How should big tech companies be regulated?
This question that the governments and professors in academia have been asking for years is now being asked by founders of these large companies themselves (Chris Hughes of Facebook, Bill Gates of Microsoft), as the mistrust of the big tech companies is at an all time high after all the incidents that happened over the past few years.
Although Amazon has retained user trust well, seeing them venture into selling surveillance-as-a-service raises a lot of concerns. It is not hard to see scenarios where users’ privacy can be breached without their knowledge (and they already have, with Amazon’s Echo Dot Kids Edition violating the federal Children’s Online Privacy Protection Act).
However, there are strong reasons why it is hard to see these tech companies as monopolies according to the traditional antitrust laws, as they do not own a majority of each industry and make pricing favorable to the users. After all, their services are free since their business model relies on making revenue off selling your data, which does not apply to any pre-internet era businesses.
To take this even further, some startups made no revenue at the time of the acquisition (Instagram and Whatsapp did not have ads before being acquired), so the standards used to evaluate acquisitions before, which was asking if consumer prices would increase after the merger, had no problem.
What big tech companies do dominate in, however, is people’s behavior on the internet. Over half of e-commerce goes through Amazon, while over 70% of internet traffic goes through Google and Facebook.
This is why the regulators need new standards, as enforcing tech companies to be sued for antitrust lawsuits without clear standards does not necessarily solve the problem either and sets a bad precedence that could lead to endless lawsuits amongst the tech companies.
This issue is more important than ever after the Supreme Court let an antitrust lawsuit against Apple proceed this May. By interpreting whether the iOS users are direct purchasers or not of the App Store, this case fundamentally challenges the rights a winning tech platform has on how they choose to run their business.
What the regulators must remember is that the strength of tech companies don’t necessarily come from limited availability like gas and oil, but rather from users choosing to use their service. As Eric Schmidt, the former CEO of Google, once said, “it’s also possible not to use Google search,” as competition is just “one click away.”
If tech companies begin getting hit with ex post facto law (law that retroactively changes the legal consequences of actions before the enactment of the law) without a clear standard, then tech innovation will be halted and companies may not be able to focus on giving the users an optimal service.
It also makes business plans for new startups tricky and the tech companies could launch a legal warfare about how laws should be interpreted to kill competition. As a whole, this will lead to worse technology products in an age where technology is deeply engrained in our daily lives and many can’t live without it.
If US wants to stay competitive and let best technology innovations lead the way, then they must switch their focus from trying to fine them on uncertain grounds to standards that all tech companies could predictably act upon. Here are three suggestions that I believe could help initiate that and help encourage more competition in the tech world.
Firstly, acquisitions must be regulated via a clear standard so that no entity could dominate the way Facebook does with 2.7 billion users. For example, the unique feature about social platforms is that the value of the network depends on who is on it, not whether it has all the best features.
Even Google, despite investing $585M in 2011 to build and launch their platform to compete with Facebook that had 14-fold smaller valuation than Google at the time ($14B vs $200B), decided to shut down their product after struggling to get more users in 2018.
Considering that it was in service for 8 years, it’s hard to say that they didn’t try hard enough. Losing the critical mass to Facebook and being unable to find a differentiating value proposition that simply made Google+ a direct competitor to Facebook was enough to make Google+ irrelevant.
Hence, what this implies is that any entity who are not direct competitors with features marginally better than Facebook could become a huge threat, as they may sway users away from Facebook’s network and become the new monopoly. This is why the social platforms like TikTok and Snapchat initially avoided competition with Facebook by offering a different value proposition to succeed.
The lesson we could learn here is that this is where the government should step in and set a standard to ensure that entities who may threat the acquirer should not be acquirable. This is important because if Facebook owns all the other social platforms, then it no longer needs to innovate.
To get a better sense of what this means, imagine a world where Snapchat did indeed get acquired by Facebook (Facebook did try to acquire Snapchat in the past in 2013). If such was the case, we may not have had Instagram story and augmented reality features that are both heavily used today. Snapchat continues to drive the innovation today by coming up with creative AR filters, such as the gender-swap and baby filters, which doubled app downloads in June this year. When is the last time we saw a creative feature that doubled the number of downloads on Instagram?
This is why acquisitions of Whatsapp and Instagram were so lucrative. $1B for Instagram (13 employees and no revenue) and $22B for Whatsapp (55 employees and no revenue) were all an investment for Instagram’s 27 million users, Whatsapp’s 420 million users and the different value proposition that those two services provided, which could have all threatened Facebook’s network.
By allowing these acquisitions to go through, Facebook not only eliminated future threats, but also amassed most user data to become the most dominant player in the digital ad space that no one can try to compete with. Although Facebook is already too big to fail in some eyes, ensuring that these acquisitions don’t happen again is the first step we could take towards maintaining a competitive market.
Secondly, data portability should become mandatory for tech companies. This has been a topic discussed before during the Senate hearing that still has not been materialized.
The reason why data portability is significant is that it shifts data sovereignty back to the user. If users feel that a competitor has a better service and it can be enhanced with another platform’s data, then they should be able to shift it without having to maintain integration with that platform.
This ensures that the companies are held accountable for their actions and that users can readily leave and even delete all their data on the old platform if they lose the trust of the platform. Whereas users had nowhere to go if they left Facebook and found it bothersome to learn how to onboard to a new platform, data portability will smoothen out that process.
Moreover, this will also ease the process of KYC as blockchain products become more mainstream. Owning the data means that you could segment the amount of digital history that you would like to share about yourself to the digital world and understand how you are being targeted so that you see ads that matter to you. This gives users a better experience, as they can remove data that was either personal or picked up unintentionally (i.e. via Alexa, which is always listening), while ensuring better targeting for the businesses.
This could even take the business model that Brave browser is promoting, where users get to monetize from the ads they see and interact with. It makes sense, as you are often the product from which the platforms monetize from. Why shouldn’t you also be part of the equation?
And if platforms come up with these creative ways where users become the beneficiaries, then it could create a new competitive ecosystem where everyone is competing for best user experience and user trust. Users no longer have to stay loyal to one platform or another, as shifting to a new platform will become significantly easier.
Thirdly, there should be annual public speeches and hearings lead by tech leaders who have a critical eye on how these tech businesses work and a deep understanding of their implications. While there’s a lot of praisers of technology, there are few who speak out against their business practices.
It is hard to blame users for not being able to know how they are being exploited either, as those information is not readily available to the public. We are all victims of availability bias, so many of us live without caring whatever happens behind the servers with our data.
Hence, having speakers like Business School Professor Scott Galloway, Law School Professor Tim Wu, or top tech journalist like Kara Swisher give a short state of technology speech and lead annual hearings on big tech companies could educate the public about what is going on and ensure that big tech companies live up to their promises. Considering the amount of influence big tech companies have in our daily lives, it is vital that we work towards making everything transparent.
Moreover, think tanks dedicated to researching tech should be actively funded by the government, as there has been a case where a team that criticized big tech were let go after corporate donors decide to sever all ties with the organization. It will be dangerous if research is only done in favor of tech companies who have the money to shift public opinion.
By educating the users about what is happening in tech by those who understand the tech sector instead of having government officials who don’t understand tech ask basic questions, we can give the agency to the general public to choose which service they would like to use.
My hope with these regulations is that they will help surface the platforms that best serve user needs, while being held accountable of the users’ trust. Hitting tech companies with fines according to ‘different interpretations’ of the law will annoy the users with worse services and hurt the businesses with endless lawsuits.
Technology is exciting because innovation replaces innovation and human ingenuity has no limit when competition exists. Without competition, privacy paradox will continue, where people care about privacy, yet hold the abusers not accountable for it. This is why Facebook could had its most profitable year in 2018 despite having its privacy scandals exposed.
The big tech companies may maintain their dominance even after these regulations are implemented, but the process by which they make decisions will change and most importantly, the ‘one click’ to the competitors will be closer than ever.
