From No Regulation to Over-regulation
How far can we push the needle?
2020! Yes, that was when we first heard her name -> Lina Khan. Right up to that point, we used to hear of the occasional congressional hearings of big tech companies where a few of these giants were hauled before a panel to defend themselves against various allegations
Lina Khan was just touching 30 when Joe Biden brought her into the Federal Trade Commission as chairperson. She was not a big name you would toss around in corporate circles, although she was well-known in academic circles.
Lina Khan had a history of investigating anti-monopoly behavior during her tenure with the Open Markets Institute. She had developed a pet peeve, a favorite topic, when she graduated from Yale Law School — it was regulation. What irked her the most was how Big Tech was able to play the field for decades almost unchecked.
Truth be told, if given the choice — Regulation and Laissez-faire Capitalism would prefer never to be two sides of the same coin: - but to be the whole coin itself.
All of a sudden, activist regulators across the globe seem to be over-zealous to regulate these large corporations (or those they deem to grow into Goliaths). Whether it was in China, India, the U.S., or even the EU, every minute detail of theirs was coming under the scanner. The question I keep asking myself is — what was the tipping point for this?
I noticed a few turning points which lead up to this.
1. The Cambridge Analytica data breach
This now infamous scandal threw Facebook (now Meta) completely out of gear and shone a light on their privacy practices. Facebook was gathering user profile data and providing it to Cambridge Analytica to build customer profiles (the famous 360 degree profile). Facebook probably never intended to sell any products to these customers, but ad companies on their platform were making a killing.
What was amazing about this whole episode was that the information being provided to Cambridge Analytica was happening right under everyone’s nose for a long while, and no one had any problem with it until it began to impact national referendums (Brexit) and election results (2016 U.S. elections)!!
When this came to light, the tide turned heavily against Meta. They ended up paying hefty fines to both the Federal Trade Commission and U.K. government. The Meta brand had taken a public beating. They were down, but not out !!
2. The increase in big mergers
A total of two large mergers were announced after 2020. Nvidia’s proposed $40 billion takeover of ARM (the chip designer) and Microsoft’s proposed $69 billion takeover of Activision Blizzard (presently being opposed by the FTC).
Nvidia’s buyout would have put them in a pole position for their Graphical Processing Unit (GPU) chips to have exclusive access to ARM designs. They could also have potentially (if they so desired), restricted the sale of ARM chip designs to other chip vendors like Qualcomm, Samsung, etc. thereby gifting themselves a sizeable chunk of the market and a near monopoly.
Right up to a year ago, the demand for Nvidia’s GPU chips had soared due to a multiplicity of factors — namely cryptocurrency, Bitcoin mining, and the growing insatiable demand for artificial intelligence on the public cloud.
The deal was eventually called off after regulators in 3 countries opposed it vehemently.
Microsoft buying out Activision was nothing short of a bold attempt to carve out a sizeable chunk of the gaming market away from competitors like Sony. The deal is presently being contested by the FTC.
Mergers and acquisitions where giant firms devour promising upstarts are low-hanging fruit for regulators to go after. Highly paid Management Consultants can easily present their case with snazzy PowerPoints and detailed reports about the economic gains of these leveraged buyouts for all parties (except of course for the ones who will be let go)
3. The government plays ball
In early 2021 a storm started to brew in Australia, and once again, Meta was in the news. The Australian government demanded that social media platforms pay their local publishing houses for any of their content that appears on its platform.
Google had smartly carved out a 3-year deal with Newscorp in Australia to avoid this showdown, but Facebook had decided to slam the door on the government and call its bluff.
When the Australian government held firm, Meta restricted access to Australian citizens from accessing any news stories on its platform. Obviously, the Australian government was enraged by this conduct and cried fowl, lamenting the loss of access for its population to some of the critical government pages on Facebook that were needed to disseminate information during the time of a pandemic.
The government finally prevailed! Meta blinked and agreements were inked with a few publishers. Normalcy was restored. The world, however, was watching this brief standoff and realized that tech-heavyweights with all their access, clout, and money are after all NOT invincible, and can be reined in.
It was around this time that Lina Khan entered the stage. The Meta incident was an eye-opener for governments around the world about the might of big tech. Things had indeed reached a tipping point.
Somehow Big Tech had to be reined in and Lina Khan with her background was the right one for the job.
Today, Lina Khan has lots on her plate. Her big ticket item is investigating Amazon about a 2021 complaint on how they automatically registered users onto Prime and their other services. Also on her table is trying to sue Meta over their almost decade-old acquisitions of both Instagram and Whatsapp alleging that it was intended to create a monopoly!! Then you have the Microsoft Activision deal now caught in its crosshairs.
The question we need to ask ourselves is, “Are all monopolies bad? Is there such a thing as a good monopoly?”
Take Google for instance, which is still the default search engine of most of the planet (who are not on iPhones). Its ad-driven model has ensured that we do not have to pay for much of what we search for. Every now and then, YouTube tortures us with a 60-second advertisement, but we patiently see it off before consuming videos for free. Thousands of educational videos are hosted on YouTube now for free — without a subscription.
Microsoft has been accused of being a monopoly since the beginning of the IT age when it tried to make Internet Explorer the default browser on its Windows Operating System. Despite losing that battle legally, they have been accused of other wrongdoings like keeping their operating system cost low enough to eliminate other vendors. Windows is almost the corporate standard today at the office for productivity tools with its mammoth market share for Office 365. Customers eventually pay for quality, and most of the time — they don‘t care if it’s a monopoly.
Both these so-called monopolies mentioned above have left consumers better off, rather than worse. The internet grew to its size today fed by an almost unlimited supply of ad money. In fact, for tons of consumers today PowerPoint is the default presentation tool.
Targeting firms who have executed against the odds and have earned their stripes by the sweat of their toil is hardly being fair to these firms or doing justice to the consumer.
In fact, Peter Thiel says it best below.
Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.
— Peter Thiel (From Zero to One)
Lina though is hell-bent on taking on these monopolies no matter what size or shape they come by. The most unsettling fact is that the innovations some of these companies brought to the market are completely overlooked. She is possibly pushing the needle beyond the breaking point.
Regardless of who wins, this is going to be a long hard battle.
