Is big tech too big?

This post was written in collaboration with the team at C³. Learn more about C³ at the end of the post. 

Our work is not meant to serve as an all-inclusive summary on the topic, but instead is meant to serve as a starting point for thinking and learning about it. We outline important factors to consider as you form your own opinion rather than trying to push you in one direction or another

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Structuring the topic

  • What’s the problem with ‘big tech’? 
    • We cannot assume at face value that ‘Big Tech’ – Facebook, Google, Amazon and others – are inherently bad because of their size. 
    • There are companies larger in terms of market cap, employee number and a range of other metrics, where the same discussions do not take place. It is vital to carefully understand what, if anything, makes big tech so problematic. 
  • Is the Internet fundamentally different? 
    • The Big Tech companies most commonly under scrutiny all heavily rely on the internet. 
    • For this reason, it must be explored whether the nature of business on the internet is fundamentally different, and hence, whether new frameworks and guiding principles must be developed to tackle the new challenges presented.
  • Is the consumer welfare standard still relevant?
    • The consumer welfare standard has been used as a guiding principle for the last 100 years in terms of antitrust and monopoly power. Are the typical consumers the only important guiding factor when investigating company power? How do we think about who these corporates’ consumers actually are? And should we entirely rethink how we consider regulating these large tech corporates?
  • Will breaking up big tech solve the key issues?
    • Breaking up big tech has become such a common political catch phrase, that it’s taken for granted to solve the big tech problems. 
    • However, it’s not obvious how exactly this would unfold, nor whether it will actually solve most of the problems at hand.
  • How to think about regulating big tech?
    • It’s much easier to complain about the size and influence of Big Tech than to come up with solutions. 
    • It is important to think critically about how big tech can be regulated to solve the problems they present. How would these solutions be implemented, and how would we ensure no unintended negative consequences?

Key issues and implications

Who is Big Tech?

  • In our discussions we considered Big Tech as the large technology companies that are playing ever larger roles in our lives. Most of our discussion directly relates to the three most commonly referenced big tech corporates – Facebook, Google, Amazon, however other companies to also consider under the correct context are Twitter, Netflix, Uber, Airbnb and Apple.

What’s the problem with big tech? 

Abuse of market power

  • General bullying
    • These giant tech corporations are so large and constitute such a large revenue stream for smaller companies, that they are easily able to dictate all commercial terms on a take it or leave it basis to suppliers, vendors and even financing partners.
    • However, anyone that has a background in business will counter this with the term ‘bargaining power’. Bargaining power is a well known advantage of corporates growing in size, and using their increased power to bargain for better terms. 
    • How can we now tell these tech giants they cannot use bargaining power, when this is a well known business strategy? At what point is large bargaining power too much? Have they played the game too well for their own good?
  • Gatekeeper power
    • Gatekeeper power is slightly nuanced from that of bargaining power, as it refers not to their size, but rather their positioning and capability to grant access to highly desired commodities – the consumer and their time.
    • Facebook and Google provider marketers with immense access to attention minutes, and Amazon provides suppliers with access to consumers looking to buy conveniently online. This gatekeeper power is immense.
    • These firms are easily able to exploit this gatekeeper power to dictate terms and extract concessions that would never be possible in competitive market
    • These demands often carry significant economic harm but is seen by smaller players as the cost of doing business, and the price to pay to access the consumers behind the gates.
  • Platform vs seller
    • This particular abuse of market power, pertains directly to Amazon. Amazon through their market place are able to obtain an immense amount of data on which products sell well, and in which locations. 
    • Through this data, Amazon has launched Amazon Basics, which provides low price alternatives to many products available on the marketplace with faster shipping times.
    • The unfair advantage that Amazon’s ‘platform role’ provides it in terms of access to continuous data is unsustainable. Amazon should not be able to operate as a platform and seller.
    • Luckily, there is already a current lawsuit in Europe which identifies this exact issue. As stated by Margrethe Vestager, the EU’s competition chief: “Data on the activity of third-party sellers should not be used to the benefit of Amazon when it acts as a competitor to these sellers.”
  • Service stickiness 
    • It can be argued that these large tech companies create intentional stickiness, in other words making it very difficult to leave their service to move to another. You cannot import your Facebook friends to another site and you cannot access your order history if you leave Amazon for another online marketplace.
    • This stickiness can also be seen as a lack of interoperability – in other words making data access limited or restricted to other platforms in order to keep you – the consumer.
    • When it comes to stickiness there is a fine line between good business practices and market abuse. Unfortunately, as with most nuanced issues it is not inherently obvious where that line falls.

Problematic business models

  • It can be argued that the business models of these giants – relying on our personal data to build profiles in order to commoditize us – is inherently problematic. This problem can be seen in two parts 1) Profile construction and 2) ‘Psychology hacking’
  • Profile construction:
    • There is a massive data marketplace, where buying and selling data is commonplace and problematically most of the time it is without the subject’s consent. 
    • This is problematic for the consumer as full consumer profiles are constructed based not only on what you have liked but more recently also on how quickly you scroll past posts, and which ones you take a second glance at before continuing on your merry way down your feed. 
    • Because this data is used to create profiles, which then bucket us in categories we end up facing a host of confirmation bias, lack of diversity of views and ultimately as we have seen in the last few years political echo chambers 
  • Psychology hacking:
    • The software engineers which mastermind the algorithms driving our newsfeeds know how to stimulate our brains for maximum response. 
    • Their revenue is generated by how many minutes we spend on these platforms, hence they carefully design these algorithms to ensure exactly that. As we start getting bored, they know exactly which kitten or politically video to show next in order to increase activity in our amygdala – the region of the brain that controls hope, anger and fear.

Misinformation

  • Although misinformation can be an entire discussion on its own, we must mention the role that particularly Facebook and Twitter have played in the spread of misinformation without accountability in recent years. 
  • Although they are currently still protected by Section 230, and do not face the same accountability that newspapers (content creators) face, it is plausible that amending this law in the future could address the spread of misinformation.

Size itself as a problem

  • Beyond destructive business models, bullying bargainers and information spreading like wildfire, one big problem remains: it is dangerous for society to have corporations with more power than most nation states.
  • Mark Zuckerberg, just one young man, unelected, relatively unaccountable to anyone, can control the outcome of an election in many of the world’s nations by hacking the psychology of the electorate in ways they could not even imagine. This was made clear by the Cambridge Analytica scandal.
  • A great way to summarize how problematic the size of these corporations is by a January 7 Tweet by @Naval in response to Trump’s removal from Twitter: “If you can silence the king, you are the king”.

Is the Internet fundamentally different?

  • A core question to thinking about this theme of the internet, is whether or not the internet allows companies to do business differently – i.e. is business on the internet fundamentally different, and hence we need to think differently about regulating the internet.
  • Aggregation theory
    • Aggregation theory, as proposed by Ben Thompson, makes the argument that business in the age of the internet are entirely different because of 3 key factors: 
      • 1) direct access to users, 
      • 2) zero marginal costs to serving users, 
      • 3) Demand-driven multi-sided networks with decreasing acquisition costs
    • Ben Thompson writes this more eloquently: 
      • ”To briefly recap, Aggregation Theory is about how business works in a world with zero distribution costs and zero transaction costs; consumers are attracted to an aggregator through the delivery of a superior experience, which attracts modular suppliers, which improves the experience and thus attracts more consumers, and thus more suppliers in the aforementioned virtuous cycle. It is a phenomenon seen across industries including search (Google and web pages), feeds (Facebook and content), shopping (Amazon and retail goods), video (Netflix /YouTube and content creators), transportation (Uber/Didi and drivers), and lodging (Airbnb and rooms, Booking/Expedia and hotels).”
  • Characteristics central to Aggregation Theory we would like to highlight: 
    • Reaching a critical mass
      • When an aggregator has gained enough end users, suppliers will come onto the aggregator’s platform on the aggregator’s terms. This links to the power of these tech giants described earlier.
    • Winner-takes-all market
      • Crucially though, those additional suppliers then make the aggregator more attractive to more users (think Amazon), which in turn draws more suppliers, in a virtuous cycle. There should be no doubt that this cycle leads to a winner-takes-all market, and it is exactly the point that Thompson raises.
    • Big Tech are the chosen ones
      • Regulating aggregators become frustratingly difficult because the user chooses the aggregator because the aggregator offers superior services. This is in contrast to historical winner-take-all markets where the power of a dominant player stemmed from holding access to constrained resources. 
    • First mover advantage
      • This winner-take-all outcome suggested by aggregation theory gives massive first mover advantage and may incentivize unethical business practices by younger companies to reach a tipping point and achieve a critical mass. If more niches arrive where aggregation theory is applicable, we may see companies break the law and simply see that as a cost of business in order to get ahead. Once ahead, they will be unstoppable.
    • The internet is different
      • In conclusion, Aggregation theory makes a clear argument that the internet is fundamentally different in the ways in which a few come to dominate the market. Unlike almost all other industries, it is a space in which one or a few dominant players is the inevitable and perhaps the most optimal outcome for consumers.

The Consumer welfare standard as a measure

  • Background
    • The Consumer Welfare Standard has been used to drive antitrust policy for over 5 decades. The central question is: are consumers actively being hurt?
  • Thinking about the consumer and consumer welfare
    • It is important to emphasise that there is no explicit legal definition of consumer welfare in the US, and lawyers have exploited this in the digital era. 
    • Going forward, we must think about consumer welfare both in terms of price and quality. Price is most commonly seen as the measure used but it can increasingly be argued that consumers are worse off due to deteriorating quality of search engines, news feeds etc.
  • Rethinking the term ‘consumer’
    • Most people consider the term consumer to mean us or you, however with dual-sided markets we encourage a wider view of how we think about consumers. We must also view these tech giants’ customers (marketing firms, vendors etc.) as consumers who are more obviously being harmed by the sheer size and positioning of these big tech companies. Readjusting for this new lens, should put an entirely new view on consumer welfare.
  • Europe and US differing views
    • There should be little surprise that the US and Europe are handling this situation in almost polar opposite ways, with Europe taking a view on a much longer horizon.
    • The European Commission is substantially more concerned about protecting competitors of these big tech names with the implied economic assumption that such a move will, in the long run, benefit consumers.
    • In the US the current narrative is more along the lines of “there is no evidence that typical consumers are currently being hurt”, hence the lack of immediate action.

Will breaking up big tech solve the key issues?

  • The political catch phrases surrounding breaking up big tech have become so dominant that we rarely stop to and wonder: would this even solve the biggest concerns we have?
  • When we think about breaking up big tech and the problems it may solve, we would like to highlight the nuance. We like to think about it in two parts:
    • What type of break are we talking about? 
      • Do we mean halving them? Or what about reducing them to a series of their main product lines? 
      • If we think about halving them, in the medium and long run this may simply lead to a greater quantity of super players, potentially making the industry even tougher to regulate.
      • On the other hand, if we reduce these companies so radically that each product line must stand on its own (think about gmail), there is almost no doubt each would die out relatively quickly and we would lose substantial productivity in our economy.
      • Many product lines (Google Search, Gmail, Google Drive and others) have immense interdependability in that value stem seamless linkage rather than each on its own.
    • What will the dismantling of big tech actually solve?
      • It would be bizarre to think that such a ‘simple’ act would solve all the world’s problems. It won’t. It will certainly however solve the issues of inherent size (discussed earlier). However, it will not solve all of the issues that we are facing with big tech. Other issues will remain:
        • If we believe in Aggregation Theory, it will only be a matter of time before we have market dominant players again, hence we still need to develop frameworks to regulate companies on the internet.
        • Even if broken into parts, business models will likely remain unchanged and hence problems of psychology hacking and echo chambers will still persist. These need their own solutions that dismantling big tech will not be able to solve.

Argument Nuances

Although we have already highlighted several argument nuances throughout, a few more are worth mentioning:

  • Where do the problems begin?
    • When did these Big Tech companies go bad? It can be argued that Google isn’t dominant because they broke the law, but rather that they are breaking the law well after their dominance was already established.
    • Although you may think this is nuance for nuance’s sake, this distinction is actually vitally important when it comes to crafting remedies and regulations that actually work.
  • Is Big Tech only bad?
    • The negative impacts of big tech’s dominance has certainly outshone their potential benefits which we now mostly take for granted.
    • These companies make our lives unimaginably easier – Google Search and Amazon shopping just to name a few.
    • Further, these companies make it dramatically simpler and cheaper for suppliers to reach customers, which is why suppliers work so hard to be on their platforms.
    • Lastly, this also increases the types of new businesses that can be created by virtue of these giants existing (YouTube creators, Amazon merchants, small publications, etc.).
    • Regulators should take care to preserve and protect these benefits and should keep them in mind as we craft frameworks for regulating these corporates.
  • Increased importance of an article’s agenda or bias
    • Although this is a value that we try to embody with everything we research or study, we felt it particularly worthwhile to emphasize this idea of scrutiny on the topic of big tech. 
    • Several articles we explored during this discussion made extremely one-sided arguments glancing over all nuances of break types and problems to be addressed. The reason for this is that many authors are part of, or funded by, organisations either affiliated with the big tech names, or otherwise, organisations actively advocating and pursuing the death of these tech giants.
    • Knowing who your author is, now more so than ever, should be a critical piece of evaluating a particular viewpoint.

Potential solutions

How do we think about regulating big tech?

  • Aligning incentives
    • Before thinking about types of regulation, we must address the issue of potentially misaligned incentives
    • Governments cannot properly regulate big tech if they are benefitting from data received from these companies. Government and big tech need to be more interdependent.
    • Once this independence is addressed, how can we think about regulating it?
  • Issues of size
    • As discussed earlier, inherent size is problematic and may need to be addressed. The power that comes with size may be removable without entirely dismantling the giants. 
    • For example, increased transparency and public visibility into Facebook’s role in elections can go a long way to reducing the sheer power they have.
  • Regulations on market abuse
    • Committee assembly
      • As what has already been done, a selected committee directly form recommendations that target issues of market abuse. The core issue for this committee must be to find the fine line between these corporations abusing their market position versus simply implementing rigorous business practices one may learn in an MBA.
      • Some ideas generated by the latest antitrust committee:
        • Equal terms
          • “Nondiscrimination requirements, prohibiting dominant platforms from engaging in self-preferencing, and requiring them to offer equal terms for equal products and services”.
          • However, when we look at other large companies from Walmart through to Goldman Sachs, it is certain that they do not require equal terms for equal products or services. It’s all about bargaining power, and size helps. It’s not clear whether removing this is a thought through recommendation.
        • Interoperability and data portability 
          • Requiring dominant platforms to make their services compatible with various networks and to make content and information easily portable between them. In a nutshell, they would like to force these tech companies to make it easier to leave them for their competition.
      • An idea they missed, that we would like to see included
        • Separation of roles
          • As we have already seen in Europe, Amazon should not be able to use the data it accumulates via its role as a platform to compete with its very own customers (these are customers to Amazon, but are more commonly seen as the suppliers on the platform). If left unabated, this will leave Amazon basics catering to every profitable product in the long run.
  • Regulating information and ‘feed’ companies
    • Moderating guidelines
      • Feed companies must show transparency in their moderating guidelines
      • Content moderation needs to be open for public scrutiny
    • Tagging of posts required
      • Political leaning tagging on news posts and political content by an independent third party so that people know what side they are reading. This should be mandated by government and paid for by the companies – it should be seen as a cost of doing business.
      • The key is that if someone does not want to see right/left wing views, we won’t force them but let’s make it clear to them which side they are viewing. This is important, because in today’s landscape of social media consumption, people often think they are balanced, when in fact they are living in an echo chamber.

Further government led solutions

  • National resource center
    • The government should construct a database of information showing research for both sides of 50 politically contentious topics. This should be a bipartisan effort.
    • This resource center should be a publicly available website that can easily be tagged onto social media posts by political figures or celebrities.
    • For example, a tweet by a politician on why immigration is bad for X, Y, Z, can be tagged by the third party company as politically leaning and followed up by a link to the immigration section of the resource center so that individuals reading the post at the very least have the data to inform themselves.
    • The key is for the resource center to show both sides of the argument and make it clear that topics are not as black and white as many think they are.

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C³ – Critical Creative Collaboration

This post was written in collaboration with the team at C³.

Who: We are a diverse community based in New York City. 

What: At its simplest form, C³ functions as an idea club. Every month we dig into a curated list of books, journals, articles, podcasts and documentaries focused on a core idea. We come together for a day of fruitful conversation and collect all our most insightful discoveries in a single post that we share here with you.

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