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Government action on big tech monopoly power moving quickly

Government antitrust actions are building against tech giants Amazon, Apple, Facebook and Google. They could lead to tighter regulation or even a breakup.

The government case against big tech quickly gained momentum as the Department of Justice launched an antitrust suit against Google on Tuesday.

The lawsuit comes in the wake of a blistering report from Congress alleging that Amazon, Apple, Facebook and Google exercise destructive monopoly power.

While Tuesday's DOJ action focused on Google's alleged monopoly domination of search and search advertising, the Oct. 6 report from House Judiciary Committee's antitrust subcommittee is more wide-ranging and essentially calls for the breakup of the four IT vendors.

Tech reaction varied

Initial reaction from the tech sector to the DOJ move against Google was mixed.

"Big tech has made billions by democratizing access to information and social connections for people all over the world. That's good," said Mike Gualtieri, an analyst at Forrester, commenting on the DOJ lawsuit and House report.

However, big tech companies use technologies such as machine learning to exploit human psychology in ways that keep users addicted to their platforms, Gualtieri said.

"It would be nearly impossible for a competitor to emerge because they don't have the data to have effective [machine learning] models, or big tech will buy them out before they get too big," he added.

Tech industry groups and some analysts called the lawsuit from the Trump administration politically motivated, coming just before the U.S. election.

We got here because we haven't been enforcing laws on mergers and acquisitions for years.
Michael FauscetteChief research officer, G2

Michael Fauscette, chief research officer at technology research firm G2, said it's troubling that Google engages in practices such as favoring its own products and services in search results, but the onus should be more on government regulators to improve oversight than on the tech vendors to police themselves.

"It's really complicated, and I think it's hard to make general statements that come out of this, like 'They're definitely anti-competitive and should be broken up,'" Fauscette said. "We got here because we haven't been enforcing laws on mergers and acquisitions for years."

Some thought the suit -- the biggest tech antitrust action since the government sued Microsoft two decades ago -- was long in coming and in line with a series of antitrust suits, fines and regulatory moves against Google by the Competition and Markets Authority in Europe.

"It's merited. These are fair questions. Are they using their platform to shut out or shut down competition?" said Alan Pelz-Sharpe, founder and analyst at Deep Analysis.

Google's senior vice president of global affairs, Kent Walker, responded to the DOJ lawsuit on the company's blog:

"Today's lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to, not because they're forced to, or because they can't find alternatives," the blog post said. "This lawsuit would do nothing to help consumers. To the contrary, it would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use."

House antitrust report tough on big tech

As for the House report, Google, Amazon, Apple and Facebook published statements that pushed back strongly against the report. All four deny they are monopolies, and maintain that they benefit consumers with free services, low prices and advanced technologies (see "Big tech responds to monopoly allegations" section).

These dominant companies grow by essentially violating the antitrust law. They're using their muscle in one market to put their thumb on the scale in favor of their own products and services and excluding other competitors from even having the opportunity to compete.
Sally HubbardOpen Markets Institute

Written by the committee's majority Democratic staff, the 449-page House report alleges that the four big tech vendors exert unbridled power to crush and gobble up competitors, stifle innovation and trample personal data privacy, and that their monopoly power has caused the their own products to deteriorate.

"These dominant companies grow by essentially violating the antitrust law," said Sally Hubbard, director of enforcement strategy at the Open Markets Institute, an antitrust think tank. "They're using their muscle in one market to put their thumb on the scale in favor of their own products and services and excluding other competitors from even having the opportunity to compete."

The DOJ suit, released after a yearlong investigation, was joined by 11 state attorneys general. The Federal Trade Commission is pursuing its own antitrust probe of Facebook.

Meanwhile, the House report, while authored by the committee's Democratic staff, got significant support from Republicans on many key points, some echoed in a shorter minority GOP report.

Potential big tech breakup

The report calls for, among other things, new and strengthened regulatory laws, and possibly breaking up the vendors by prohibiting a monopoly platform from competing against other companies in a market it controls.

Front page of House antitrust report on tech giantsCongressional report

This could mean peeling Instagram, Messenger and WhatsApp away from Facebook, the App Store from Apple and Google search from other products such its marketplace and advertising operations.

"The strong network effects associated with Facebook has tipped the market toward monopoly such that Facebook competes more vigorously among its own products -- Facebook, Instagram, WhatsApp, and Messenger -- than with actual competitors," according to the House majority report.

But amid the gathering antitrust drive, the larger tech industry is conflicted about characterizing as anti-competitive monopolies what many view as historically innovative vendors.

'Cultural arrogance'

Many tech companies are dependent on the big tech vendors as business partners and are reluctant to criticize them. But big tech's widely perceived level of self-importance has done little to help them in the arena of public opinion, said Liz Miller, an analyst at Constellation Research.

"The idea that they've deteriorated over time has less to do with a lack of competition in the market than a level of cultural arrogance that has made it so they don't have to [improve]," Miller said, referring to Facebook in particular. "Facebook's had plenty of competition -- namely, Google."

Miller also said the House report neglected to acknowledge that the bulk of Facebook's and Google's marketplace advertisers are small businesses that benefit from the platforms.

Indeed, although antitrust sentiment appears to have taken root in Washington, D.C., and among significant swaths of the public, longstanding pro-business tendencies could still favor big tech.

Besides settling with Microsoft in 1999, the government hasn't prosecuted a significant successful anti-trust case since it broke up the Bell telephone system in 1982, noted Mark McCareins, a clinical professor of business law specializing in antitrust at the Kellogg School of Management at Northwestern University.

As for the House, "whatever their findings or musings or observations are, they're not the force of law," McCareins said.

"If you have succeeded in the marketplace with superior skill or acumen, that's to be applauded, not penalized," he said, paraphrasing a Supreme Court decision in a case involving economic competition.

None of the four companies responded to requests for comment on the House report.

Big tech responds to monopoly allegations

Amazon, excerpt from its blog: "We are fortunate that Amazon's customer obsession has helped us grow into a large and well-recognized company. Eighty percent of Americans have a favorable impression of Amazon, according to leading independent polls. Working to earn and keep that trust is the single biggest driver of Amazon's 'Day 1' mentality -- our approach of doing everything with the energy and entrepreneurial spirit of a new organization on its first day.

"All large organizations attract the attention of regulators, and we welcome that scrutiny. But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong. And yet, despite overwhelming evidence to the contrary, those fallacies are at the core of regulatory spit-balling on antitrust. The flawed thinking would have the primary effect of forcing millions of independent retailers out of online stores, thereby depriving these small businesses of one of the fastest and most profitable ways available to reach customers. For consumers, the result would be less choice and higher prices. Far from enhancing competition, these uninformed notions would instead reduce it.

"These flawed regulatory ideas rely on the false narrative that Amazon's interests are not aligned with those of the thousands of small and medium-sized businesses thriving as sellers in our store. The opposite is true: Amazon and sellers complement each other, and together we create a better customer experience than either could create alone."

Apple, full statement: "Our company does not have a dominant market share in any category where we do business. From its beginnings 12 years ago with just 500 apps, we've built the App Store to be a safe and trusted place for users to discover and download apps and a supportive way for developers to create and sell apps globally. Hosting close to two million apps today, the App Store has delivered on that promise and met the highest standards for privacy, security and quality. The App Store has enabled new markets, new services and new products that were unimaginable a dozen years ago, and developers have been primary beneficiaries of this ecosystem. Last year in the United States alone, the App Store facilitated $138 billion in commerce with over 85% of that amount accruing solely to third-party developers. Apple's commission rates are firmly in the mainstream of those charged by other app stores and gaming marketplaces. Competition drives innovation, and innovation has always defined us at Apple. We work tirelessly to deliver the best products to our customers, with safety and privacy at their core, and we will continue to do so."

Facebook, in a statement to CNBC: "Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people. Instagram and WhatsApp have reached new heights of success because Facebook has invested billions in those businesses.

"A strongly competitive landscape existed at the time of both acquisitions and exists today. Regulators thoroughly reviewed each deal and rightly did not see any reason to stop them at the time."

Google, full statement: "Google's free products like Search, Maps and Gmail help millions of Americans and we've invested billions of dollars in research and development to build and improve them. We compete fairly in a fast-moving and highly competitive industry. We disagree with today's reports, which feature outdated and inaccurate allegations from commercial rivals about Search and other services. 

"Americans simply don't want Congress to break Google's products or harm the free services they use every day. The goal of antitrust law is to protect consumers, not help commercial rivals. Many of the proposals bandied about in today's reports -- whether breaking up companies or undercutting Section 230 -- would cause real harm to consumers, America's technology leadership and the U.S. economy -- all for no clear gain.

"We support Congress focusing on areas where clearer laws would help consumers, a few of which are mentioned in today's reports: Google has long championed the importance of data portability and open mobile platforms; we are arguing a case before the Supreme Court tomorrow for the important principle of software interoperability; and we have urged Congress to pass comprehensive federal privacy legislation. We look forward to engaging with Congress on these and other issues moving forward."

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