recently demanded more be done to help youngsters’ smartphone addiction. You know you are in trouble if a Wall Street firm is lecturing you about morality.
In addition to harming mental health, your firms are charged with damaging democracy. Social-media firms create filter bubbles, where users are fed information confirming their existing beliefs; they spread fake news that reinforces political polarisation. After last year’s terror attacks in London, Theresa May and others pointed fingers at YouTube, where jihadists promote extremist propaganda. Russia’s use of social media in America’s 2016 presidential race reflected particularly poorly on Facebook, which was seen as doing too little to stamp out deceptive ads and fake news stories. As for nuclear braggadocio on Twitter, let’s not even go there.
...Break up
This has several supporters, especially on the left. One is Barry Lynn of the Open Markets Institute (he was dismissed from the New America Foundation last year, allegedly because Google’s Eric Schmidt disagreed with his take on tech). Tim Wu, who was influential in the Obama White House—he coined the term “net neutrality”—was recently overheard telling an Economist journalist that he is in favour of a revival of “the big case tradition” of trustbusting. The DOJ or the European Commission could try and force Facebook to get rid of Instagram and WhatsApp (the deal European regulators really care about), thus creating three rival social networks. Google could be split from YouTube (which, kind of remarkably, is itself the world’s second-largest search engine) or be forced to spin off DoubleClick, the technology it bought in 2007 that places ads across the web.
Such gambits might well fail; but that risk is not the deterrent you might expect. Mr Wu and others think such attempts serve a greater good even if their subject survives. Before eventually breaking up AT&T, which controlled America’s telephones, regulators forced it to license its technology. Neither IBM in the 1960s nor Microsoft in the 1990s was actually split up. But IBM had to open its platform to independent software developers and Microsoft was obliged to disclose details about the workings of its Windows operating system to rivals. Some scholars reckon this government-ordained disruption was as much of a boost to progress as any endogenous “creative destruction”. They may not be going too far when they trace the rise of your generation of tech firms to those antitrust cases.
Pre-emptive action might sometimes be an option. Some see your search for a second headquarters, Jeff, as a portent of such a strategy: a step towards spinning off Amazon Web Services. (This would not allay concerns about Amazon being both a retailer and marketplace, but it could subdue and distract regulators.) The creation of Alphabet as a holding company in 2015 means that splitting, say, Google from YouTube would be less hard than in years gone by.
Self-severance might be preferable to waiting for regulators to arbitrarily decide which limb to sever. But it is still a big step. An alternative is just lying low. Do not provoke regulators, as Mr Gates did (he called one FTC commissioner a communist). Do spend some of your money on influence. In 2017 the internet sector spent $50m on lobbying in America, which is three times what it spent in 2009—but still only a quarter of what pharma firms spend. Your K-street battalions should remind regulators that attacking deals which have already been done chills the market. And the antitrust hipsters need to know that break-ups are not stable solutions. The network effects that make bigger networks more attractive to new joiners give these markets a winner-takes-all quality. One of the Googlettes, or the Facebabies, will do better than all the rest, and a new giant will rise.
Utility regulation
That said, taking this winner-takes-all argument too far could backfire. Mark, you and your peers may all come to rue the day you described Facebook as a “utility”. You were trying to argue that Facebook’s market-dominating social network could be as ubiquitous as electricity. In doing so you armed your critics. Utilities so big that everyone depends on them get regulated.
...Price regulation is hard for services that are basically free to the user. It is possible, though, that a regulator could force prices up—for example by insisting that you offer customers the chance to pay for an ad-free service. A more likely approach, though, would be to cap profits. On the basis of your third-quarter figures, a mandated 20% rate of return would represent a fall in profitability rates of 11% for Google and 56% for Facebook. Your share prices would plunge.
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