Should Big Tech be Broken Up?

By Daneesh Shahar

The feasibility and necessity of Elizabeth Warren’s controversial plan

On February 9, 2019, Massachusetts Democratic Senator Elizabeth Warren announced her candidacy in the 2020 presidential election. A month later, her campaign published a post on Medium titled “Here’s how we can break up Big Tech,” detailing Warren’s plans to correct what she sees as monopolistic activity from tech giants such as Google, Amazon, and Facebook. 

Warren’s breakup plan follows a two-pronged approach. The first involves banning companies that generate more than US$25 billion in annual revenue from participating on their own platforms. The second requires a reversal of ‘anti-competitive’ tech mergers. Effectively, with her legislation, a company like Amazon would not be able to list AmazonBasics products on their platform, and would have to reverse their acquisition of Whole Foods.

The plan is objectively radical, but it speaks to the growing sentiment among academics, politicians, and technologists about the devastating effect Big Tech may have on innovation and market competition. 

The case for a breakup

Proponents of a breakup argue that Google, Amazon, Facebook, and Apple (GAFA) have unfairly leveraged their ownership of these platforms, and believe measures like the ones proposed by Warren would restore competition in the free market. 

should big tech2In recent years, several tech companies have expressed dissatisfaction with their treatment on Big Tech platforms. Yelp CEO and Co-founder Jeremy Stoppelman famously engaged in a multi-year campaign against Google, alleging that searches for restaurants consistently displayed user reviews from Google before Yelp results. 

In effect, this sort of favoritism is jeopardizing the usefulness of Google’s platform for other companies. Similar public cases like Spotify vs Apple’s App Store and Vendors vs Amazon’s private label AmazonBasics further illustrate Big Tech’s propensity to extract more value from their platforms at the expense of third parties. 

Aside from quelling monopolistic behavior, Warren makes the case that a breakup would give startups competing with Big Tech a fighting chance. In the United States, a key factor in any investment deal is whether a startup is in the ‘kill zone.’ The ‘kill zone’ is the area around an industry that is not worth investing in because a GAFA firm exists in the space. Startups in ecommerce, social media, search, and mobile hardware–to name several of Big Tech’s primary sectors–are automatically ruled out as potential portfolio companies. 

Big Tech’s size and mobility of capital make it easy for them to either acquire startups that directly compete with them, or smother newcomers by appropriating their unique features. Snapchat famously turned down a $3 billion acquisition offer from Facebook, only for Facebook to copy features like stories and filters for Instagram, thereby making Snapchat irrelevant. 

Warren’s proposal aims to dismantle the ‘kill zone’ by limiting Big Tech’s capacity to dominate an industry uncontested. Ideally, entrepreneurs will be able to secure funding from venture capitalists without the threat of GAFA looming over them.

Consumers may also have a bone to pick with tech giants. Users on Google and Facebook have free access to the service in exchange for personal information such as their search history and cookies. According to Nicholas Economides, a Professor of Economics at New York University, this structure flies in the face of market principles. 

“The market between the user and the company on acquisition of personal data does not function properly as a market, as everyone is giving their personal data for free,” he says. “If the default regime were opt-out rather than opt-in and the market for personal data acquisition was properly functioning, users would receive various amounts of monetary compensation from the companies depending on each user’s preferences.”

Legal opacity

Warren’s plan to break up Big Tech might, however, be ahead of its time. It’s faced with fierce opposition from both political and academic circles, casting doubt onto not only whether her antitrust regulation would pass into law, but also whether it’s even the right course of action.

“Under present antitrust law, breakups and other structural remedies can only be imposed when there is proof of extreme violations of antitrust law,” says Economides. “At present, we do not have well-defined violations. We are really far away from establishing extreme violations of antitrust law for which a [breakup] would be appropriate.”

The severity of Warren’s proposal requires compelling evidence that highlights the seriousness of the crimes committed. Investigations are still in their infancy, and it’s unclear whether the current legal framework can support the proposed breakup. 

“Politicians seem to base their conclusions on breakups on a fictional antitrust law which is much more draconian than the existing one,” Economides says. 

Proceeding heedless of these warnings could be harmful to Warren’s cause. If the approach to a breakup is ill-conceived and leads to the failure of a lawsuit, it could set an unfavorable precedent for future regulation, making breakups more difficult even in instances of explicit monopolistic behavior. 

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Drivers of innovation

Breakup advocates often argue that Big Tech subsidiaries are worth more separately than they are together. Amazon Web Services (AWS) is said to be worth as much as $600 billion (Business Insider) if independent of Amazon, because it would no longer be grouped with the less profitable ecommerce business. The same argument extends to Instagram diverging from Facebook, and YouTube leaving Google. 

However, the ‘sum is greater than the parts’ view ignores the fundamental dynamics among different arms of a Big Tech firm. Profit centers like AWS help subsidize risky and often unprofitable ventures. Amazon relied on the profits of AWS when it first experimented with costly projects like overnight shipping and Prime Video, while Google’s ad business continues to support Alphabet’s X, a secretive innovation lab developing novel technologies such as Internet balloons. 

The subsidization of risky projects contradicts Warren’s argument that Big Tech’s domination stifles innovation. In  2018, Amazon and Alphabet were the top spenders on research and development globally, shelling out $22.6 billion and $16.2 billion, respectively. Losing access to the shared pool of money within GAFA companies would likely affect how these companies prioritize innovation.

The future of antitrust

Warren stresses that the nature of these platforms will essentially remain the same after her plan is enacted. Users will still be able to enjoy the benefits of two-day shipping on Amazon, and virtually interact with friends and family on Facebook. The difference will be that smaller businesses will no longer be pushed out of these platforms by GAFA’s tendency to favor their own vendors or services. The market will be corrected, and freedom of entrepreneurship, restored. 

Despite the doubt stemming from discourse around the legal viability and support for her plan, critics cannot entirely dismiss the notion that antitrust regulation for Big Tech is necessary. 

Antitrust action should not immediately jump to a breakup at the expense of neglecting other forms of incremental but important regulation. Whether the issue of GAFA will play a major role in the upcoming presidential election is unclear. Perhaps the majority of Americans care more about their health insurance than about the danger of Facebook acquiring competing startups. But how the candidates frame their plan for regulating Big Tech–if they even have one–will hint at how successful they will be at combating it when they take office.

Daneesh is Jumpstart’s Journalist in Residence.

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