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‘These firms have too much power’

Image: Sinchen.Lin / Marco Verch / Protocol
Antitrust

Good morning! This Wednesday, let's take a deep breath and dive into the blockbuster antitrust report that came out Tuesday.

Also, Protocol has a new newsletter! It's called Protocol Gaming, and the first issue just dropped Tuesday. It's written by Seth Schiesel and Shakeel Hashim, two names you've definitely seen here in Source Code. It'll come out every Tuesday, and you're going to want to sign up.

(Was this email forwarded to you? Sign up here to get Source Code every day.)

The Big Story

What's inside the antitrust report

It's the "Da Vinci Code" of Congressional reports, the "Harry Potter" of legal documents. It's Investigation of Competition in Digital Markets! (We're going to call it The Antitrust Report.)

The report is long, and it's feisty and says mostly what you'd expect: that Facebook, Google, Amazon and Apple have too much power and use it to crush their competition. "To put it simply," it says, a bold way to start a 449-page document, "companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons."

Here's one representative nugget for each company:

  • "Facebook's monopoly power is firmly entrenched and unlikely to be eroded by competitive pressure from new entrants or existing firms … The social network market has high entry barriers — including strong network effects, high switching costs, and Facebook's significant data advantage — that discourage direct competition by other firms to offer new products and services."
  • "Google is ... the largest provider of digital advertising, a leading web browser, a dominant mobile operating system, and a major provider of digital mapping, email, cloud computing, and voice assistant services, alongside dozens of other offerings … Each of these services provides Google with a trove of user data, reinforcing its dominance across markets and driving greater monetization through online ads."
  • "Amazon's acquisition strategy has expanded and protected the company's dominance. The company's significant expansion into new markets, paired with Amazon's wealth of data from its retail business, has fueled the platform's increasing market power … But the evidence examined during the investigation demonstrates that Amazon's acquisitions — including of its direct competitors — have been key to Amazon's attainment, maintenance, and expansion of market power.
  • "Apple's market power is durable due to high switching costs, ecosystem lock-in, and brand loyalty. It is unlikely that there will be successful market entry to contest the dominance of iOS and Android. As a result, Apple's control over iOS provides it with gatekeeper power over software distribution on iOS devices. Consequently, it has a dominant position in the mobile app store market and monopoly power over distribution of software applications on iOS devices."

For a great rundown of everything the report says and recommends, you should read this great analysis by Protocol's Emily Birnbaum and Issie Lapowsky. (Also make sure to read Emily's profile of the tiny group of House staffers who have worked behind the scenes to shape this entire investigation.)

  • One big recommendation: that enforcement agencies should look into unwinding problematic mergers — WhatsApp and Instagram would be the obvious choices, but there are other possibilities — and consider making those mergers harder to execute going forward.
  • The subcommittee also recommends that Congress consider legislation that draws on "two mainstay tools of the anti-monopoly toolkit" — structural separation and line-of-business restrictions — to break up the companies in other ways. But Emily and Issie point out that would be incredibly hard to get through Congress.

The report is as much a commentary on the government and enforcement agencies as it is on Big Tech. "Since 1998," it says, "Amazon, Apple, Facebook, and Google collectively have purchased more than 500 companies. The antitrust agencies did not block a single acquisition."

How does Big Tech feel? Amazon's response: "Fringe notions on antitrust would destroy small businesses and hurt consumers." So, you know, there's that.

You tell me: Is anything in here surprising to you? After following this for so long, did it turn out how you expected? I'd love to hear your thoughts, so reply to this email and tell me!

More Antitrust

The report by the numbers

The scope of the report was immense: The House Judiciary antitrust committee spent 15 months on the report, collected 1,287,997 "documents and communications," heard testimony from 38 witnesses, held eight hearings and ended up with a hearing record of more than 1,800 pages. From all that came the 449-page report.

  • Mark Zuckerberg is mentioned by name 73 times in the report (not including footnotes) — a first-place finish no one would wish for. Jeff Bezos comes in second with 41, Tim Cook third with 33, and Sundar Pichai fourth with 23. No mention of Satya Nadella or Jack Dorsey, and Microsoft and Twitter are usually mentioned as lowly competitors, or in Microsoft's case as an antitrust precedent.
  • The committee looked at past acquisitions: 256 by Google, 120 by Apple, 104 by Amazon and 86 by Facebook. The review went all the way back to 1988, when Apple bought Styleware, a company that made software … for the Apple II.
  • The combined value of the four companies in question, the subcommittee reminds readers, is more than $5 trillion — "more than a third of the value of the S&P 100." It predicts that in 2030, nearly 30% of the world's economic output could come from these companies "and just a handful of others."

Even More Antitrust

What happens next

Another government vs. tech showdown is already on the calendar: Zuckerberg and Pichai are both back in front of Congress at the end of this month, and the stakes are high.

  • The antitrust report makes special mention of how unhappy the committee was with the CEOs at the last hearing: "Their answers were often evasive and non-responsive, raising fresh questions about whether they believe they are beyond the reach of democratic oversight."

There's a legislative fight to be waged here, but that's not likely to happen soon. Turns out there are a few other things going on, politically speaking. Still, the FTC, CFIUS and other bodies may feel like they have more leeway going forward to start relitigating older acquisitions.

The antitrust report could also have a chilling effect on acquisitions around the industry. Many startups have been founded with the goal of eventually being swallowed by a tech giant, and those giants (and others) may decide it's currently not worth the headache. Anybody watching Google twist in the wind trying to buy Fitbit already knows what that looks like.

This report is not the end of the fight: It's a plan for a fight still to come. And it's not the only one, because Rep. Ken Buck released his own report, with support from other Republican senators, arguing for a "third way" to fight Big Tech. However you look at it, tech is in the sights of lawmakers.

A MESSAGE FROM PHILIPS

Philips

Stronger care … from more efficient operations

In a defining moment for healthcare, it's even more crucial to deliver patient-centered care efficiently. At Philips, we are committed to providing intelligent, automated workflows that seek to improve patient care. More efficient healthcare means stronger, more resilient healthcare.

Learn more.

People Are Talking

Regulation can't fix the internet, Satya Nadella said. Tech companies have to change how they operate:

  • "What needs to happen is real reform in social media where internet safety is a top consideration."

Uber doesn't care about its drivers, or its employees, Kurt Nelson — an Uber employee — said:

  • "Uber claims Prop 22 would be good for drivers, but that depends on Uber the company treating drivers better. I know from my experience working as an Uber engineer there is a slim chance of that happening … The entrenched culture of not caring about workers had extended to engineers. We realized we, too, are a fungible resource."

Google's only plan to win in the Supreme Court is to stall forever, Oracle's Ken Glueck said:

  • "Google has mastered the art of winning by kicking the can down the road. It can afford to play the long game. Deny every claim, appeal any adverse decision, run out the clock on every opponent — including government regulators. Even nominal 'losses' for Google are really wins: It can appeal fines and courtroom setbacks for years while its market power continues to grow and competitors disappear."

Your presidential tech policy proclamation of the day:

  • "REPEAL SECTION 230!!!"

On Protocol: One key to improving diversity in tech is to get out of cities, said the Intel Foundation's Gabriela González:

  • "Sometimes it's just a matter of infrastructure; access to internet may be difficult in some rural communities. Access to companies that are situated or located in large urban areas and not in rural areas, and access to those resources, just by the nature of their location, sometimes rural communities are largely disadvantaged."

Making Moves

Camille Hearst is the new head of Spotify for Artists. She was previously an exec at Patreon, and has done stints at Google, Apple and YouTube.

Tesla dissolved its PR department. A number of people over the years have told me that doing comms for Elon Musk, who loves to say whatever he wants whenever he wants, is a brutal job. Now it won't be one!

Melissa Newman is the new VP of Government Affairs at the Telecommunications Industry Association. She comes from a similar role at Transit Wireless, and will surely be busy in Washington as 5G comes alive.

In Other News

  • The Labor Department questioned Microsoft's diversity plans, asking the company if its plans to hire more Black staff violate race discrimination laws. Microsoft said it has "every confidence" that its diversity initiative complies with U.S. employment law, and that it would defend its approach if necessary.
  • Amazon plans to build a data visualization system to track union activity, reports Recode, via a leaked memo described as a "geoSPatial Operating Console."
  • Facebook said it would ban all QAnon pages, groups and Instagram accounts, even if they don't contain violent content. Banning all the content "will take time," Facebook said.
  • Big Tech employees have contributed almost $5 million to the Biden campaign, compared to just $239,527 to Trump. Employees at Alphabet, Amazon, Apple, Facebook, Microsoft and Oracle are also donating much more than they did in 2016, with Oracle employees donating almost five times as much to Trump this year than last time.
  • From Protocol: The White House announced new H-1B visa restrictions. Companies will have to pay visa holders more, and fewer jobs will be eligible for the popular visa program.
  • The IRS is being investigated for using location data without a warrant. The agency bought the data from Venntel, which collected it from consumer apps.
  • The European Court of Justice ruled that EU countries can't mass collect data on citizens. Though when a member state is "facing a serious threat to national security," it's allowed to, if "effective safeguards" are in place.
  • New iPhones are coming next week. Apple announced a "Hi, Speed" event for Oct. 13 at 10 a.m. PT. Yes, that's a pun.
  • Cisco must pay $1.9 billion to Centripetal Networks for patent infringements. The judge said it was "not a close call," but Cisco said it would appeal the decision.
  • Insurance startup Clover Health is going public via Chamath Palihapitiya's SPAC. The deal values Clover, which is backed by Alphabet and Sequoia, at $3.7 billion.

One More Thing

Sex is a security risk

Part of the problem with connecting everything to the internet is that everything becomes hackable. Now, a "smart" chastity cage can be hacked, locking the user in … permanently. The researchers informed the manufacturer of the vulnerability, but months later nothing's been done. Helpfully, they published a workaround that will let you get the device off if you do get hacked. One to bookmark.

A MESSAGE FROM PHILIPS

Philips

Stronger care … from more efficient operations

In a defining moment for healthcare, it's even more crucial to deliver patient-centered care efficiently. At Philips, we are committed to providing intelligent, automated workflows that seek to improve patient care. More efficient healthcare means stronger, more resilient healthcare.

Learn more.

Today's Source Code was written by David Pierce, with help from Shakeel Hashim. Thoughts, questions, tips? Send them to david@protocol.com, or our tips line, tips@protocol.com. Enjoy your day, see you tomorrow.

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