Challenging the ‘Common Story’ of Amazon, Facebook and Google Inc.

A common story exists about Silicon Valley. It goes something like this: in the mid-1990s a handful of entrepreneurs and software engineers designed products that were so successful that they would alter basic assumptions of capitalism and make the world a better place. For years, countless media outlets have upheld this image (or something close to it) and a generation has espoused the view that digital platforms — Amazon, Facebook, Google — are similar to charities in the way they democratize access to useful services (or “apps”).[1] A new point of view, however, has emerged that challenges Amazon, Facebook and Google. Several years ago, popular media began discussing ways that the U.S. government could control or even break up these businesses, and now in 2021, the fight for justice against big tech has grown to into one of the biggest legal battles in recent history — best exemplified by U.S. et al v. Google.[2] In this short essay, I explain what I mean by the “common story” and then I debrief a few arguments against its continued proliferation, i.e. where cracks are clearly showing. [The much larger, more complicated issue of the U.S. antitrust laws, and how to evolve them for the 21st Century, I address in another essay].

Scott Galloway, professor of business at New York University, has written,

[F]our technology giants have inspired more joy, connections, prosperity, and discovery than any entity in history… Apple, Amazon, Facebook, and Google have created hundreds of thousands of high-paying jobs… are responsible for an array of products and services that are intertwined into the daily lives of billions of people. They’ve put a supercomputer in your pocket, are bringing the internet into developing countries, and are mapping the Earth’s land mass and oceans. [They] have generated unprecedented wealth ($2.3 trillion) that, via stock ownership, has helped millions of families across the planet build economic security. In sum, they make the world a better place.[3]

Beginning in the mid-1990s, Amazon expanded precipitously into the emerging online retail sector by competing to provide low priced goods;[4] Facebook built one of the most popular and frequently used services in history — its social network — and monetized it; while Alphabet Inc. (formerly Google[5]) took on the most ambitious, though vague task of all: “organizing the world’s information.”[6] Apple is significant too, but is not a focus of this paper for reasons of brevity. That Facebook and Google have become dominant in advertising — seizing shares from traditional ad agencies, such as WPP[7] — is arguably due to their value proposition of selling targeted or “personalized” ads. It follows that offering zero-priced apps — on the condition that consumers click “yes” to data collection — would be a logical play for Facebook and Google to maximize advertising revenue, given their ad-focused positioning.[8] Thus, I would challenge whether Facebook and Google’s apps are altruistic at all (in the sense of making the world a better place).

One major issue is that consumers are not necessarily the main beneficiaries of Facebook and Google’s ad-based business model — these firms seek to capture consumers’ attention, but they are not beholden to consumers’ needs since advertisers foot the bill for the relevant services.[9] Moreover, I argue below that Facebook and Google detract from consumer welfare in two distinct ways: (1) through limiting consumer choice and (2) through consolidating the digital advertising industry, which helps to facilitate anticompetitive conducts against innovative entrants. “Consumer” is even a fuzzy term within ad-focused markets, since the parties purchasing products from Facebook and Google are advertisers. For now, I refer to consumers as users of apps on the Internet.

1. Consumers arguably have less control over privacy in a semi-free app environment where providers can exploit gray areas around consumer awareness and consent. Stacy-Ann Elvy, law professor at New York Law School, has argued that by relying significantly on mining consumer data, Facebook and Google have likely contributed to a setting in which consumers want more privacy and more control over their data.[10] Even Facebook’s CEO, Mark Zuckerberg, recently claimed that consumers are calling for increased privacy options, which he admits would be the antithesis of Facebook’s current stance on privacy, which focuses on “tools for more open sharing.”[11] Not surprisingly, innovators are ready to turn up the dial for privacy options — Elvy references several startups aiming to reach consumers disenchanted by pervasive tracking[12] — and they hope to do this through re-writing privacy rules from the bottom up. But how likely is this next “wave” of innovation?

2. In theory, markets are always prone to disruptive forces — what Austrian economist, Joseph Schumpeter, termed “creative destruction”[13] — suggesting a constant renewal of the providers of innovation. But Facebook and Google would have it another way. Whereas ad-sponsored services — such as radio, TV and newspapers — in the past had to compete among each other for advertising revenue, Facebook and Google have effectively cornered digital advertising,[14] which gives them extraordinary power. Moreover, in numerous cases they have aspired to actively blot out competition in order to preserve their own versions of a concentrated tech utopia. Facebook’s acquisitions of Instagram and WhatsApp — two maverick apps that showed hope of competing against Facebook in the future — could be seen as direct attempts to circumvent competition. One critic has claimed that “buying WhatsApp [allowed] Facebook to both own ‘the next Facebook’ and prevent ‘the next Facebook’ from eating Facebook’s lunch.”[15] To put this into a legal context, if the claim were true, Facebook’s conduct contravened Section 7 of the Clayton Act. Google has also faced scrutiny for anticompetitive conducts, such as the company’s attempts to use Google Search — a crucial gateway to the Internet — to divert traffic away from competing search engines.[16] Joshua Hazan, associate at Wachtell, Lipton, Rosen & Katz LLP, has argued that Google’s conduct has violated the Sherman Act and FTC Act.[17] Moreover, Charles Duhigg, reporter at the New York Times, has argued that Google’s anticompetitive practices have undermined numerous innovative startups.[18] The search company’s conduct is eerily familiar: according to sources within Microsoft, there had been “informal conjectures” in the late-1990s between Microsoft staff about reprogramming Internet Explorer, Microsoft’s in-house browser, to steer traffic away from Google Search — instead directing users to MSN Search by default.[19] In other words, Google’s life was once in Microsoft’s hands. Anticompetitive practices are so familiar that they cast a somber shadow over future innovation and “competition on the merits” — what Ohio Senator, John Sherman, sought to preserve when he initialized the first anti-monopoly law for the American people over 100 years ago. Generally speaking, concerns about slowed innovation are even greater in concentrated markets, such as digital advertising and mobile phone markets, where rates of new entry are reduced through incumbents’ control over the ‘defaults’ on new mobile devices.

Equally important in this discussion is the world’s largest online retailer: Amazon. Jeff Bezos, Amazon’s CEO, once made a compelling pitch to the world, focused on long-term growth at the expense of short-term profit.[20] He argued that this strategy would enable the eCommerce company to make riskier investments than its brick-and-mortar competitors in retail, which would guarantee unusual stability for Amazon in the long term. But it came with a pricey bargain: in order to win, his investors would have to keep Bezos’s ship afloat for years without receiving dividends, in order that Amazon could continually reinvest in itself.[21] However, consider Galloway’s alternative version, showing how the same tenets — mastery of storytelling and access to “patient” capital — have subsequently allowed Amazon to act as a monopolist and drive competitors to the brink of failure:

Amazon is going underwater with the world’s largest oxygen tank, forcing other retailers to follow it, match its prices, and deal with changed customer delivery expectations. The difference is other retailers have just the air in their lungs and are drowning. Amazon will surface and have the ocean of retail largely to itself.[22]

The strategy has worked brilliantly — perhaps too well. Lina Khan, legal fellow at the Federal Trade Commission and author of Amazon’s Antitrust Paradox, has discussed the peculiarities of commerce in an age with vast platforms and relatively weak antitrust enforcement.[23] Khan claims that in the last forty years U.S. antitrust jurisprudence shifted away from emphasizing “economic structuralism” and instead began focusing on “price theory,” which reduced salient features of antitrust relevant to the platforms.[24] The New York Times has praised Khan’s work as “[reframing] decades of monopoly law,”[25] but Khan is also reframing the way we think about one of Silicon Valley’s most prolific firms. Amazon is a complex hero: a success, no doubt, but one with the ambition to conquer and control one of the world’s largest industries.

Galloway, Elvy, Khan and numerous scholars show the risks of ignoring the darker shades of Silicon Valley.[26] But to many observers the idea of “breaking up” or regulating Amazon, Facebook, and Google may seem absurd. That is because the counter narrative to the common story, as Galloway rightly claims, “is also heard around the world, but in hushed tones.”[27]

In this essay, I argue that Amazon, Facebook and Google are not necessarily the future of innovation and that the dominant narrative of Silicon Valley — what I term the “common story” — needs to be updated. Beyond the narrative aspect, the U.S. needs to embrace an approach to antitrust law that will protect innovators and preserve competition in the 21st Century. The burden of amending the antitrust laws to emphasize vigorous and ambitious objectives ultimately lies with Congress, since the courts have failed, through years of tepid enforcement, to prevent tech monopolies in their rise to dominance.[28]

_____________________

[1] Scott Galloway, The Four: The Hidden DNA of Amazon, Apple, Facebook and Google (New York: Penguin Random House, 2017) (Hereinafter “The Four”), 1.

[2] Sally Hubbard, “The case for why Big Tech is violating antitrust laws,” CNN Business, January 2, 2019; David Streitfeld, “Why a Big Tech Breakup Looks Better to Washington,” New York Times, March 17, 2019; Brett Ryder, “America’s antitrust apparatus prepares to act against big tech,” The Economist, April 26, 2018.

[3] Galloway, The Four, 1.

[4] Lina Khan, “Amazon’s Antitrust Paradox,” Yale Law Journal 126, no. 3 (January 2017): 716, https://www.yalelawjournal.org/note/amazons-antitrust-paradox, (discussing Amazon’s strategy of price cutting).

[5] Andrew Steele, “The A to Z Guide of Alphabet Inc.,” NASDAQ, January 11, 2016, https://www.nasdaq.com/article/the-a-to-z-guide-of-alphabet-inc-cm564033 (accessed March 5, 2019).

[6] “G is for Google,” Alphabet, https://abc.xyz/; Annual Report: Alphabet Inc., 4, https://abc.xyz/investor/static/pdf/20180204_alphabet_10K.pdf (accessed March 5, 2019), (“Google’s mission to organize the world’s information and make it universally accessible and useful has always been our North Star…”).

[7] Galloway, The Four, 108, (discussing the migration of employees from WPP to Facebook and Google).

[8] Jan Krämer and Michael, Wohlfarth, “Market power, regulatory convergence, and the role of data in digital markets,” Telecommunications Policy (October, 2017): 7.

[9] Tim Wu, The Attention Merchants (New York: Penguin Random House, 2016), 5–6. Tyler Cowan, “Paul Krugman on Politics, Inequality, and Following Your Curiosity (Ep. 51),” Medium, October 10, 2018, https://medium.com/conversations-with-tyler/tyler-cowen-paul-krugman-economics-bipartisanship-politics- 254dcee15b98

[10] Stacy-Ann Elvy, “Paying For Privacy And The Personal Data Economy” (Hereinafter “Paying For Privacy”), Columbia Law Review 117, no. 6 (October 2017), 1384–1387, http://www.jstor.org/stable/44392955 (accessed March 5, 2019), (discussing a typology of current generation and next generation data and privacy models, as well as relevant regulatory considerations).

[11] “A Privacy-Focused Vision for Social Networking,” Facebook, March 6, 2019, ttps://www.facebook.com/notes/mark-zuckerberg/a-privacy-focused-vision-for-social-networking/10156700570096634/.

[12] Meeco.me, Datacoup and Digi.me provide consumers with greater control over how their personal information is shared with businesses. Elvy, “Paying For Privacy,” 1397.

[13] Joseph A. Schumpeter, “The Process of Creative Destruction,” in Capitalism, Socialism and Democracy (New York: Harper & Row, 1950), 81–86; Shoshana Zuboff, “The Sharing Economy: Disruption’s Tragic Flaw,” Frankfurter Allgemeine, https://www.faz.net/aktuell/feuilleton/debatten/the-digital-debate/shoshana-zuboff-on-the-sharing-economy-13500770.html (accessed March 5, 2019) (discussing Schumpeter’s theory and arguing for more discretion around the term “creative destruction,” especially in connection with the ride-sharing app, Uber.).

[14] Alex Heath, “Facebook and Google completely dominate the digital ad industry,” Business Insider, April 26, 2017, https://www.businessinsider.com/facebook-and-google-dominate-ad-industry-with-a-combined-99-of-growth-2017-4 (accessed March 5, 2019).

[15] Henry Blodget, “Everyone Who Thinks Facebook Is Stupid to Buy WhatsApp for $19 Billion Should Think Again,” Business Insider, February 20, 2014, https://www.businessinsider.com/why-facebook-buying-whatsapp-2014-2?op=1 (accessed March 5, 2019).

[16] Joshua Hazan, “Stop Being Evil: A Proposal for Unbiased Google Search” (Hereinafter “Stop Being Evil”), Michigan Law Review 111, no. 5 (March 2013): 791, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2042713 (accessed March 5, 2019)

[17] Hazan, “Stop Being Evil,” 798.

[18] “The Case Against Google: Critics say the search giant is squelching competition before it begins. Should the government step in?” (Hereinafter “The Case Against Google”), New York Times, February 20, 2018, https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html (accessed March 5, 2019).

[19] “The Case Against Google,” New York Times, February 20, 2018.

[20] Jeffrey P. Bezos, Letter to Shareholders, Amazon.com, Inc., March 30, 1998, http://media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf (accessed March 5, 2019), (in Amazon’s first letter to shareholders, Jeff Bezos wrote, “We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position.”).

[21] Galloway, The Four, 35–39.

[22] Galloway, The Four, 39.

[23] Khan, “Amazon’s Antitrust Paradox,” 717–735.

[24] Ibid.

[25] David Streitfeld, “Amazon’s Antitrust Antagonist Has a Breakthrough Idea,” The New York Times, September 7, 2018, https://www.nytimes.com/2018/09/07/technology/monopoly-antitrust-lina-khan-amazon.html (accessed March 5, 2019).

[26] Franklin Foer, World Without Mind: The Existential Threat of Big Tech (New York: Penguin Press, 2017); Scott Clelland and Ira Brodsky, Search & Destroy: Why You Can’t Trust Google Inc. (St Louis: Telescope Books, 2011); Shoshana Zuboff, The Age of Surveillance Capitalism (Cambridge: Harvard University Press); Tim Wu, The Attention Merchants, (New York: Penguin Random House, 2016).

[27] Galloway, The Four, 2.

[28] ABSTRACT: Simon Digby, “The Control of Platforms: The Case for Antitrust Law in the Twenty-First Century,” unpublished manuscript, May 1, 2019, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3478189 ; For my full essay on updating the U.S. antitrust laws, please contact me.