Keeping Big Tech Together

by: Matt Doran

The idea of breaking up Big Tech enjoys broad support and has garnered a great deal of attention. It’s a pillar of Sen. Elizabeth Warren’s campaign. President Trump has lambasted Amazon for paying nothing in taxes, and his administration’s Federal Trade Commission has launched a task force “to ensure consumers benefit from free and fair competition” and is investigating mergers it suspects of suppressing competition.

But should Big Tech be broken up? Is it really so bad Facebook shows you targeted ads based on your data, that you can buy anything on Amazon or that Google queues up the search results it thinks you want? So long as these companies are paying their fair share, is there anything wrong with having these select technology companies play such outsize roles in our economy? And alternatively, is breaking up Big Tech the answer, or is the more fundamental issue the control they exercise over their industries?

Breaking Up Is Hard to Do

If Google is forced to part ways with YouTube, is Vimeo going to suddenly be a serious competitor in online amateur video? The odds are slim. Suppose Amazon is broken up, the Web Services arm separated from the marketplace arm, separated from the Whole Foods arm. Companies who currently utilize Amazon Web Services fear Amazon is using their data to clone products it wishes to sell. Having Amazon Web Services as its own company won’t stop that. Vendors on Amazon’s marketplace already fear they are being pushed lower in search results in favor of Amazon’s products. AWS isn’t their problem. Spinning off Whole Foods won’t make the produce purveyor any less dominant among the well-heeled looking for asparagus water.

The power of these entities, whether individually or aggregated under an even larger corporation, lies in their market dominance. For many, they are indispensable. There is just no getting around using the services of these companies (at least if you’re in the market for the product they offer). Without addressing these companies’ divisions’ or subsidiaries’ market dominance, breaking them up into entities won’t address the real problem. They’ve already achieved network effect: Their products work best because everyone else uses them. If Instagram had only a dozen users, nobody would be on Instagram. Now that these companies have achieved market dominance via their network effect, breaking them up may not be feasible.

Breaking up such organizations would not be easy, either. It can be difficult to determine which parts need to go with what spinoff in order to achieve the desired end. Should the government fail at breaking up Big Tech, it would set a dangerous precedent for antitrust cases.

No More Mergers

Beyond breaking up Big Tech, another proposed tactic is preventing mergers as a way to increase competition. But that plan could backfire. Many companies start with the end goal in mind of being acquired, because going public requires too much revenue and a lifestyle business doesn’t attract investors. They know they won’t grow to be so large as to compete with say, Facebook, but they might eat into just enough of Facebook’s business that it makes sense for Facebook to acquire the upstart. Investors are familiar with this growth model and appreciate it. Going all the way to an IPO is demanding and risky. Being acquired increases the likelihood of return on investment. Thus, it’s possible that preventing mergers may deter innovation by reducing available funding, the very thing it aims to foster.

Antitrust Is Not a Panacea

Breakups or preventing mergers are antitrust tools. They don’t do anything to address concerns over data privacy. If the government wants to exert greater data privacy protections, antitrust law is the wrong tool. Consumer protection laws will need augmenting.

Google: indispensable. Amazon: indispensable (at least to young adults). Facebook (and its subsidiaries): indispensable, or at least entrenched. We are comfortable with certain concessions for access to these platforms. We blindly accept terms and conditions. We have participated in their ascension. The Supreme Court has said Facebook is so ubiquitous, access to it is a right. Consider whether you want these companies broken apart, thwarted or just better regulated.