Washington falls out of love with big tech
Having done their homework, US lawmakers have finally hauled the tech giants in for a grilling on their anticompetitive behaviour
In an e-mail sent on April 5 2012, Facebook CEO Mark Zuckerberg wrote: "I just need to decide if we’re buying Instagram." In another, he added: "Instagram can hurt us meaningfully without becoming a huge business."
Later that month Facebook bought the upstart tech competitor for an eye-watering $1bn. Two years later it would pay $19bn for WhatsApp.
Seizing on this exchange during last month’s sensational antitrust hearings in the US, Democratic senator Jerry Nadler told Zuckerberg: "Facebook, by its own admission ... saw Instagram as a threat that could potentially siphon business away from Facebook. So rather than compete with it, Facebook bought it. This is exactly the type of anticompetitive acquisition the antitrust laws were designed to prevent."
These are hearings into whether the big tech firms have abused their dominance, rather than the dilemma of how social networks have become toxic environments used to spread untruths and conspiracy theories, hate speech, misogyny, racism and other patent garbage like anti-vaxxing. That is another problem entirely, and a reckoning that is itself inevitable.
Due to current conditions, instead of appearing in person in Washington, the CEOs of the big firms — Zuckerberg, Amazon’s Jeff Bezos, Apple’s Tim Cook and Sundar Pichai, CEO of Google’s holding company, Alphabet — video-conferenced in.
Have these titans of tech taken advantage of their powerful positions in their respective fields? Short answer: yes — and then some.
In another 2012 e-mail before the Instagram purchase, Facebook’s then CFO David Ebersman asked Zuckerberg if the social-media giant wanted to "neutralise a potential competitor" or to "integrate [its] products with ours".
Zuckerberg replied: "There are network effects around social products, and a finite number of different social mechanics to invent. Once someone wins at a specific mechanic, it’s difficult for others to supplant them without doing something different."
If those antitrust lawmakers were looking for a smoking gun, this seems a good piece of evidence — that last sentence specifically.
Washington has fallen out of love with Silicon Valley after years of scandals — including the manipulation of election results and the general free-for-all of racism, misogyny and hate speech on social media. It now has its anticompetition sights set on big tech. And it has lots of ammunition, as is clear from the e-mails the lawmakers subpoenaed from the firms.
Zuckerberg clearly knew he had said something wrong in that April 5 e-mail, because he added 45 minutes later: "I didn’t mean to imply we’d be buying them [Instagram] to prevent them from competing with us in any way."
He knew someone might read these e-mails and correctly conclude that Facebook had killed off the competition by buying it.
On the same day Facebook announced it was buying the photo-sharing app, Zuckerberg wrote in another e-mail: "Instagram was our threat," adding: "One thing about startups, though, is you can often acquire them."
It certainly looks like an antitrust smoking gun, doesn’t it?
Apple got off lightest at the hearings, with Cook able to parry questions about the company’s App Store dominance with some glib replies.
The App Store is the biggest contributor to Apple’s services business, generating more than $50bn in sales in 2018. But the 30% cut Apple takes on those sales is a source of consternation for other developers, including Spotify. The leading music-streaming app has launched its own anticompetitive complaint against Apple.
"Apple’s apps have ranked first recently for at least 700 searches," The New York Times reported last year, after an analysis of six years of data compiled by app analytics firm Sensor Tower. "Some searches produced as many as 14 Apple apps before showing results from rivals."
In September 2013, the newspaper added, Spotify was the number one item in a search for "music". However, when Apple launched Apple Music into the App Store in June 2016, Spotify had fallen to fourth. "In February 2018, Apple apps suddenly appear in the top six results for ‘music’," growing to eight at the end of 2018, with Spotify dropping to 23rd.
Spotify complained to European regulators in March 2019 that Apple was abusing its role as gatekeeper of the App Store. By April that year, all but two of Apple’s apps had disappeared from the top result for "music".
The most frequent complaint against Amazon’s cloud service is similar to that about Apple — that it copies the features of would-be competitors and then effectively puts them out of business.
But US lawmakers were quizzing Bezos on much more heinous allegations of anticompetitive behaviour, relating to the 2009 purchase of smaller competitor Diapers.com.
One internal Amazon e-mail read: "These guys are our #1 short-term competitor … [We] need to match pricing on these guys no matter what the cost."
Apparently Amazon was happy to lose as much as $200m to drive down the price of nappies, force a cheaper takeover of Diapers.com and then let prices rise again.
Happy times for parents with kids born that year — not so much for antitrust laws.
"We have a name for this," said Democratic congressman Joe Neguse. "It is ‘monopoly’."
For once, the sharply divided US lawmakers seem aligned in their assault on the tech CEOs.
Previous visits were friendly affairs, where the lawmakers seemed to fawn over the executives and request investment in their states. But this blistering hearing was more inquisition than back-slapping camaraderie.
While the CEOs tried to peddle their usual zero-to-hero, living-the-American-dream entrepreneurial story, they were met with pointed questions based on the subpoenaed e-mail records.
The more tech-savvy Democrats appeared to have done their homework and asked key questions — clearly having been properly briefed on the antitrust infringements the hearing was called to address. Like good investigative journalists or prosecutors, they asked questions to which they already had the answers.
Those from Planet Republican used the chance to push their own conspiracy theories about the social networks censoring conservative voices. You only need to look at said social media to see this is patently untrue.
It’s no longer about if this will happen all over again. Of course it will. It hasn’t stoppedCarole Cadwalladr
Both sides of the American political spectrum, arguably the most polarised it has ever been in that country’s history, have a common foe in the tech firms.
The current scandals engulfing social media — from Cambridge Analytica to the toxic environment, the spread of disinformation and hate speech, to the emergence of "surveillance capitalism" — are monstrous in their own right. But proving those claims is going to take a while; it’s a lot easier to prove fairly plausible claims of illegal monopolistic behaviour than to prove Zuckerberg is guilty of breaking democracy.
Make no mistake, the concerns about the power and control of social media are more terrifying than ever.
"If you’re not terrified about Facebook, you haven’t been paying attention," Carole Cadwalladr, the British journalist who broke the Cambridge Analytica scandal, wrote in The Observer last month.
"We have already been through the equivalent of a social media pandemic — an unstoppable contagion that has sickened our information space, infected our public discourse, silently and invisibly subverted our electoral systems.
"It’s no longer about if this will happen all over again. Of course it will. It hasn’t stopped. The question is whether our political systems, society, democracy, will survive — can survive — the age of Facebook."
She points out that Facebook is "the vector that has brought this infection across the globe. Algorithmically amplified ‘free speech’ with no consequences. Lies spread at speed. Hate freely expressed, freely shared. Ethnic hatred, white supremacy, resurgent Nazism all spreading invisibly, by stealth beyond the naked eye."
Though Facebook quite rightly earns Cadwalladr’s ire, the rest aren’t necessarily any better. YouTube, owned by Google, is the cesspool of the internet. People who still believe the Earth is flat have a platform on the video-sharing site, given the number of conspiracy videos there. These are the same people who seem to believe the moon landings were fake and 5G causes the coronavirus.
Twitter is rife with toxicity and cancel culture too.
Warnings have been coming for years about the dominance of these big tech firms. Last year, for example, Facebook co-founder Chris Hughes said: "It is time to break up Facebook."
Prominent tech figures such as SpaceX’s Elon Musk and WhatsApp co-founder Brian Acton were part of a #DeleteFacebook trend, and the UK government called the company "digital gangsters".
Various competition authorities in the EU have fined Facebook and Google multiple times for infringements, and the big US tech firms have come under fire for the billion-euro tax breaks they get from Ireland for basing their European headquarters there. Having been told to pay up, the tech giants appealed against the decision in a European court, and had it overturned.
what it means:
Washington has fallen out of love with Silicon Valley after years of scandals and the racism, misogyny and hate speech on social media
That’s another fight that’s not going away.
The EU’s data privacy law, the general data protection regulation which came into effect in May 2018, has fines for infringements of up to 4% of annual global revenue — as much as $1.6bn in the case of Facebook. It’s no wonder Facebook moved regulation of two-thirds of its users from Ireland to California before the regulation’s implementation.
EU competition authorities have also announced an investigation into Google’s $2.1bn purchase of fitness tracking company Fitbit.
Google’s dominance in search and Android means it has effectively controlled these markets for decades. It’s another feature to unpack.
As Zuckerberg said after Cambridge Analytica’s abuse of the personal data of 87-million people: "I started Facebook, and at the end of the day I’m responsible for what happens on our platform."
He may well soon discover that he will be held accountable. Stay tuned.
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