Silicon Valley’s monopoly problem has been out in the open for years

Silicon Valley’s monopoly problem has been out in the open for years

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The launch quickly caught the attention of Twitter’s chief rival, Facebook (FB). On the day Vine launched, Facebook VP Justin Osofsky wrote an email to CEO Mark Zuckerberg. The team, Osofsky said, planned to restrict Vine’s access to data that would let users invite their Facebook friends to join the app, likely helping it gain traction, “unless anyone raises objections.”

Zuckerberg’s response: “Yup, go for it.

Yet, Facebook’s decision to cut off Vine, like a number of other potentially concerning antitrust issues in the tech industry, has been public knowledge for years. Numerous publications reported on Vine losing access to Facebook’s data when it happened, minus the emails, with some characterizing the move as “passive-aggressive,” or an example of Facebook and Twitter being “frenemies.”
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If such behavior wasn’t viewed as out of the ordinary for a Silicon Valley giant at the time, that’s because it wasn’t. For years, big tech companies have moved aggressively to conquer markets by going on acquisition sprees, copying features of rivals who wouldn’t sell and leveraging the power of their vast platforms. Now, some of those tactics may be put under a harsh spotlight as the House Judiciary Committee launches a “top-to-bottom” antitrust probe of big tech and two federal agencies divvy up responsibility for scrutinizing Facebook, Amazon (AMZN), Apple (AAPL) and Alphabet, Google’s parent company.

“Much of this conduct has been hiding in plain sight,” said Tim Wu, a law professor at Columbia University and author of The Curse of Bigness: Antitrust in the New Gilded Age. He and other antitrust experts tick off a number of factors that may have allowed this behavior to go on in the open so long: an extended honeymoon between DC and Silicon Valley; a legal system that places a high bar for ruling against companies in antitrust cases; and a lack of understanding of the business models of the big tech companies, not to mention the negative consequences of their platforms that would emerge in later years.

There was a sense, Wu said, that “tech is different.”

Using ‘monopoly position to shut out competing companies’

Less than a year after Instagram launched in 2010 and became one of the biggest breakout hits of the early era of smartphone apps, Facebook was reported to be working on photo filters to take on the service. In 2012, it acquired the startup for $1 billion, thereby eliminating a small but potentially serious future competitor.
With Facebook’s backing, Instagram became one of the few social networks — other than Facebook itself — to build an audience of more than a billion users. In recent years, Facebook has used Instagram to clone features from Snapchat, a startup Facebook was widely reported to have tried and failed to acquire. Instagram’s Snapchat clone went on to be far more popular than Snapchat.
“When it hasn’t acquired its way to dominance, Facebook has used its monopoly position to shut out competing companies or has copied their technology,” Chris Hughes, a Facebook cofounder, wrote in an opinion piece last month.
Around the time Instagram launched, Amazon was reportedly pressuring Quidsi, the company behind Diapers.com, to agree to an acquisition. Amazon cut the price of diapers and other baby products on its platform by as much as 30%, according to The Everything Store: Jeff Bezos and the Age of Amazon. In 2010, while the Quidsi team was in a meeting with Amazon discussing a possible deal, Amazon announced a service called Amazon Mom to undercut Diapers.com. Quidsi agreed to sell soon after.
House Judiciary Committee launches 'top-to-bottom' antitrust probe of big tech
The industry’s aggressive approach toward market expansion could also be seen in the rhetoric of executives and investors over the years. In 2011, Eric Schmidt, then the chairman of Google, was comfortable enough to joke that Google bought one company each day. (In fact, Google was then buying about one company a week.) Chris Sacca, an early Uber investor, openly bragged in 2015 that the ride-hailing market was a “winner take all game” and Uber “will take all.” If that wasn’t blatant enough, Peter Thiel, a prolific tech investor and Facebook board member, wrote a popular book in 2014 arguing the merits of monopolies.
WASHINGTON, DC - APRIL 10: Facebook cofounder and CEO Mark Zuckerberg testifies before a combined Senate Judiciary and Commerce committee hearing on Capitol Hill April 10, 2018 in Washington, DC. (Photo by Zach Gibson/Getty Images)
William Kovacic, a former Federal Trade Commission chairman appointed by former President George W. Bush, said there has long been “an awareness” that the tech companies were engaging in behavior that “could have adverse competitive effects.” As an example, he points to the FTC pursuing an antitrust investigation of Google — a case that eventually closed in 2013 in what was seen as a clear victory for Google.
Meanwhile, European Union regulators moved forward with antitrust probes of Google’s online search advertising business, shopping platform and Android dominance, resulting in three separate billion-dollar fines against the company.

A new political climate

“The political environment [in the US] has changed,” Kovacic said. “Now, we have a coalition of people on the left and the right…. saying antitrust has failed. It’s been timid. It’s given the large firms too much freedom.”

Since the 2016 election, internet giants like Facebook and Google have been embroiled in a series of PR crises over data privacy, the role their platforms played in election meddling and the spread of fake news, raising concerns about the impact these powerful businesses are having on society. At the same time, these internet companies have increasingly expanded beyond their original markets into new categories, including healthcare, entertainment and transportation.

Sen. Elizabeth Warren put out an aggressive plan in March to break up Facebook, Google and Amazon. Sen. Kamala Harris, another Democratic presidential candidate, said last month that “we have to seriously take a look” at breaking up Facebook. And Speaker of the House Nancy Pelosi said this week that “unwarranted, concentrated economic power in the hands of a few is dangerous to democracy — especially when digital platforms control content.”
On the other side of the political aisle, Republican Senators Josh Hawley and Ted Cruz have also raised concerns about the power of certain big tech companies. President Donald Trump has also been sharply critical of tech companies, once noting during the campaign that Amazon has “got a huge antitrust problem.”

Representatives for Facebook, Amazon and Google declined to comment on the record for this story.

In what may be a foreshadowing of arguments to come, a source familiar with Facebook’s thinking defended its moves to cut off Vine and clone Snapchat as examples of competition at work. The source said Facebook is not required to give away its technology and pointed to rivals who have copied some of the social network’s features, including News Feed.

Amazon, for its part, has previously said the diapers market is one of the most competitive in retail, with Amazon accounting for a minority of diapers sold online. The company shut down Diapers.com in 2017, claiming it was unable to make the business profitable.

At this point, there’s no guarantee federal agencies will ultimately open antitrust investigations into any or all of these tech companies. If they do, the agencies could still lose any case they choose to bring. But according to Kovacic, that fact may not be a deterrent in this political climate. The current sentiment, he says, is that “we don’t care if you try and lose cases. We want to see you playing.”



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