The anti-trust action taken by the US Federal Trade Commission and most US states against Facebook is a threatening strand of the global backlash against the power and practices of the US technology giants.
It’s not just Facebook. The US Justice Department initiated action against Google earlier this year, alleging abuse of its dominance of online search and advertising. The Justice Department is also investigating the “walled garden” around Apple’s app store, while Donald Trump is threatening to veto the current defence spending bill unless Congress abolishes the law that protects tech companies from liability for content posted by their users.
The Europeans have fined Google more than $US8 billion ($10.7 billion) for abuse of its market dominance and are investigating Facebook’s use of its consumers’ data. They are drawing up new rules for data-sharing, data privacy and digital marketplaces.
The French tried to introduce a tax on digital revenues, but subsequently deferred it after Trump threatened tariff retaliation. There remains a global push for digital services taxes.
And here in Australia, despite strong pushback from Google and Facebook, the Morrison government is on the verge of introducing its news media bargaining code, which would force the tech giants to pay local media for use of their content.
In the US, there is bipartisan support for measures to rein in the tech companies, albeit with varying motivations from the two major parties.
There is an international consensus of concern over the dominance of the big platforms and their alleged anti-competitive behaviour as well as the implications for political discourse and the spread of disinformation.
The case against Facebook
The US case against Facebook is, however, a more conventional competition policy action that alleges the social media giant has breached anti-trust laws and should be broken up. Specifically, the FTC is asking the courts to force divestiture of some assets, including Instagram and WhatsApp.
Facebook bought Instagram for $US1 billion in 2012 and WhatsApp for $US19 billion in 2014. Both deals were approved at the time by the FTC – approvals that Facebook cited in its response to the litigation, which chief executive Mark Zuckerberg has described as an “existential threat” to Facebook.
The singling out of Instagram and WhatsApp by the FTC is significant. The acquisitions came at a moment in Facebook’s development where it dominated desktop-based social media activity but was struggling to extend and monetise that dominance into a smartphone environment that was exploding.
Its solution was to acquire the companies whose mobile apps were proving popular and which, left to their own devices, might have been able to establish their own social networks and pose a threat to Facebook and its ambitions.
Zuckerberg’s own emails at the time reveal that he recognised that Facebook had fallen behind in photo-sharing and needed to acquire Instagram to catch up and then, subsequently, that he saw WhatsApp represented the “next biggest consumer risk” to his platform.
Facebook argues that the two apps have been successful because of the support of its core platform and the massive investments it has made in them, but its own emails, Congress discovered, provided evidence that its executives regarded the deals as a “land grab” for rivals as a way of protecting its dominance.
The Justice Department’s suit against Google makes similar allegations, namely that the search and digital advertising giant had acted to suppress or stifle the development of potential competitors and protect and expand its dominance.
There is other anti-competitive behaviour alleged in the law suits, which will inevitably take years to resolve.
There is a precedent, albeit a messy one, for the actions against Facebook and Google. In the late 1990s, in the midst of the “browser wars”, which Microsoft won, the Justice Department took Microsoft to court over the bundling of Internet Explorer with its then-dominant “Windows” operating system. It sought to break the company into two.
Several years later, after an appeal, the outcome was an agreed settlement under which Microsoft agreed to share its programming interfaces and codes with third parties. It was more a slap on the wrist than punishment. The tech companies have the resources to defend themselves.
The actions against the social media and search giants, along with rising concerns about the dominance of other big tech companies like Apple and Amazon, do, however, mark something of a milestone in the attitude among US regulators and politicians towards them.
Previously, despite reservations, the digital giants were allowed to grow and expand their market power relatively unchecked, with the Americans regarding their dominance as the projection of soft power and US innovation, with substantial economic benefits.
Their sheer scale and their absolute dominance of their segments of the digital economy – and the transparency of the actions they take to protect and enhance their near-monopolies – have, however, finally triggered a reaction.
In the US, there are divestiture remedies for anti-competitive behaviour. In the early 1980s, telecommunications giant AT&T and the “Bell System” that formed its monopoly was broken up, creating seven regional and independent companies, the so-called “Baby Bells”.
Unregulated land grab
Whether or not Facebook or Google are, or can be, broken up it is evident that any future acquisition of nascent competitors is going to be heavily scrutinised by the FTC, with a high bar for any clearance, and that regulators around the world will continue to monitor their actions with a pre-disposition towards finding anti-competitive conduct.
There are also the taxes and data privacy issues, which eventually will be resolved and not in the tech giants’ favour, while the Australian approach to forcing the companies to pay for their use of news content is being watched closely by the rest of the world.
The relative novelty of the digital environment has meant there has been a largely unregulated land grab from which these near-monopolies have emerged.
In the normal scheme of things the innovative nature of the sector and the near-limitless amounts of venture capital available would have allowed competitors to emerge to threaten that dominance. Instead, until now, the incumbents have leveraged their market and financial power, and their vast stores of consumer data, to identify and fight off or buy off any threats to their position.
The regulators’ actions won’t prevent Google or Facebook or the other digital giants from innovating or entrenching their current positions. It might, however, force them to generate growth organically, rather than via acquisitions, and be more mindful of the intense scrutiny and risk they are under when they act to protect or extend their dominance.
Source: Thanks smh.com