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“Emperors of Online Economy” face Antitrust Hearing

“The corrupt politician has usurped too much of the power which should be exercised by the people … The millionaire and the trust have appropriated too many of the economic opportunities formerly enjoyed by the people.” – The Promise of American Life (1909), Herbert Croly

On Wednesday, June 29th, the CEOs of Amazon, Apple, Facebook and Google appeared before Congress for an antitrust hearing. In these highly partisan times, it is telling that both sides of the political aisle addressed concerns that the four tech behemoths were approaching monopoly status.

Congress called Jeff Bezos, Sundair Pichai, Tim Cook and Mark Zuckerberg—CEOs of Amazon, Alphabet Inc (Google’s parent company), Apple and Facebook, respectively—to address concerns about the companies’ use of power. The leader of the congressional committee handling this yearlong antitrust investigation, David Cicilline (D), said that the tech giants “wielded their power in destructive, harmful ways in order to expand.”

While both parties were concerned with the potential abuse of power to unfairly crush the competition, there were some uniquely partisan worries being expressed at the hearing. Democrats were primarily concerned with abuses of power that essentially eliminated fair competition and the insufficient attempts to curb hateful rhetoric and misinformation. Republicans were primarily concerned with the tech giants’ relationship with China and the perceived censorship of right-wing speech.

These are the concerns that the congressional committee brought up with each company:

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Amazon

One of Amazon’s biggest critiques is that the company is “fundamentally anti-competitive.” The “dual-role” that Amazon plays as a seller and a market-place creates a massive conflict of interest, leading the company to undercut part of their user base.

Bezos does not believe that the multiple services the platform provides yield a conflict of interest. He did vaguely admit to violating the company’s fairness policy which prohibits the use of data from third party sales to support Amazon sales, coyly saying, “I can’t guarantee you that policy has never been violated.”

Facing of a tough interview, Bezos took an opportunity to stress, “the trust customers put in us every day has allowed Amazon to create more jobs in the United States over the past decade, than any other company … Hundreds of thousands of jobs.

“Amazon employees make a minimum of $15 an hour, more than double the federal minimum wage. And we offer the best benefits … Here in the US, we nurture entrepreneurs and start-ups, with stable rule of law, the finest university system in the world, the freedom of democracy and a deeply accepted culture of risk-taking.”

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Apple

Cook faced the lightest questioning out of the four CEOs. Congress took the opportunity to investigate claims from critics that Apple was favoring certain developers in the App Store. The 30% commission on App Store sales has been heavily scrutinized with companies like Spotify speaking out about the issue. For his part, Cook said “We do not retaliate or bully people, it is strongly against our company culture.”

Apple was also accused of copying other developer’s apps and selling them on the App Store. While Cook denies this claim and says that Apple “would never steal somebody’s IP,” the practice has been documented and even has a nickname among employees. Apple copied a search tool named “Watson” and sold it on the App Store as “Sherlock”. The practice of “Sherlocking” is still in use today, even being featured in a Washington Post article in late 2019.

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Facebook

The congressional committee focused a lot time on Facebook’s acquisition of competitors, particularly Instagram. Rep. Joe Neguse (D) characterized Facebook’s acquisition strategy as “a land grab.”

In regards to the Instagram acquisition, Neguse said “Mergers and acquisitions that buy off potential competitive threats violate the antitrust laws. In your own words, you purchased Instagram to neutralize a competitive threat.” This is particularly problematic for Zuckerberg, as e-mails have surfaced where it becomes clear that he did just that.

In an e-mail to his CFO, Zuckerberg wrote, “These businesses are nascent but the networks established, the brands are already meaningful, and if they grow to a large scale the could be very disruptive to us. Given that we think our own valuation is fairly aggressive and that we’re vulnerable in mobile, I’m curious if we should consider going after one or two of them.”

That evidence makes it clear that Facebook’s acquisition of Instagram is in violation of antitrust laws, but Zuckerberg made a quick rebuttal that nipped the charge in the bud, explaining that the acquisition was approved by the Federal Trade Commission at the time.

Facebook was also accused of digital surveillance. It was shown that Facebook used their purchase of an Israeli security app, Onamo Protect, to gain insight into how consumers were using apps installed on their phone. It was using that shadily collected data that Facebook made its decision to buy Whatsapp in another instance of Facebook pre-emptively buying competitors.

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Google

Alphabet Inc’s Pichai was tasked with addressing concerns that Google has a monopoly on advertising. Rep. Pramila Jayapal (D) referenced a report that shows Google’s controls the majority of both sell-side and buy-side advertising.

Google’s move to phase out third party cookies also raised some flags for the Congressional Committee, but Pichai was quick to explain that this was being done in an attempt to increase user privacy and not to eliminate competition.

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What Does this all Mean Moving Forward?

The chair of the congressional committee, David Cicilline, made a passionate call to action during his opening remarks. “When the American people confronted monopolist in the past, via the railroads or the oil tycoons, or AT&T and Microsoft, we took action to ensure no private corporation controls our economy, or our democracy, we face similar challenges today.

“As gatekeepers of the digital economy, these platforms enjoy the power to pick winners and losers to shake down small businesses and enrich themselves while choking off competitors. Their ability to dictate terms, call the shots, up-end entire sectors and inspire fear represent the powers of a private government.

“Our founders would not bow before a king, nor should we bow before the emperors of the online economy.”

In August, Cicilline is expected to take what was learned today and will craft a report that will make present regulators like the FTC with an argument for updating federal competition laws. Regulators would then be given more power to investigate and penalize the tech industry with up-to-date laws tailored to the tactics of the new tech monopoly.

The general consensus after this hearing among tech analysts and journalists seems to be that the hearing is a conversation that needs to be had, but unfortunately does not seem to be leading to much. Analyst Dan Ives of Wedbush Securities said this, “We think a legislative fix is the only one that creates a potential for limitations on these companies’ ability to conduct business, whether that takes the form of higher taxes or new rules regarding market concentration. Absent a legislative fix, we don’t see meaningful change in regulation, although future acquisitions will most certainly be scrutinized and more difficult to close.”

President Donald Trump seems to share the same concerns, tweeting “If Congress doesn’t bring fairness to Big Tech, which they should have done years ago, I will do it myself with Executive Orders.” He also told reporters that he thought that “there’s no question that what the big tech companies are doing is very bad.”

It seems that the long and arduous process of trust-busting—a practice that laid the groundwork for the economic growth of the United States in the 20th century—may soon be underway, although we are not quite there yet. At the end of the day, it is true that the first step in change is identifying the issue, something that this hearing certainly achieved.