In July, the four Big Tech CEOs appeared before the House Antitrust subcommittee and shed light to congress for the first time pushing back and lobbying against monopoly power and anti-competition. This was the last step of an investigation that began in June 2019. It also provided the public with their first look at internal documents highlighting the companies underlying strategies.
Jeff Bezos, CEO of Amazon was questioned for mistreating third-party sellers on their platform to market their own products. Internal documents were presented that showed Amazon referring to certain third-party sellers as “internal competitors” and raised the question to congress of how they can best serve a company on their marketplace that they also consider as a competitor. Congress also presented internal emails that Amazon sold diapers at a loss in 2009 to drive out Diapers.com, who they referred to as their “#1 short term competitor,” and then raised prices afterword’s.
Sundar Pichai, CEO of Google parent company Alphabet, was questioned about Google’s web search dominance and their digital advertising. Google processes around 90% of all US web searches, and their advertising business generates almost of all the $160 billion annual sales. They were questioned about controlling search verticals to traffic their ad business. They were also challenged of forcing partners to bundle Google apps through their dominance as the most popular mobile software.
When it came to Apple CEO Tim Cook, the questions from the House Antitrust committee focused on the companies “tax” on advertising. Apple receives up to a 30% commission on in-app sales and subscriptions from the apps on their app store; this has forced companies to lose a lot of revenue as there is virtually no alternate platform for them to sell their apps through.
Facebook CEO Mark Zuckerberg, was questioned for their practice of buying out growing competitors such as Instagram and WhatsApp, which have been called anticompetitive acquisitions and are allegedly illegal by the Clayton Act of 1914.Jerrod Nadler, the chairmen of the House Judiciary Committee, commented “This is exactly the type of anticompetitive acquisition that the antitrust laws were designed to prevent.”
Following these hearings, on October 20th 2020 the Justice Department filed a highly anticipated antitrust lawsuit against Google alleging that the tactics Google uses to preserve a monopoly for its search engine are anticompetitive.
The suit alleges that Alphabet (Google’s parent company) uses an unlawful set of complex and exclusionary business agreements to block any competitors from gaining market share.
Boards needs to pay attention to this hearing and subsequent lawsuit as these ongoing inquiries into the practices of dominant tech companies have the potential to reshape the competitive landscape and lead to revamped regulations.
I had the opportunity to speak with Sally Hubbard, antitrust expert and Director of Enforcement Strategy at Open Markets Institute, and gather some of her insights and takeaways.
She pointed out that this is a landmark for businesses, such as in the case of Microsoft in 1998. The DoJ and the attorneys general of 20 states filled antitrust charges against Microsoft accusing the company of forcing computer operators to preinstall Internet Explorer on their computers if they wanted to use Microsoft’s operating system. With Microsoft’s 95% market share at the time, computer manufactures were forced to sell their products with Internet Explorer installed. Microsoft was also found to have made it difficult for consumers to install other competing software, such as Netscape, on Windows operated computers. Microsoft ultimately drove Netscape out of the web browser market by giving away Microsoft’s browser software for free, bundled with its monopoly operating system.
“If the DoJ and other states didn’t bring this case against Microsoft in the 90s, there probably wouldn’t be a Google today,” Hubbard added. “Internet explorer could have become a monopoly search browser.”
Another landmark case that Hubbard mentioned was when AT&T was broken up in 1984. The AT&T breakup probably helped upstart fiber-optic long-distance firms Sprint and MCI, and gave consumers the option between choosing from different carriers which drove competition and lowered prices for consumers over time.
Both of these landmark antitrust cases spurred innovation and healthy competition that ultimately benefited the consumer.
“The innovation brought about from these major changes in the history of anti-trust have unlocked markets and allowed companies to compete based on merit” said Hubbard.
Consumers are also gaining a heightened awareness of the drawbacks from monopolistic power, especially through the lens of data privacy. In the past, so called “surveillance capitalism” has been highly profitable with little regulation and transparency.
Today, consumers are beginning to understand how much of their data is wielded by these tech giants – Netflix aired a docudrama film titled “The Social Dilemma” which explores the dangerous impact of social networking with former tech execs ringing the alarm bell over what their own creations have become. “The Social Dilemma” made headlines with many calling it a “huge wakeup call for consumers”.
Boards need to take a closer look at their Enterprise Risk Management (ERM) and review their data privacy practices. Boards should ask management to proactively decide at a high level the company view on data privacy and how this fits with their brand promise. Better privacy practices are a good long term business move as consumers are increasingly more concerned with how their data is stored and used.
Board members would be well served to stay up to date on these ongoing developments and may want to consider setting aside time during the next board meeting to review their own company’s data practices to ensure they are aligned with regulatory standards and discuss how a stricter regulatory environment may impact their business.