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by Nilay Patel
September 04, 2018
from
TheVerge Website
Illustration by William Joel
Tim Wu thinks it's time to break up Facebook.
Best known for coining the phrase "net neutrality" and his book 'The
Master Switch - The Rise and Fall of Information Empires',
Wu has a new book coming out in November (2018) called 'The
Curse of Bigness - Antitrust in the New Gilded Age'.
In it, he argues
compellingly for a return to aggressive antitrust enforcement in the
style of Teddy Roosevelt, saying that Google, Facebook, Amazon, and
other huge tech companies are a threat to democracy as they get
bigger and bigger.
"We live in America,
which has a strong and proud tradition of breaking up companies
that are too big for inefficient reasons," Wu told me on this
week's Vergecast.
"We need to reverse
this idea that it's not an American tradition. We've broken up
dozens of companies."
And breaking up Facebook
isn't a new idea.
Ever since Mark Zuckerberg bought
Instagram and
WhatsApp, the idea of undoing those
deals has been present at the periphery of the conversation about
regulating tech companies.
Both were serious
burgeoning competitors to the social network, and both acquisitions
sailed through without serious government oversight, which was a
mistake.
Instead of facing
competition, Facebook was able to swallow its rivals and consolidate
the market.
"I think if you took
a hard look at the acquisition of WhatsApp and Instagram, the
argument that the effects of those acquisitions have been
anticompetitive would be easy to prove for a number of reasons,"
says Wu.
And breaking up the
company wouldn't be hard, he says.
"What would be the
harm? You'll have three
competitors.
It's not,
'Oh my god, if
you get rid of WhatsApp and Instagram, well then the whole
world's going to fall apart.'
It would be like,
'Okay, now you
have some companies actually trying to offer you an
alternative to Facebook'."
"I think
everyone's steering
way away from
the monopolies,
and I think it's
hurting innovation
in the tech
sector."
Breaking up Facebook (and other huge tech companies
like Google and Amazon) could be
simple under the current law, suggests Wu.
But it could also lead to
a major rethinking of how antitrust law should work in a world where
the giant platform companies give their products away for free, and
the ability for the government to restrict corporate power seems to
be diminishing by the day...
And it demands that we
all think seriously about the conditions that create innovation.
"I think everyone's
steering way away from the monopolies, and I think it's hurting
innovation in the tech sector," says Wu.
Antitrust law in America
seems to be at an inflection point:
after a proud history
of aggressive enforcement that saw the breakups of everything
from Standard Oil to the original AT&T, the past few decades
have been incredibly lax as something called the "consumer
welfare standard" has swept the courts.
Basically, the
consumer
welfare standard says the government has to show that a merger will
result in increasing prices for consumers before it can stop it.
"I think anyone will
agree that [the consumer welfare standard] creates a very
challenging screen where most antitrust cases die," says Wu.
"And sometimes the
prices will go up, but you can't prove it because it's hard to
prove. That's what I'm trying to overthrow."
There are two problems
with the consumer welfare standard in 2018:
- First, after
years of dancing around it, giant corporations and their lawyers
have learned to make their arguments about price increases
ridiculously technical.
This leads to comical
misdirection.
For example, the
judge in the AT&T-Time Warner merger case
devoted hundreds of pages to
the technical discussion of price increases and paid zero
attention to the anticompetitive effects of AT&T prioritizing
its own video services over others.
"How
do you show
a harmful
price increase
when Google
and Facebook are free?"
- Second, it's all but impossible to show a consumer
price increase when major internet services like
Google and
Facebook are 'free'.
Making a case for
breaking up these companies will rely on showing a different
type of harm than high consumer prices - something like
anticompetitive practices, or that innovative businesses get
suffocated when they're absorbed by their gigantic acquirers.
"There are a
subset of cases where the primary harm manifests itself as
an innovation loss," says Hal Singer, an economist and
antitrust expert.
"We need to
attack them with a different standard because the
probability of prevailing under the consumer welfare
standard is zero."
One or two companies
ruling over segments of the market has historically chilled
innovation, says Wu.
"I think some people
in Silicon Valley are like,
'Yeah,
competition is for losers.'
If you're competing
with other people, you might have to make compromises or
[suggest] it's better just to have one guy, the right guy,
making all of the decisions.
That's what AT&T
thought.
They were like,
'Listen. We know
the phone system. We know what works. This internet stuff is
never going to work.'
I think Facebook is
in exactly the same position," Wu said.
"They're trying to
set themselves up as regulated monopolist for the foreseeable
future."
And the chilling effect
of Facebook and other tech giants buying up every promising startup
is noticeable.
"I think if we have
a tech economy entirely premised on the idea that monopolists
may one day buy the underlying thing, it really limits what can
happen," says Wu.
"Google and Facebook didn't start that way. There's a really
profound difference in the kind of innovation you see when
people are afraid of disturbing the mothership versus what you
do when you sense a real opportunity.
No one's willing to
fund [profound innovation] because you're not going to displace
Facebook or Google.
So we go around the
edges somewhere and try and find some cute little thing that
doesn't bother anybody too much and get bought out."
And so the movement to
break away from the consumer welfare standard is growing.
Sometimes called
the New Brandeis movement, the idea
is that the law should prioritize competition. It's the same sort of
standard EU regulators have been using to crack down on big tech
companies.
These standards were
originally based on the American approach under Brandeis and
Roosevelt.
"Are they
winning
because they
have a better product,
or are they
winning
because they're
using dirty tricks?"
"I think we need to
simply ask [if] what a large company is doing is part of the
competitive process," says Wu.
"Whether, in fact,
they're destroying the other company on the merits or whether
they are exceeding the bounds of what's considered fair
competition.
You want competition
to be something where the better product wins, and the question
is: is the defendant winning because they have a better product,
or are they winning because they're using dirty tricks?"
"When you go inside an agency, and you're facing real cases,
this is actually what you're doing," says Wu, who spent time
working at the Federal Trade Commission.
"They don't mess with
the numbers. They look at 'Okay, Facebook's killing Snap. Are
they doing that in reasonable ways? They're copying them.
Are they better than
them, or are they actually doing this in unfair ways'?"
Hal Singer has a
different proposal that's modeled after how Congress decided to
regulate cable TV providers like Comcast from discriminating against
channels owned by competitors.
If a smaller company can
show that it's being meaningfully impaired from competing
effectively due to some discrimination against its products, it
would have a case.
"Zappos and
Diapers.com would not have had to sell out to Amazon if they had
a venue to defend themselves," Singer says.
"Amazon was able to
bring both those companies to their knees because every party
knew there was no protection under the antitrust laws."
It's the same with
Facebook now, he says.
"Facebook sits down
with someone and says,
'We could steal
the functionality and bring it into the mothership, or you
could sell to us at this distressed price'."
"There's really
nothing to stop Facebook from swallowing all of these
verticals."
The
1914 Clayton Antitrust Act
allows mergers to be studied for anticompetitive effects, and Wu
thinks the case against Facebook is easy enough that it could be
broken up without changing the consumer welfare standard.
There's the simple fact
that the number of competitors in social networking went down due to
the acquisitions of Instagram and WhatsApp, and
there's also the idea that the number of competitors in what Wu
calls the "attention market" decreased as well.
"The easiest way to
do it is to start by breaking off WhatsApp and Instagram so
those are separate companies," says Wu.
"Hopefully, those
companies try to introduce more privacy-sensitive or otherwise
better social networking options. Right now, because they're all
owned by the same place, they're never really allowed to get at
the mothership and be a true replacement for Facebook.
I think WhatsApp is
in an even better position [than Instagram], frankly, to try to
go at it. They've got this great messaging service.
Everyone loves it."
"The
easiest way to do it
is by breaking
off
WhatsApp and
Instagram."
But wouldn't reaching in to break up Facebook be difficult for the
government to justify?
Wu thinks differently.
"Unless you believe
that we want one ruling master of all social networking and it
should be Mark Zuckerberg… then there's no good reason not to
break it up," he adds.
"What's the argument
against it?"
"These are corporations," says Wu.
"They have subunits.
Sometimes corporations divide by themselves. It's not that
dramatic, and there's been this campaign to say,
'Oh my god, this
would be like the most insane thing ever'."
But won't getting bigger
and bigger lead companies like Facebook and Google to make mistakes,
become slower, and create opportunities for new challengers?
That has largely been the
belief of the tech industry, which has seen the fortunes of
companies like,
...dramatically rise and
fall.
Basically: won't the
market solve for monopoly all by itself?
"It is true that
bigness is a curse and leads a company to become doddering and
bad," says Wu.
"But the mythology
and the problem is assuming that these companies sort of
automatically go away. AT&T had a monopoly for 70 years, and by
the '50s or '60s, they were not a great company anymore.
They were incredibly
hostile to anything new. They thought they knew everything. They
thought the internet was a mistake. They didn't believe in
modems. They didn't believe in answering machines.
They were this
enormous doddering company, but nothing could get rid of them."
"AT&T was
this enormous
doddering company,
but nothing
could get rid of them."
Breaking up AT&T created massive opportunities for competitors to
enter the market, and Wu says the 1990s-era antitrust case
against Microsoft was a big factor in creating the modern
internet as we know it.
"A whole generation
of companies - Google, Facebook, some of these early companies -
they don't owe everything to antitrust, but they owe a sizable
debt to the antitrust law," he says.
Singer agrees.
"It's just hard for
me to buy into this claim that [Facebook and Google] are going
to be toppled the same way that Myspace was toppled. I feel like
these are end-states. I don't see what dislodges their
dominance, at least not in our lifetimes."
"If you wait long enough, maybe 100 years, they'll go away. But
we could very well have Facebook - an inefficient, ineffective,
obsolete company - hanging around for another 20 years," says
Wu.
"I'm just not really
sure that's what we need."
"Antitrust law
is the
compromise
between
socialism and capitalism"
At its most philosophical, antitrust law is the compromise between
socialism and
capitalism.
The idea is that neither
the state nor private corporations should amass unchecked power.
"I wouldn't want to
live in a socialist country, and I don't like living in a
country where unaccountable capital faces no real check on its
power," says Wu.
"The American
Revolution was about resistance to centralized power. The
Constitution is about resistance. No one entity should have too
much power."
"I'm a believer in the industry of the common man or common
woman in charge of their own destiny, a nation of small
business, small concerns, people feeling a sense of opportunity,
and I think what deadens that is always excessive, concentrated
power, whether in government or in private industry."
"I think we're in a time where we need to bring back the
controls on bigness."
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