In early March, Democratic presidential hopeful Elizabeth Warren published a plan on Medium for dividing up the country’s largest tech companies. Google, Facebook, and Amazon would all be placed on the chopping block.
It’s a praiseworthy step, and Warren herself should be commended — for her courage in challenging the sacrosanct, for naming the Silicon Valley giants without deference. Most Democrats will, and should, take note. Nonetheless, her plan has flaws, and with bad plans come bad optics. Frankly, she runs a serious risk of looking out of touch.
The Brand Beast
Warren’s temerity hasn’t come out of the blue. She has chosen to strike at what’s perhaps the biggest moment of weakness for Big Tech since the age of the smartphone began. Facebook in particular has been roiled in scandal related to its handling of user data and what many view as insufficient effort to curb the influence of fake news.
The American public has been gaining more awareness about the once clandestine markets for personal information. As the reach of corporate titans such as Jeff Bezos grows ever broader, more eyes, often critical, have been drawn in from media and the tech cognoscenti. But some time ago, our consumerist desires began to feed something, a beast that prowls the American west. And a wounded beast is still dangerous.
Having read an Engadget story covering Warren’s proposals for the tech sphere, site user heroic_slug gave a blithe response: “Way to turn off younger voters.”
Sadly, I have to admit there’s a point to the comment. We do not live in a country where the masses yearn to welcome a trust-busting, Teddy Roosevelt type with open arms. We live in a country where 82% of teenagers own an Apple iPhone.
Given that the average American spends about 25% of their waking hours on a mobile device, there is little question that technology brands have worked their way deep into the American routine. It’s important to remember, too, that smartphones are not inert slabs of glass and metal. A crucial factor here, and a major part of Apple’s $1 trillion-plus valuation, is the fact that phones today are really anchors for branded ecosystems — Apple devices are Trojan horses for the iUniverse.
Vast percentages of the Apple faithful use the App Store, Airpods (or Beats), Apple Music, and Apple News. All of these, Warren might also point out, are Apple owned. But that’s kind of the point. Apple has sold almost all of America’s youth, and many of its adults, on the convenience of multilayered curation, the apparent seamlessness of delivering all parts of a product experience from the same source.
The strategy is proven, and it continues to work across categories. Apple is now the second-most desired brand of watch among upper-income U.S. teens. And this applies not just to Apple, which Warren only placed on her breakup list after her initial post, but to the rest of Big Tech — Americans are thoroughly pleased with getting Amazon Prime deals in Whole Foods. They enjoy clicking on Google Ads in Google Chrome on their Google Pixels. And what moves this along is one of the most dangerous aspects of the brand beast’s power. To borrow Mark Fisher’s words, it is our “insertion” into the workings of corporate influence “at the level of desire.”
Weaving holistic experience into brand is something that Big Tech has refined into a deadly art, so taking on this sector calls for a unique form of finesse. And this is precisely where Warren has stumbled so far. Like all forms of challenge to big business, her antitrust proposal pits her against names, products, and services that are among the most recognizable in the world. What causes additional problems is her calling attention to corporate connections that enable integrated experiences. Her words read as an assault on a core component of what these brands have to offer.
When challenging an institution, it’s best not to paint a target on the part of the institution that everyone likes. Even Warren’s zeitgeist-y dig at Bing reinforces how enamored people are of their brand choices. She’s not calling for Disney to sell off Mickey Mouse, but it’s near enough — especially for the people with company devotion so rabid that polished news sites choose names like “Cult of Mac.” Flaw one of Sen. Warren’s plan can be summarized as follows: underestimating the power of the brand.
Specifics of the proposal are also puzzling. Let’s examine the changes Warren wishes to make.
With regard to Apple, she recommends splitting off the App Store, citing the “comparative advantages” of controlling a store where one’s own products compete with those from third parties. “It’s got to be one or the other,” she told The Verge. “Either they run the platform or they play in the store. They don’t get to do both at the same time.”
Amazon’s store would be given the designation of “platform utility,” which sounds cool at first blush for lefties like me. But the practical result is decidedly less exciting than it sounds: no Amazon Basics brand, no Echoes, no Kindles, no Fire Tablets, nor anything else “made” by Amazon could be sold on Amazon. Platform utility companies are not allowed to sell their own products on platforms they own.
These plans, as written, would indeed reduce the size of the largest tech firms, but they have significant drawbacks. Their implementation would encourage inefficiency and hasten the expansion of useless corporate bureaucracy.
For example, Sen. Warren believes that Apple and Google should split because they run software stores on their own operating systems (OSes), stores in which both they and third parties can provide apps. However, this opportunity for first-party app publishing provides important secondary benefits. The app stores let companies like Google and Apple house software services they provide for their own OSes outside of the OSes themselves, so users can opt in and out of them. Instead of Google Docs or Apple Music living as embedded parts of the OS, users can choose to download and uninstall those apps as they see fit via the Play Store or App Store.
Assuming first-party app development continues under Warren’s proposed legislation, we very well might see a scenario in which Google develops an app and then must pay a third party to offer the app on Android, the OS that Google itself develops. What is the point? In these cases, the third-party stores would act as superfluous middle men. It’s hard to see such an arrangement leading to anything but wasted effort and resources, which could possibly increase the cost of the apps themselves.
More waste would ensue from the forced split between OS development and app store development. Because app stores act as the primary gateway between mobile devices and third-party software, managing app stores and integrating them into the mobile OS are fundamental pillars of device security. Under Warren’s plan, major updates to the OS would result in time and money spent on collaborations between companies just to keep third-party app stores moving along with the changes. Such situations could slow down work on the OS, app store, or both while producing a more fragmented user experience.
Many of the proposed splits would generate inefficiency and encourage the expansion of useless corporate bureaucracy.
Put another way, it’s very likely that Google and Apple have a stronger incentive to maintain good app store experiences for their customers than a third party would, especially if one of those third parties emerges as a clear market leader in the app store space. (Funnily enough, that leader could be Amazon, which already operates an Android app store.)
Warren’s view has lagged behind the times. She draws an analogy between her proposals for app stores and the enforced separation of steel and railroad companies. But the manufacture of steel and the construction of railroads use processes that are largely independent. The quality of steel does not depend on a steady flow of information from railroad planners.
Whether or not old versions of third-party app stores, written for earlier versions of mobile operating systems, would simply be dropped — or skipped over for bug and security fixes — is an important question with little parallel to the past. In a society where electronics are already treated as far too disposable, app store issues could drive Americans to buy new devices at a faster rate than ever, lining the pockets of those in the largest tech companies in the process.
Warren’s plan could also backfire completely, actually reducing competition in the app space. In this hypothetical, Apple and Google bake more and more services directly into the OS, leading to “bloat” (a greater amount of resources needed for the OS to work) and a lowered incentive for users to explore any alternatives to built-in apps.
As the OS grows less modular, the user’s need to visit the app store shrinks, and third-party developers have even less of a chance to compete with first-party services than they do now. Efforts to reduce bloat could lead Apple and Google to set up enclosed app portals for their software. They might even start buying out companies to stock those portals with new apps. We’d soon end up having to obtain software services from a digital version of the company store.
Most likely of all would be a muted but still unpleasant mix of the situations described above. The software services market would see some decrease in competition, and at the same time, somewhat redundant companies would begin selling apps in stores that users trust less and use less than the stores we have now.
The Amazon Basics
Warren’s strategy for Amazon and Facebook is murkier.
She proposes to split the former along multiple lines. As a platform utility, Amazon would not be allowed to own “any participants on its platform,” so none of Amazon’s stable of brands — the ones marketed as Amazon’s own along with numerous others — would be allowed on the Amazon marketplace. She has not specified whether the company ought to be allowed to sell its products through other outlets. If so, it’s unclear what sort of impact that setup might have on Amazon as a whole. The company has traditionally operated on high revenue and low profit, so it’s unlikely that its physical goods earn it very much. For the same reason, Amazon’s hardware and product brands might simply fail, get bought out, or both in a forced sell-off (see what happened to Pebble).
All of these outcomes would adversely affect competition in the product areas where Amazon’s brands compete. Moreover, it might spell bad news for Amazon employees caught up in the sale. The case of Pebble, a smartwatch maker, is instructive. Poor sales led to the company’s acquisition in 2017. After the buyout, the buyer, Fitbit, shut down Pebble and offered jobs to 40% of its former staff. The rest were terminated.
A forced split of Facebook would not end so badly in all probability. Warren wants the company to sell off Instagram and WhatsApp, both well-established players in their market areas. But why?
In her proposal, Warren states that Facebook’s ownership of these companies will have “negative long-term effects on competition and innovation.” However, it’s hard to discern how regulators could argue that WhatsApp, a fairly simple messaging app, ever competed with Facebook’s core business. The purchase of Instagram probably reduced competition among social media sites, but there is still plenty of action in the space. Snapchat, Reddit, Twitter, Pinterest, and LinkedIn are other major players in the U.S.
Warren’s proposed handling of Facebook feels arbitrary. And the justification for forcing Amazon to spin off Whole Foods, a brick-and-mortar grocery chain, feels downright flimsy. Amazon currently commands around 4% of the U.S. retail space.
Before suggesting some points on which Warren’s plan can be improved, I’ll summarize what we’ve established so far:
- The Warren plan for Big Tech should take public admiration of tech brands and the corporate money backing those brands into better account.
- Some of Warren’s proposed splits will likely contribute to waste and inefficiency and could act to the detriment of consumers.
- Overall, the splits do not seem backed by a coherent set of principles.
Warren has presented a credible challenge to Silicon Valley. No one expects that Big Tech will take the challenge lying down. And so it behooves the left to push for an approach tailored to today’s political and technological landscape. What follows will be a set of strategic changes to Warren’s plan, proposed with this goal in mind.
Shift focus toward the invisible. Capitalism is not all glamorous, and despite the corporate quest to break away from boring, vulnerable, physical things, physical capital still plays a critical role in the activities of the tech giants. Often, branding and services act as a shiny wrapper around something altogether less appetizing (ex. Facebook).
Behind every smile on the Amazon box lies the grim reality of robots, trucks, and warehouses. Behind every website is a server.
Servers are infrastructure. By providing the storage, transmission, and computation capabilities necessary for websites to function, they underpin the online activities of businesses and individual Americans; they are, additionally, scaffolding for the creation of new digital businesses and services. In fulfilling all these vital functions, servers also serve up rents, a steady flow of cash to Amazon, Microsoft, and Google.
Imagine if a company like Lyft had to lease both roads and cars from General Motors just to get the Lyft service off the ground. Replace “Lyft” with “any online company” and “General Motors” with “a massive technology firm,” and you have a fair picture of how business is done online today.
Just like roads and cars, the data centers utilized by large tech firms take up considerable physical space and have a deep environmental impact, using as much electricity as some entire U.S. cities. For these reasons, the country has a vested interest in this infrastructure, which straddles a line between the physical and digital. Federal intervention for the sake of environmental preservation, privacy, and security can be justified.
One strategy by which the U.S. could take on this task would be to spin off all data centers used by third parties from the large tech companies that own them. Compared to a simple spin-off of cloud businesses, such as that suggested by Kevin Roose in the New York Times, my proposal has two key differences.
First, it would extend to all centers housing data that is sold for advertising purposes — which would primarily affect Google, Microsoft, and Facebook — in addition to centers providing cloud services for other companies. Next, the large firms could be given some stake in these spun-off businesses, but the federal government would command a large or controlling stake. This would allow for further regulation with regard to the transparency of collected user data and the development of consistent standards for when private and public entities can view and sell that data. At the same time, private incentive for technological investment in the infrastructure would be preserved. Over time, the ratio of public to private ownership for digital infrastructure could be fine-tuned.
Enforce app store competition. Here again, I have to disagree with Mr. Roose, who proposes a ban on the “app tax”—the fee that Apple and Google collect from companies offering services in their app stores. First of all, banning the app tax as a concept hinders companies trying to compete with Apple and Google in the mobile OS space. Microsoft, for example, launched Windows Phone as a challenge to the two smartphone giants. That OS ultimately failed to gain traction, but lack of an app tax would have removed a valuable incentive for Microsoft to try competing in the first place.
Calling the Google Play Store a monopoly also sounds a bit odd, since it competes not only with Apple’s offering but also with other app stores that can be preloaded or installed onto the Android operating system. It is really only the Apple App Store that exerts a monopolistic presence on its OS in the United States, and even the App Store must compete with Google. Further, removing the financial impetus for maintaining the app stores would probably lead to a consolidation of services on the device — the aforementioned bloat.
Instead of banning the app tax, we should place all mobile OSes under a regulatory framework that mandates app store competition. Apple would need to digitally facilitate installation of competing app stores on iOS, and as a consequence, allow third parties to receive payment for app services outside of the Apple App Store. This will open up competitive space: third parties will be encouraged to devise strategies for drawing users out of the App Store in order to avoid the app tax. Apple might try to circumvent this by lowering the tax or eliminating it altogether. And finally, users will also be given space to explore software outside of the Apple-managed and Apple-curated App Store, giving third parties more options for gaining a competitive edge.
Large tech mergers are awkward targets, for now. Bridging across sectors is one way in which tech companies diversify and improve their offerings to the public. As a result, care must be taken when curbing the power of Big Tech: too much disruption and fragmentation could prompt backlash from the public.
Making things doubly complicated is the fact that mergers allow certain companies to enter highly competitive business areas, making it hard to justify intervention on the grounds of safeguarding competition within markets. Introducing new antitrust paradigms remains an option, but it may be some time before the public acclimates to and accepts such a shift. Until then, we should proceed with caution: the political consequences of any misstep could be disastrous.
Warren’s handling of Big Tech, now supported by such personalities as Alexandria Ocasio-Cortez, calls back more than a little to the “trust busting” rhetoric fashionable at the turn of the century — but that century has been displaced. Today, we have a new bundle of technological, political, and ideological realities to contend with. And the Democratic party has often chosen ineffectual and downright immoral paths when adapting to the new.
Warren’s proposal has to swim against a current of corporate money and public adulation. The spending of millions if not billions of advertisement dollars, the celebrity of the tech entrepreneur, decades of spiritualistic messages on themes of innovation, interconnection, integration — all of these will work against her. Resistance will likely come from within the party, too, since all politicians are consumers.
I believe that with a perceptive approach, and a little luck, the forces arrayed against change can be surmounted. I hope that Elizabeth Warren and others around her are themselves open to change, open to growth and modernization, as they work to champion their cause. The ideas here are jumping-off points that I hope they consider.