For much of their existence, the big four US tech giants—Amazon, Apple, Facebook and Google—have been viewed as scrappy startups. Consumers loved their products, regulators largely looked away, and competitors either got acquired or fell by the wayside. That run of good fortune has been under threat for a while, but 2020 may well mark the beginning of the end.
On Wednesday, US President Donald Trump called for a break up of the Big Tech firms after both Facebook and Twitter took the “editorial” call to downplay leaked, unverified allegations about rival presidential candidate Joe Biden. Last week, in a scathing indictment of the business practices of Big Tech companies, a US Congress committee led by Democrats compared them to the kind of monopolies last seen in the era of “oil barons and railroad tycoons”.
US politicians are of course divided along party lines and are driven by motivations that don’t necessarily align, but strangely, there is almost complete unanimity on one aspect: Big Tech has a track record of anti-competitive behaviour and something must be done.
While one of the proposed solutions in the US Congress’ report is a structural break up of these firms into multiple entities in order to restrain their market power, it also hints at possible new trigger points for anti-competitive investigations in the future. In effect, a legal update for the internet age is in the works.
“We are in the middle of election season. But legislation could be introduced by the new Congress very soon,” said a person connected with the US Congress proceedings who requested anonymity.
US action also sends an important signal to other regulators. Europe is reportedly preparing a “hit list” of 20 large tech firms that could potentially face tougher regulations. Amazon and Google have, meanwhile, had recurrent run-ins with the Competition Commission of India (CCI).
“Claims have been made that other jurisdictions are acting against these (Big Tech) firms because they are foreign companies,” the person cited above said. “This (report) should make it clear that there are concerns even within the US.”
Over the past half-a-decade, a small band of activist academics and lawyers have pushed forward a novel argument: New-age internet companies often exhibit anti-competitive behaviour not by cartelising and hiking prices, but by keeping consumer prices low, or even free, and using it to achieve dominance across multiple business verticals.
But since competition regulators and antitrust authorities are geared towards viewing low prices as a sign of a well-functioning market—a global antitrust consensus that has been in vogue since the 1970s, informing laws both in India and the US—internet companies have often managed to escape deep scrutiny.
That reigning 50-year-old global consensus has now begun to develop cracks. The US Congress is now hinting at new standards. For instance, choice could be one key new yardstick. Even if services are cheap, consumers also deserve choice and a vibrant marketplace with multiple players. Another potential trigger for an antitrust investigation: Investment flows freezing up suddenly in a particular sector due to fear of an existing dominant player.
If these proposals turn into law, they could offer a whole new set of tools to regulators and alter the face of the digital landscape for a generation. It would affect not just the US, but every country in which these firms operate, including India.
n response to the US Congress report, all the Big Tech firms have independently released public statements denying the allegations.
Big Tech model
Beyond the widening scope for potential antitrust action against the top four US tech giants, what also matters perhaps is some reckoning on the model that they have championed which many internet startups have gladly adopted. While consumers have undeniably benefited, allegations of market concentration, harm to dependent economic actors (from sellers and advertisers to delivery persons), and extractive data collection fuelled by lax privacy safeguards abound all across the internet ecosystem.
With a handful of internet companies projected to control 30% of the world’s gross economic output by 2030, the essential question before many regulators across the world is this: Is free (or cheap) too high a price to pay under certain specific circumstances?
In India, Reliance Jio even brought a variant of this model to telecom, by offering free services for nearly a year after its launch in 2016.
We have never thought of making laws against anything that is free in India, says outgoing Telecom Regulatory Authority of India (Trai) chairman R.S. Sharma. “We didn’t think such a day would come. The general attitude is: Free mein mil raha hai, kya problem hai (It’s free, so what is the problem).” But digital monopolies, free or otherwise, could have very serious implications for citizens and democracies, he said. “Even during the net neutrality debate, Facebook got its users to send 1.8 million (templated) emails to Trai which all said ‘We love free basics’. This is akin to weaponizing users. What happens when they start using such methods during the political process?”
“We have been bystanders in some sense. We need a comprehensive policy on these digital entities,” Sharma added.
But despite the rising clamour for more action, Indian regulators, whom sceptics say have done very little to address antitrust concerns, will not move fast and break things, said Geeta Gouri, a former member of CCI. “We won’t jump so much and so quickly. Why they (US Congress) are being so aggressive, I don’t understand,” she said.
“If we just let the marketplace function, there will be enough competitors. That’s why I am surprised by the US (position). It seems to be a political move.”
Why US matters
The unfair business practices of Big Tech firms that have been well documented in the US are also widely prevalent in the Indian market, said Smriti Parsheera, a tech policy researcher with the National Institute of Public Finance and Policy (NIPFP).
But the broad direction of US regulation matters for another reason. US authorities helped in capacity building and guiding CCI when it got off the ground in 2003, she said. “They’ve (CCI) even had an antitrust division.” (a distinctly US concept, originating from the break-up of monopoly entities which operated as trusts in that country in the 1890s). “These contexts and debates (in the US) will shape what happens in other countries too,” Parsheera said.
India has two possible paths ahead: adopt progressive new antitrust approaches which may emerge from the ongoing global churn that could help create more innovation-friendly markets or adopt a narrow nationalistic plank and characterize the problem as merely a “foreign” monopoly concern.
“The direction of policy on data sovereignty seems to be about creating opportunities for large Indian businesses. This could easily create the same types of monopolies in the Indian market,” said Urvashi Aneja, director of Tandem Research and an associate fellow at Chatham House.
India already has its own local monopoly concerns. A recent Mint analysis found that one-sixth of the country’s business sectors has a dominant firm that controls over 70% of all sales. Indian businesses have often resorted to pointing fingers at foreign firms in order to cover their own tracks. Even the recent dispute over a new Google Play Store fee rapidly descended into an Indian startups vs foreign company fight.
“The goal shouldn’t be to reign in global Big Tech by creating a domestic Big Tech,” Aneja said. In a very short time, Jio Platforms, for instance, would be sitting on a huge amount of data intelligence and is likely to use it to promote its own products, she said. “The threat of Reliance dominating key markets is real and the competition authority should step in.”
“Ultimately, if you are facing monopolistic behaviour, it doesn’t matter if it is at the hands of Reliance or Amazon,” said NIPFP’s Parsheera.
E-commerce is likely to be a particularly tricky minefield in the days ahead. In a recent CCI market study—released just before the pandemic in January 2020—the regulator came close to saying Flipkart and Amazon indulged in anti-competitive behaviour via mechanisms such as deep discounts. The practice of exclusive partnerships between smartphone brands and e-commerce firms has also come under regulatory scrutiny. Now, with the pandemic giving a boost to online retail—thereby raising the stakes—and Jio positioning itself as an Indian rival to American giants, conflicts are only bound to rise.
In the US, Congress seems to be taking a particularly dim view of the e-commerce business, due to its inherent tendency to seek economies of scale. Companies like Amazon end up quickly becoming vertically integrated, with dominant presence all along the chain—from logistics and warehousing to product manufacturing. Jio could potentially fare even worse on this count with its recent Future Group acquisition, which has greatly expanded its offline retail empire.
While breaking up such vertically integrated firms into several smaller, focussed entities could theoretically prevent one firm from exercising dominance across sectors, thereby easing entry barriers, not everyone is convinced that this would actually work.
“Breaking up is just a political message and it can never be done. The way these tech companies are integrated between services, if you break them, you’ll destroy them,” said Anupam Manur, who studies platform economics at Takshashila Institution, a think tank. “(Google) Maps derives its value from what people search. These services are deeply integrated. Even the staff work across multiple services. This is as realistically going to happen as (President) Trump’s Mexican border wall.”
It’s a completely outdated solution that won’t work in India, he said.
A better solution for the Indian market would be to just expand our current understanding of consumer welfare to include the seller on two-sided platforms. “If you are an advertiser on Facebook or a seller on Amazon, you are a consumer too because you are using their product. Vertical integration in itself is not wrong if there is platform neutrality and everyone (the owner of the platform as well as the third-party) is treated equally.”
“All said and done, these (Big Tech) companies have brought tremendous value to Indian consumers. We can fix the harm,” Manur added.
Whether that harm can be fixed even while preserving existing notions of consumer welfare, so that prices don’t shoot up for certain services, is the key question.
This is going to be a prolonged tug of war as India’s economy digitises more, said Ajit Ranade, an economist, adding, “The tech ecosystem has a tendency to produce natural monopolies, which can then distort markets. The same principles will apply here in India, sooner or later. Rather than waiting for another 10-15 years, India can proactively start looking at these things.” Live Mint