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    US Department of Justice vs Google – Too late for a quick change on Big Tech

    November 2020

    Last month, House lawmakers in the US concluded a 16-month investigation into Amazon, Apple, Google and Facebook and called for sweeping changes to curb their market power. The lawmakers’ verdict: Traditional antitrust laws aren’t up to the challenge, and the laws need their biggest overhaul in more than 40 years.

    It might seem a Silicon Valley cliché, but it was a garage – a pretty dumpy one rented from the current CEO of YouTube just over two decades ago – that served as the birthplace of what the US government today is calling a crippler of competition, a reducer of consumer choice and a stifler of innovation.

    Big allegations, all aimed at Google, the multicolored wonder of the digital age that has managed to grow from those modest beginnings as just another search engine in a nascent industry to the linchpin of a trillion-dollar conglomerate called Alphabet. “For the sake of American consumers, advertisers, and all companies now reliant on the internet economy,” the Justice Department said last month in an antitrust lawsuit which was joined by 11 states relying on those very same antitrust laws, “the time has come to stop Google’s anti-competitive conduct and restore competition.”

    Actually, in my opinion the time to do anything substantive about the overwhelming power of the giant tech companies was very long ago. Instead, state and federal governments – on bothsides of the partisan divide – charged with protecting small business and encouraging innovation did squat.

    The action taken is akin to closing the proverbial barn door not only after the horses have left, but also after those now billionaire horses have trampled over key parts of the economy, society and democracy.

    Still, for all the huffing and puffing by Attorney General William Barr – whose actions always seem slick with the oily sheen of dirty tricks and who has shoved this case forward faster than many prosecutors had thought prudent, weeks before the election – I give him kudos for at least finally stating the obvious and taking concrete action to do something about it. It’s refreshing to hear the government acknowledge that the unlimited money and influence of the major tech companies need some guardrails.

    But American consumers shouldn’t hold their breath. The case will most likely drag on for years while appeals are heard, meaning Google can continue operating largely as it does today.

    Justice Department lawyers will have to convince federal judges of the central allegation in the lawsuit: that Google’s contracts paying Apple between 8 billion – 12 billion dollar a year and other smartphone manufacturers to make it the default search engine and operating system on those phones are anti-competitive, rather than just savvy deal making. Google will explain that its market share is a function of consumer choice and not manipulation.

    The government will also need to make plain the overly complicated online advertising market and demonstrate how Google’s control forces marketers to pay higher fees, resulting in higher prices for consumer products. It takes some mental gymnastics in my opinion to connect the price of a can of Coca-Cola to the complex and opaque automated bidding wars for an ad slot atop a Google search for “soda”. The coming weeks are likely to bring a cascade of suits from state attorneys general who have also investigated Google and will contend it hurts consumers by crowding out competitors.

    The 58-page complaint will be a distraction for years to come, potentially degrading Google’s reputation. But if the way Google approaches its business operations is any guide, this will be anything but a fair fight. The company had 17.7 billion dollar in cash as of June, and it has hired an all-star bench of outside attorneys with antitrust experience to help defend it. The Justice Department’s antitrust division, by comparison, is working off 2020 budget of 167 million dollar.

    The most likely outcome in my opinion of the case is that, after years of litigation, Google will have to unravel some of its exclusive deals – such as the billions it pays annually to be the default search engine on Apple’s iPhones and the default operating system on Samsung devices.

    Nonetheless, business should continue largely as usual for Google after paying a multi-billion dollar fine. Apple can still choose to use Google’s search engine, and phone makers can still choose to use the Android software. It’s not like people are going to just stop using Google because of a lawsuit.

    So far, the company has hardly been chastened by the threat of antitrust challenges. Less than two months after a group of state attorneys general announced their investigation into its market power last year, Google announced that it planned to buy the fitness tracking company Fitbit for 2.1 billion dollar. That deal is still under review by the Justice Department and the European Union competition officials.

    Google may also be emboldened by past challenges that hardly threw it off course. A 2011 suit brought by the Federal Trade Commission (F.T.C.) over privacy concerns resulted in a meager 22.5 million dollar settlement. Last year, another F.T.C. suit, over children’s privacy on YouTube, led to a 170 million dollar settlement – representing less than 10 hours of Google’s revenue in the most recent quarter.

    Google’s tenacity is a testament to the success and omnipresence of its products, which Google has paid plenty for. Avoiding Google is nearly impossible for Americans and for most of the rest of the world.

    The Justice Department’s lawsuit is commendable, as a shot across the bow. It’s the federal government’s job to protect consumers from the excesses of big business. Good things can come from settlements and simply shining a light on corporations’ practices.

    Maybe – the real impact of that legal action is still up for debate. But what followed undoubtedly had a lot to do with the power of a new technology – in this case, the internet – which fueled the cheap creation and drastic escalation of a series of major companies. Like Google in search. And Amazon in commerce. And Facebook in social media. And too, the revived Apple, which seized the next major tech trend – the mobile and smart phone explosion – and rode that to its impressive 2 trillion dollar valuation.

    That is trillion with a T, and it is those five companies that now top the list of the most valuable companies in the United States as well as around the globe. And since these are all founder – based companies, the executives in charge of these companies are among the richest people in the history of the planet, too.

    I have absolutely nothing against the creation of wealth through ingenuity – and I never could have imagined to be honest that Google’s future when I first used Google more than two decades ago would evolve in such a tech behemoth. But I stood by for years in astonishment as each of these companies grabbed more and more power without a peep from regulators and often with the assistance of salutary legislation, like the much misunderstood Section 230 of the 1996 Communications Decency Act.

    The law – which among other things gives broad immunity to internet companies for what travels over their platforms – has also become a piñata in Washington. Abolition of Section 230, as it’s known, is thought to be the silver bullet to solve the problems with Big Tech.

    But here’s the trouble: There’s no such things as a single entity called Big Tech, and just saying it exists will in my opinion not cut it. The challenges plaguing the tech industry are so complex that it is impossible to take action against one without understanding the entire ecosystem, which hinges on many monster companies, with many big problems, each of which required a different remedy.

    However, regulators that focus on specific sectors of the economy are common in the United States. For financial markets, there is the Securities and Exchange Commission (SEC); for airlines, the Federal Aviation Administration (FAA); for pharmaceuticals, the Food and Drug Administration (FDA); for telecommunications, the Federal Communications Commission (FCC); and so on.

    There is also precedent for picking out a handful of big companies for special treatment. In banking for example, the biggest banks with the most customers and loans are classified as “systemically important financial institutions” and therefore subject to more stringent scrutiny.

    What in my opinion is required for Big Tech is a more rapid-response approach, a specialist regulator that would focus on the major tech companies. It would establish and enforce a set of basic rules of conduct, which would include not allowing the companies to favor their own services, exclude competitors access to their platforms and data on reasonable terms.

    In addition reforming Section 230 could help. But other tools may be needed, like significant fines, as well as new state and federal laws, enforcement of existing regulations and most important increased funding for new as well as existing agencies like the F.T.C., along with more aggressive consumer action and media scrutiny.

    Apple’s control over the App Store and its developers? Perhaps some fairer rules over how to operate when it comes to fees and approvals, since separating the apps from the phones is a near impossible task.

    Amazon’s problem with owning a critical marketplace platform where it sells its own goods alongside third-party retailers?

    Simply put, should Amazon be allowed to sell its own batteries if it also controls the store for a lot of batteries?

    It sounds like separating Amazon retail products from the store itself might be a possible solution, as well as establishing much less porous walls between the various Amazon businesses.

    Facebook and its damning “land grab” and its “neutralize” emails referring to squelching rivals, as well as its worrisome domination of the online discourse and news distribution across much of the world? This one is definitely harder, but some breakup of its units, say a cleaving of Instagram and WhatsApp, might be a step in the right direction, along with figuring out a way to make its controversial editorial decisions more transparent and systemic rather than the more random “Whatever Mark Zuckerberg Says This Week” they have become.

    And Google, of course, which is now for the first time ever in a real fight with the United States Government ? It was in early 2013 that the F.T.C. commissioners decided unanimously to scuttle the agency’s investigation of Google after getting the company to make some voluntary changes to the way it conducted its business. This despite a harsher determination by its own staff in a 160-page report, which came to light in 2015, that Google had done a lot of the things that the Justice Department is now alleging, including that its search and advertising dominance violated federal antitrust laws. Which is to say, the US government knew then and did nothing. Now it is finally taking action, but the question has to be asked: What does it know about all the others?

    The last major antitrust action against a big technology company was the landmark Microsoft case in the 1990s. The case began with a suit filed in 1994 by the F.T.C. and a simultaneous consent decree.

    Microsoft was found to have repeatedly violated the nation’s antitrust laws, and the company then reached a settlement with the government, which a federal court approved, 8 years later in 2002.

    The Justice Department at that time accused Microsoft of using restrictive contracts with PC makers and others to inhibit the distribution of the software Netscape Communications, the commercial pioneer at that time in the browser market.

    And it worked. After a lengthy trial, Microsoft at the end was found to have repeatedly violated the nation’s antitrust laws.

    That was the last big win for the government, so for them it makes sense to map a similar path. For me, it’s hard to argue that this case, whatever the outcome, will really change the competitive landscape in search. Google in my opinion is regarded not only as a search service that provides relevant results, but as a verb – what people think of as internet search. Given a choice, they might well choose Google, and the company would argue that was because it was a superior product that people preferred.

    Whatever the outcome, one thing is already certain: Google will face continued scrutiny for a long time!