Last month, the internet was ringing with calls from Democratic Senator Elizabeth Warren to attempt the unthinkable: break up big tech.
We drifted onto the platforms that make up this cohort - Amazon, Apple, Facebook, Google - unthinkingly: Because it was where our friends were, or because they provided the fastest or cheapest service.
However, the nimble startups originally hailed for their creative potential have ballooned and sagged into bloated behemoths, exerting pressure on almost every sector of commercial and private life. It’s a testament to the extent that public opinion has soured that a presidential candidate now feels comfortable calling for their collective destruction.
Those from within Britain, such as UK politician Vince Cable, have joined the charge for smashing the technopoly. But does the UK have that power? How can the UK government confront these issues on its own terms?
A recently published report, Unlocking Digital Competition, put together by the independent Digital Competition Expert Panel directly examined these questions. Like Warren, they deemed the issue to be urgent.
“We absolutely view the amalgamation of power into a small number of companies as damaging to competition,” panel member Derek McAuley, professor of Digital Economy at the School of Computer Science at the University of Nottingham, tells Techworld. “If the gold standard of what we're trying to achieve is effective competition so that markets can grow and innovate, then we need to do something.”
However, the panel didn't arrive at Warren's conclusion. “There's a difference of opinion that we have with Elizabeth Warren about the extent to which competition can be made to work in these markets,” says another panel member, Amelia Fletcher OBE, professor of Competition Policy at the Centre for Competition Policy (UEA), as well as a non-executive director at the Competition and Markets Authority (CMA) and the Financial Conduct Authority (FCA).
Even if it wanted to, the panel says the UK wouldn’t have the power to break up companies headquartered in the US. Instead, the panel is calling for the immediate establishment of a public sector unit called the Digital Markets Unit (DMU), which would define and enforce a code of conduct for the biggest digital players.
“It would designate certain digital platforms as requiring this form of regulation and therefore to abide by these codes of conduct - which are essentially about treating the businesses that use them fairly and to facilitate competition amongst them,” says Fletcher.
In tech, this particularly relates to associated markets, where companies can use their market position in one service to exclude top players in another service. “That harms the competitors, but it also harms consumers because they have less choice and are likely to end up facing higher prices or worse quality,” explains Fletcher.
However, Fletcher notes that the tech industry poses unique challenges in terms of quantifying these harms: “It's a complicated market, in that a lot of the services for consumers are actually free,” he says. This creates a problem in that the most common index of consumer welfare is price. However, ‘free’ might not be as good as it sounds.
“These are two-sided or multi-sided platform markets, and in those markets very often the true price is actually negative, because what you're doing is making your money on the other side of the market,” says Fletcher. “So even free might be higher than the competitive price.”
In other words, these types of companies could be ramping up prices on the ‘other side’ of the business model, for example advertisers on Google, or sellers on Amazon, which may eventually be passed along to consumers, as well as causing distortion in these markets.
What’s bigger than Facebook?
Another factor cementing the monopoly position of some tech companies is 'the network effect': using a service because your friends and family are too. “All the consumers want to use the platform where all the providers are, and the advertisers want to use the platform where all the consumers are, and essentially you end up with a single platform,” says Fletcher.
One of the strongest recommendations from the report is to prevent this from happening. How? Interoperability.
“There is a bigger system than Facebook out there,” says McAuley. “It's called email." He points out that when it comes to email, hundreds of thousands of providers all interoperate - whether you have Gmail, Hotmail or Yahoo. Similarly, all mobile phone networks can contact one another so there are a plethora of providers to choose from.
“We can build these large, interoperable systems on the internet,” says McAuley. “That part, to me as a technologist, is fundamental.”
According to McAuley, most of the messaging platforms around today actually began life subscribing to interoperable messaging standards. “Then they decided that in order to try to win the market they would become non-interoperable,” he says. “This is a very deliberate, technical decision to say, ‘We're not going to interoperate with anyone anymore because we think we've got a good shot at tipping the market towards us’.
“There's no reason I can't talk from a WhatsApp to Signal. Nothing, no technical reason.” McAuley says he foresees enforced interoperability being one of the first transformations following increased global competition legislation.
In light of this, it’s interesting that Facebook recently announced it would be introducing interoperability between the three messaging platforms it owns: Facebook Messenger, Whatsapp and Instagram. Could it be that the company was preempting these kinds of calls?
Another area of technology where McAuley says it’s vital to introduce interoperability standards is the growing market for smart home and IoT technologies: “It’s ludicrous that we cannot simply plug things into our homes and they work as opposed to, ‘I've got to an Amazon house or a Google house or an Apple house’,” he says. “It's just madness.”
Changes such as this harken back to the early days of technological freedom. “To me, this is returning to the roots of the internet and its founding principle, which is interoperable, federated systems,” says McAuley. “The reason they were designed this way, going back to the history of ARPANET and the internet, was because they were trying to build a network that was tolerant to failure.” He is referring to the technological groundwork for the internet laid by the US army’s computer network, which was purposefully designed to be highly decentralised in case a Russian bomb took out part of the network during the cold war.
This isn’t relevant anymore. However, “If Facebook is down, two billion people aren't communicating,” says McAuley. “There's value in heterogeneity, there's resilience in heterogeneity: The power has to go out for a lot of the planet before all the email systems are down, whereas three data centres and Facebook could be down.” This was demonstrated in recent weeks when Facebook faced an outage that affected all three of its platforms.
Another objection to the domination of big tech is the extent to which it is stymieing competition. These companies have become infamous for voraciously acquiring smaller firms - gobbling up 400 in just five years.
“And unfortunately, some of the time, when they do mergers and acquisitions, they deliberately kill the technology,” says McAuley, referring to occasions when a company effectively stops development of a technology that would have posed a challenge to its own. For example, when Google acquired photo service Picasa in 2016, it was starved of resources and then eventually shut down.
This has even led to a change in the mentality of the tech startup community whereby the aim is often to be acquired by one of these companies rather than become successful on their own terms.
The trouble with acquisitions is that again, one of the main determinants for whether they should be allowed or not, is price. “That's a very primitive and simplistic view of consumer welfare,” objects McAuley. “Whereas things like reduction in the quality of service, reduction of choice, reduction in privacy, these are all not in the best interest of the consumers and are things should also be considered in a merger.”
Mcauley believes that outside the US, the EU is the only body able to wield this kind of power. Will the UK’s approach change after Brexit? These kinds of decisions are dealt with by the DG Comp, a European body, at the moment. In future, the UK may decide to take a greater role in making these kinds of decisions for itself.
The data disparity
Another point of difference between tech and other industries is, of course, data. “Data is valuable and can create a situation where it's good to be active in different services because you learn different things about users, and that gives you a broader and more comprehensive understanding of those consumers,” says Fletcher.
This also concerns the act of data pooling: when two companies who have two different datasets merge and combine all of their data, meaning that they now have more data than they need.
McAuley uses the example of Google acquiring Gmail and Youtube and slowly evolving one central login for all of these services. “Where were the data protection people at that time saying, ‘This is unreasonable because you are now, again, distorting the market’?" he questions.
This disparity in data puts new entrants to the technology market at a severe disadvantage compared to established players. “I think it's been a blind spot for privacy regulators that they have not stepped in more,” says McAuley.
Another of the report’s recommendations is that the Information Commissioner's Office (ICO) should have a competition policy objective in regards to mergers that would discern whether it would decrease the privacy of the consumer in ways in which they haven't consented to. This may involve making rules about how data can be used by companies, or even blocking the merger on the basis of an unfair data advantage.
AI is an emerging complicating factor. “If you're developing artificial intelligence, you need to train your AI and the platforms that have the most data will be best able to create, for example, the best ranking algorithms,” says Fletcher.
To deal with this issue, the report calls for enforcing increased data openness. “Creating ways in which data can be shared from the big platforms in an appropriately confidential way with new entrants or other players, so that they can develop and compete,” says Fletcher.