The Wall Street Journal reported on July 23rd that The Justice Department has opened a broad antitrust review into whether or not giant tech firms such as Facebook, Google and Amazon are unlawfully hindering competition.

The goal of this review is to analyze the practices of internet search, retail services and social media platforms.

This new antitrust probe under Attorney General William Barr could potentially increase the mounting regulatory pressures facing these dominant tech giants.

Board members would be well served to stay up to date on these developments and consider setting aside time during the next board meeting to review their company’s own data and privacy practices to ensure that they are aligned with regulatory standards.

To help your board of directors understand the depth of the scenario unfolding in Washington I would recommend reading the Congressional testimony given by antitrust expert, Sally Hubbard. Hubbard specializes in tech platforms, competition and privacy and is a Director of Enforcement Strategy at the Open Markets Institute.

Here is an excerpt from her testimony:

Digital platform monopolies threaten American democracy in three main ways: (1) disinformation and propaganda; (2) the starving of journalism; and (3) control over speech. These threats are not an inevitability of the internet, but rather they are in good part monopoly problems. Weak antitrust enforcement has impacted where we are today.

A major problem in the age of big tech is that platform monopolists are internet gatekeepers that also compete against companies that must get through their gates to reach users. But of course, this is not a fair competition. Rather, tech platforms have what I call platform privilege– the incentive and ability to prioritize their own products and services over those of competitors. Tech platforms get to both umpire the game and play in it too.

As an example of platform privilege, Google was found by the European Commission to have abused its dominance by prioritizing its own comparison shopping services in Google search and tweaking its algorithms to demote competitors in search results.[1] Amazon has reportedly preferred its own goods and services on its platform.[2] And Apple has been accused of discriminating against Spotify and giving favorable treatment to Apple Music.[3]

In the same way, Facebook and Google compete against news publishers that must get through their gates to reach users, due to the two platforms’ concentrated power over the flow of information. But Facebook and Google compete against news publishers for user attention, data and advertising dollars.[4] Because Facebook and Google control the playing field for this competition, publishers never had a fair shot.

Facebook and Google can simply change their algorithms or adjust their product design to keep users within their digital walls and reduce traffic to news publishers’ properties, depriving publishers of the revenue essential to fund journalism and to counter disinformation.

Facebook’s goal is to keep users engaged with content on its platform as much and as long as possible. The more time users spend on Facebook’s platform, the more data it collects, the more ads it shows, and the more money it makes. On Facebook’s first quarter 2016 earnings call, CEO Mark Zuckerberg announced that users spend on average more than 50 minutes per day using Facebook, Instagram and Messenger, up ten minutes from the number reported in 2014.[5]

And about 70 percent of Alphabet’s total 2016 revenue came from the ads that the company sells on its own digital properties, including Google web search pages, YouTube and other Google apps.[6] Google thus has the incentive to steer search users to its own properties. YouTube benefits from prioritization in Google search results, and, like Facebook, makes more revenue the more people engage with content on its platform.

Because disinformation is more likely to gain attention and foster engagement, it better serves both Facebook and YouTube’s advertising-based business models than do trustworthy news. The more outrageous content is, the more it elicits likes, shares, comments and clicks, and the more the algorithms promote it.

Hence the normal checks and balances of a free, competitive market do not constrain Facebook and Google from pursuing profits to democracy’s detriment.

Imagine instead a world with robust competition against Facebook and Google. Purveyors of disinformation would have less impact. News publishers would have bargaining power. Journalists and citizens would not be afraid to speak out. Users could vote with their feet when Facebook and Google amplify disinformation or abuse their privacy. The ability to switch to an alternative would apply competitive pressure on Facebook and Google to fix their problems because profits would be at stake.[7]

Giant tech companies once held god-like status in the realm of public opinion but attitudes have begun to shift as consumers and lawmakers alike have begun to question how much power and influence should be held by the tech behemoths.

Regardless of where you fall on the spectrum of opinion, the ongoing inquiries into the practices of dominant tech companies have the potential to completely reshape the competitive landscape and lead to revamped regulations and higher standards for best practices.

Board members should anticipate and consider how potential changes may impact their business. Whether it’s digital ads or content that they place on these company’s platforms; it would be valuable to speak about what potential downstream effects a government antitrust/DOJ action could have upon business. Years ago the DOJ took a very strong stance relative to both IBM and Microsoft and many see this as the catalyst for having created a more competitive landscape. There may be policies on privacy and compliance that could be impacted by the current inquiries.

In reviewing Sally Hubbard’s testimony it gives us a glimpse into the issues being discussed and some of the current platform practices. Companies may want to take this into consideration for both near term preparation as well as keep it in mind during the annual planning cycle to anticipate how changes could impact their business.

[1] Commission fines Google 2.42 billion euro for abusing dominance as search engine by giving illegal advantage to own comparison shopping service (June 2017); http://europa.eu/rapid/press-release_IP-17-1784_en.html

[2]  “How Amazon Steers Shoppers to its Own Products,” New York Times (June 2018), https://www.nytimes.com/2018/06/23/business/amazon-the-brand-buster.html

[3]  https://newsroom.spotify.com/2019-03-13/consumers-and-innovators-win-on-a-level-playing-field/

[4] Excerpted from “Fake News is a Real Antitrust Problem,” Hubbard, Competition Policy International (Dec. 2017), https://www.competitionpolicyinternational.com/wp-content/uploads/2017/12/CPI-Hubbard.pdf

[5] “Facebook Has 50 Minutes of Your Time Each Day. It Wants More.” (May 2016) https://www.nytimes.com/2016/05/06/business/facebook-bends-the-rules-of-audience-engagement-to-its-advantage.html.

[6] “Google Has a Chink in its Ad Armor,” (Jan. 2017) https://www.bloomberg.com/gadfly/articles/2017-01-27/google-s-high-powered-ad-juggernaut-has-a-weak-spot.

[7] See Transcript of The Capitol Forum Conference Call with Professor Scott Galloway Vol. 5 No. 371, November 6, 2017 (“When big tech starts making noises that old media and the government seems to buy into that something would be impossible, that’s Latin for we would be less profitable if we did this.”).

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