The End of Big Tech?


Source: Democracy Now!

Calls are growing to break up the Big Tech giants, with a handful of companies controlling more and more of the technology industry, crowding out or acquiring would-be competitors and exercising vast power over the U.S. economy. Lawmakers grilled the CEOs of Amazon, Apple, Google and Facebook during a hearing last week on whether their companies are guilty of stifling competition, in a scene reminiscent of the 1994 hearing of tobacco executives who claimed cigarettes were not addictive. This came just days after Amazon CEO Jeff Bezos reportedly made $13 billion in a single day, even as the coronavirus pandemic has left millions of Americans struggling to make ends meet. We speak with Scott Galloway, professor of marketing at NYU Stern, who says we may be seeing “the beginning of the end” of the tech monopolies.

AMY GOODMAN: This is Democracy Now! The Quarantine Report. I’m Amy Goodman.

It was an unprecedented congressional hearing. The Big Four tech CEOs, of Amazon, Apple, Google and Facebook, faced lawmakers on Capitol Hill last Wednesday for five hours, as Democratic and Republican lawmakers alike hammered the executives with questions about the tactics they use to dominate the market.

In a spectacle compared to the infamous 1994 congressional hearing of tobacco executives, who put up their hands, their right hands, and claimed cigarettes were not addictive, CEOs Mark Zuckerberg of Facebook, Sundar Pichai of Google, Tim Cook of Apple and Jeff Bezos of Amazon faced accusations of stifling competition and monopoly. Republican lawmakers accused them of anti-conservative bias. Committee chair, Congressmember David Cicilline, a Democrat from Rhode Island, said, “Our founders would not bow before a king. Nor should we bow before the emperors of the online economy.”

This is Pramila Jayapal, the congressmember, questioning Facebook CEO Mark Zuckerberg.

REP. PRAMILA JAYAPAL: Has Facebook ever taken steps to prevent competitors from getting footholds by copying competitors?

MARK ZUCKERBERG: Congresswoman, I view it as our job to understand what people are finding valuable in all of the services that they use. And certainly, if someone else in the market —

REP. PRAMILA JAYAPAL: Do you copy — do you copy your competitors?

MARK ZUCKERBERG: Congresswoman, we’ve certainly adapted features that others have led in, as have others copied and adapted features that we invented.

REP. PRAMILA JAYAPAL: I’m not concerned about others. I’m just asking you, Mr. Zuckerberg, since March of 2012, after that email conversation, how many competitors did Facebook end up copying?

MARK ZUCKERBERG: Congresswoman, I can’t give you a number.

REP. PRAMILA JAYAPAL: Did you warn Evan Spiegel, the founder of Snapchat, that Facebook was in the process of cloning the features of his company, while also attempting to buy Snapchat?

MARK ZUCKERBERG: Congresswoman, I don’t remember those specific conversations, but that was also an area where it was very clear that we were going to be building something.

REP. PRAMILA JAYAPAL: Facebook is a case study, in my opinion, in monopoly power, because your company harvests and monetizes our data, and then your company uses that data to spy on competitors and to copy, acquire and kill rivals.

AMY GOODMAN: That’s Congressmember Pramila Jayapal questioning CEO Mark Zuckerberg of Facebook, who was testifying remotely, as the other CEOs were, in the midst of the pandemic. House Judiciary Chair Jerrold Nadler also questioned Zuckerberg, condemning Facebook’s acquisition of Instagram.

REP. JERROLD NADLER: Facebook saw Instagram as a threat that could potentially siphon business away from Facebook. And so, rather than compete with it, Facebook bought it. This is exactly the type of anti-competitive acquisition that the antitrust laws were designed to prevent.

AMY GOODMAN: Near the end of the hearing, Subcommittee Chair David Cicilline called for breaking up the Big Tech companies.

REP. DAVID CICILLINE: This hearing has made one fact clear to me: These companies, as exist today, have monopoly power. Some need to be broken up. All need to be properly regulated and held accountable. We need to ensure the antitrust laws, first written more than a century ago, work in the Digital Age.

AMY GOODMAN: The hearing came just days after Amazon CEO Jeff Bezos reportedly made $13 billion in a single day, as the coronavirus pandemic has left millions of Americans jobless, struggling to make ends meet. It was Bezos’s first-ever congressional testimony.

For more, we’re joined by Scott Galloway, professor of marketing at New York University Stern. He’s the author of The New York Times best-seller, The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google and The Algebra of Happiness. His recent opinion piece in Business Insider is headlined “This may be the beginning of the end of Big Tech — we shouldn’t see it as a punishment, but a restoration of balance.”

Welcome to Democracy Now! It’s great to have you with us, Scott. Can you start off by, well, answering your question? Will this be the end of Big Tech? This was an unprecedented hearing. But will the answer be unprecedented?

SCOTT GALLOWAY: That’s the correct question, Amy. And good to be with you. And while I’ve been wrong before, this felt — most congressional panel hearings are more spectacle than historic. And that is, it’s a lot of positioning for the cameras, and it doesn’t appear that two or three months post the hearing that a lot has happened.

This felt like the culmination, and it was the culmination, of a 13-month investigation, where they collected over a million pages of evidence. And the panelists weren’t really looking to the witnesses to provide them additional information; it seemed as if they were there to use the witnesses as props just to confirm and articulate to the general public and other lawmakers their conclusions.

And their conclusions seemed pretty swift and unified across both sides of the aisle, that these companies have just aggregated too much power. Now, each of the parties seems to be upset for different reasons, but this, at the end of the day, feels like a bipartisan action and belief that these companies have grown too powerful. So it does in fact feel, as I wrote in that article, that this may be the beginning of the end of Big Tech as we know it.

AMY GOODMAN: Well, let me turn again to Congressmember Pramila Jayapal, who represents Seattle, questioning Amazon CEO Jeff Bezos, also, of course, Seattle, during last Wednesday’s hearing.

REP. PRAMILA JAYAPAL: So, let me ask you, Mr. Bezos: Does Amazon ever access and use third-party seller data when making business decisions? And just a yes or no will suffice, sir.

JEFF BEZOS: I thank you for the question. I know it’s is an important topic. And I also want to thank you for representing us. But I can’t answer that question yes or no. What I can tell you is, we have a policy against using seller-specific data to aid our private label business, but I can’t guarantee you that that policy has never been violated.

REP. PRAMILA JAYAPAL: Mr. Bezos, you’re probably aware that an April 2020 report in The Wall Street Journal revealed that your company does access data on third-party sellers, both by reviewing data on popular individual sellers and products and by creating tiny product categories that allowed your company to categorically access detailed seller information in a supposedly aggregate category. Do you deny that report?

JEFF BEZOS: I’m familiar with The Wall Street Journal article that you’re talking about. And we continue to look into that very carefully. I’m not yet satisfied that we’ve gotten to the bottom of it, and we’re going to keep looking at it.

REP. PRAMILA JAYAPAL: OK. So —

JEFF BEZOS: It’s not as easy to do as you would think, because some of the sources in the article are anonymous. But we continue to look into it.

REP. PRAMILA JAYAPAL: I’ll take that as a you’re not denying that; you’re looking into it. I will tell you a former Amazon employee in third-party sales and recruitment told this committee, quote, “There’s a rule, but there’s nobody enforcing or spot-checking. They just say, ’Don’t help yourself to the data.’ It’s a candy shop. Everyone can have access to anything they want.”

AMY GOODMAN: So, that’s Pramila Jayapal questioning Amazon CEO Jeff Bezos. Scott Galloway, can you explain what exactly she’s getting at?

SCOTT GALLOWAY: Well, one, if you own the rails, and you know what’s in the cars, and those cars are shipping products to a store, but you also have stores, your ability to understand what is selling well and what components of those products are inspiring additional sales, you have just an unfair advantage. So, if you own the rails, you’re not supposed to be competing with the end destination.

And in this instance, when Amazon understands user behavior, why people are purchasing certain products, where those products are being fulfilled from, the margins on those products, when they have to go on sale, how much they sell — and they might decide, for example, that batteries is a great high-margin business, and they can produce those batteries in the same factories and brand them Amazon and then start selling them themselves, and even advertise or put a banner ad in front of the consumer when they are perhaps buying competitive batteries — it seems as if it’s just an unfair advantage.

So, Representative Jayapal is basically getting to the notion that, one, you can’t own the rails and also compete with them. And two, with respect to Instagram, whether or not at some point — at some point, if you are so intimidating to somebody, you basically show up and say, “Either sell to us, or we’re going to put you out of business,” I mean, it begins to feel very mob-like.

In addition, Representative Nadler accused the firm of stating, when they were purchasing Instagram, that their justification, or one of their justifications, for the purchase of Instagram was to cauterize a competitor, which is in direct violation of antitrust. So it feels like there’s just — it’s a textbook case of all different angles of why antitrust law was created, to stop this type of behavior.

AMY GOODMAN: So, will these companies emerge actually stronger and more powerful after the pandemic than they were before, as people are suffering all over this country? I mean, just pointing out that in one day in the last weeks, Jeff Bezos made $13 billion.

SCOTT GALLOWAY: Well, it’s worse than that. The day after the hearings, the firms reported record earnings, and within 15 minutes after reporting their earnings, after the close of market, their stocks increased by a combined quarter of a trillion dollars. So they added the value of AT&T, Pinterest and Twitter in 15 minutes.

And it’s no accident that they negotiated to testify the day before their earnings, because, according to these individuals, they have competitors coming from everywhere, but the next day they managed to announce record earnings and profits in the midst of a global pandemic.

What was also telling about the market the next day is that these companies are so big, and the indices are weighted, so typically when these four firms all go up, the indices go up. In this instance, the indices went down, because if you’re adding a quarter of a trillion dollars in market capitalization across just four companies in a low-growth economy or an economy that’s in decline, it means every other publicly traded company is likely losing revenues to these companies. So, in sum, what is now good for Big Tech seems to be bad for the rest of the economy, because they have aggregated just so much power and so much of the spoils.

AMY GOODMAN: So, explain what you think has to happen, Professor Galloway.

SCOTT GALLOWAY: Well, I think the DOJ or the FTC need to file antitrust action against three of the four firms: Amazon, Facebook and Google. I think Facebook should divest Instagram and WhatsApp. If they acquired them, they can divest them. I think Google should be forced to spin YouTube and their cloud business. I think Amazon should be split into three companies: Amazon, the core retail platform; AWS; and Amazon fulfillment as a standalone company.

And I don’t think there’s an elegant way to split up Apple. I think Apple is more about regulation than antitrust, because elegant antitrust not only restores the marketplace and oxygenates it with increased competition, but the core shareholders do better off. I think if Amazon spun AWS, AWS itself would be the most valuable company in the world. So, I think elegant antitrust, you have your cake, and you eat it, too — competition, and you increase the share value of the existing shareholders. With Apple, it’s difficult to understand how you would split it up, because the question that arises is who has domain over the core asset, the brand. However, I do think you would need to regulate the app store, which now controls two-thirds of what we call the app economy, and has been accused of usurous pricing and anticompetitive behavior. So, split those three companies into eight or nine, and regulate Apple.

AMY GOODMAN: Scott Galloway, you were always on CBNBC — right? — NBC’s sort of business channel. I haven’t seen you there recently.

SCOTT GALLOWAY: Yeah. I was on CNBC every morning for, gosh, the better part of five years. And, you know, I don’t know what happened. They just stopped calling. And I heard from one of the folks there that some of my comments were not well received by their advertisers. I don’t know if it was Big Tech. But I’m happy to be here with you now. I still really like the folks at CNBC, and I still watch it. But yeah, I’m no longer on CNBC.

AMY GOODMAN: That’s why independent media is so important. Let me ask you about Donald Trump announcing and then reversing his decision to ban the Chinese-owned video-sharing platform TikTok, after Microsoft said it’s in talks to acquire U.S. operations for the extremely popular app. He’s also saying the U.S. Treasury would have to benefit. Can you explain all of this?

SCOTT GALLOWAY: I don’t think anyone can explain it. So, first off, let me acknowledge there are legitimate concerns around a company that is, if not controlled, is influenced by the Chinese government in terms of access to data around behavioral and location data around American consumers. I think those are legitimate concerns. The issue is what is the right remedy.

And what’s unprecedented is what the president is proposing, is that he directly gets involved and threatens to ban the company unless it sells to not only an American company, but he’s already decided which company it should be sold to, and that he should get a commission. We’ve just never seen anything like this.

And you can imagine, this goes very strange places, where, say, for example, the Indonesian government might decide to threaten to ban Facebook, its second-largest market by users, unless they sell to an Indonesian social media firm. This just isn’t — the definition of socialism is the means of production are controlled by the state, and the yield is divided up by the state. And this feels very socialist, when a president starts playing CEO with bigger chess pieces and calling Microsoft and saying, “You should buy this company,” and then blessing it, and then asking for a commission.

People would argue that — whether you believe that our tax policy is accurate or not, people would argue that that’s just not — that’s not how CEOs behave. We’ve never seen anything like it. It’s unlikely that it’s legal to do this. But I think it has a lot of people flummoxed as to what is the role of a president. And we’ve never seen a president weigh in and start basically acting like a real estate broker across foreign and local organizations. It’s just unprecedented. It’s hard to even envision where this goes from here.

AMY GOODMAN: A lot has been made about President Trump going after China; this is his way of getting at them. But maybe it’s just going after Sarah Cooper. He doesn’t like to see a woman of color impersonating him, right? The star of TikTok right now.

SCOTT GALLOWAY: Yeah, it appears that he does have some personal animus. And he has a track record of making decisions based on his own personal biases. But this is — not only that, a lot of people thought that TikTok was the platform that people used to reserve tickets for his rally that didn’t get the attendance they were hoping for.

You know, this is a powerful company. It’s growing fast. And to be fair, China has let many of our Big Tech companies in, just long enough to steal the IP and then kick them out. But this is unprecedented. You could see much different remedies. Even if they were worried about the data, you could imagine them forcing the company maybe to go public on a U.S. exchange, have all the servers located domestically, ensure that security agencies and the SEC felt that the company wasn’t funneling data back to mainland China.

But this feels like — this feels, again, very mob boss-like. But there’s no doubt about it: It does feel as if there’s something around this is personal. We saw the same thing when the president encouraged the DOJ to block AT&T’s acquisition of Time Warner, which included CNN. So this feels like it’s governance by id, as opposed to any strategy or consistency or the law as a guide.

AMY GOODMAN: We only have 20 seconds, Professor Galloway, but you’ve talked about Amazon starting to get into health insurance.

SCOTT GALLOWAY: Yeah, or healthcare more broadly. I believe that Amazon will be the largest or the fastest-growing healthcare company in the world within two or three years. Jeff Bezos has famously said, “Your margin is my opportunity.” The largest-margin, largest-dollar business — it’s grown prices faster than any sector in the world — is U.S. healthcare. Amazon has a direct pipeline into every home. They have great actuarial data. They know your body mass index. They know how healthy or unhealthy you are. And they have the capital to go into this field. I think Amazon, in the next few years, is the fastest-growing healthcare company in the world.

AMY GOODMAN: Scott Galloway, we want to thank you for being with us. We hope to have you back, professor of marketing at NYU Stern, author of The New York Times best-seller The Four and The Algebra of Happiness, host of The Prof G Show and co-host of the Pivot podcast.

 

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