Here’s what the House Judiciary report means for each company
On Tuesday afternoon, the House Judiciary Committee issued its final report on its investigation of competition in digital markets, the end result of years of research and hearings. Technically, there were three reports: a majority opinion from Democrats and two others from different Republican factions, part of an ongoing split in congressional efforts to bring tech companies in line. But while the politics of the documents are byzantine, the message of the majority report is crystal clear: Apple, Amazon, Facebook, and Google have gotten too powerful. Over 449 pages, the report lays out a playbook for how to pare back that power and use the conventional tools of antitrust law to reshape the digital world.
The report is comprehensive, and it takes on each company from a different angle, laying out different problems and proposing different solutions. Despite the “Big Tech” moniker, these are four very different companies, and the usual antitrust remedies will affect them very differently. In the piece below, we’ll walk through each step and break down exactly what the Democrats’ antitrust plan could mean for their future.
Amazon has significant and durable market power in the U.S. online retail market…The platform has monopoly power over many small- and medium-sized businesses that do not have a viable alternative to Amazon for reaching online consumers.
The new wave of antitrust efforts started with Amazon, so it’s no surprise that this latest report has the best feel for how to take on the e-commerce giant. The case is roughly what legal scholar Lina Khan laid out in her pivotal 2017 paper “Amazon’s Antitrust Paradox” — no surprise since Khan served as senior counsel to the committee. (Amazon offered a lengthy rebuttal to the argument on Tuesday, arguing it faces stiff competition from brick-and-mortar stores and that the sprawling business lines benefit consumers.)
The paper and the report both argue that Amazon is controlling the path to market for e-commerce goods. If you want to sell socks online, the best place to do it is Amazon.com, which makes it awkward when Amazon starts its own white-label socks business. In the words of the report, this means “market participants that depend on Amazon’s retail platform are effectively forced to accept its demands—even in markets where Amazon would otherwise lack the power to set the terms of commerce.”
Amazon’s counterargument has traditionally been to refer to brick-and-mortar competitors like Walmart, which have no problems offering store-brand cereal alongside name-brand competitors. But the judiciary report argues the broad scope and far reach of digital markets makes Amazon different.
“The dominant platforms collect real-time data which, given the scale of their user-base, is akin to near-perfect market intelligence,” the report argues. “Whereas firms with a choice among business partners might seek to protect their proprietary data, the platforms’ market power lets them compel the collection of this data in the first place.”
By the standards of tech antitrust, the problem here is fairly simple: Amazon is running too many businesses at once. The report proposes new rules that would prevent intermediaries like Amazon from competing with firms that depend on their infrastructure and, in some cases, prevent them from entering certain businesses at all. (These are the “structural separations and line of business restrictions” described on page 377.) On the platform side, the report calls for new non-discrimination rules that would prevent the company from privileging its own products over competitors — and hold it legally liable if it does. Both are classic anti-monopoly measures, previously applied to railroads, cable companies, and banks.
But while we know what this kind of regulation looks like for railroads, it’s a harder question what it would mean for Amazon. The company has run a successful white-label business with Amazon Basics, but it’s not that hard to imagine those brands being spun off or pared back. Amazon’s balance sheet would certainly take a hit under non-discrimination rules, but the Amazon.com homepage might come out looking more or less the same. The impact would be even harsher for Amazon Prime, which began with special deals and accelerated shipping from the commerce platform, but has sprawled out into a full-fledged streaming service and in-house movie studio. It’s hard to say what an unbundled Prime would look like, and it might simply cease to exist.
The strong network effects associated with Facebook have tipped the market toward monopoly such that Facebook competes more vigorously among its own products—Facebook, Instagram, WhatsApp, and Messenger—than with actual competitors… Facebook’s monopoly power is firmly entrenched and unlikely to be eroded by competitive pressure from new entrants or existing firms…. In the absence of competition, Facebook’s quality has deteriorated over time, resulting in worse privacy protections for its users and a dramatic rise in misinformation on its platform.
In contrast to Amazon, Facebook gets off strangely light from the antitrust report. As longtime Google antagonist Luther Lowe pointed out on Twitter, the report’s “Dominant Online Platforms” section spends the fewest pages on Facebook: just 37, compared to 68 pages for Amazon and 71 for Google. In large part, that’s because the committee isn’t dealing with data privacy (where much of the regulatory action against Facebook has focused), and the company’s monolithic network power is a poor fit for traditional anti-monopoly action.
The biggest bombshell to emerge from the hearing was a new look into the circumstances surrounding the Instagram acquisition, which internal emails cast as a play to stifle a potential competitor before it could become a threat. The report’s Facebook section mostly covers the same ground, unpacking exactly what it means and why Facebook’s market power as a social network is so difficult to challenge.
But splitting up Facebook and Instagram is more of a job for the Justice Department, and few of the report’s suggested remedies would change that situation. The report proposes tougher scrutiny for future acquisitions, along with interoperability rules that would bring US law more in line with Europe’s General Data Protection Regulation (GDPR) — but nothing that would impact the day-to-day dominance of Facebook. The most significant measure is the non-discrimination rules, which would place limits on how Facebook is allowed to manage its network. But compared to Google search or Amazon’s Everything Store, Facebook’s platform simply isn’t that important for competitors. As a result, the Judiciary Committee mostly leaves the Facebook problem to other agencies.
Apple exerts monopoly power in the mobile app store market, controlling access to more than 100 million iPhones and iPads in the U.S…..In the absence of competition, Apple’s monopoly power over software distribution to iOS devices has resulted in harms to competitors and competition, reducing quality and innovation among app developers, and increasing prices and reducing choices for consumers.
When Tim Cook appeared before the Judiciary Committee in July, there were few prominent examples of the company using its App Store powers to crush rivals — but it only took two weeks for that to change. On August 13th, Apple had a high-profile split with Epic Games, ultimately cutting off the iOS version of Fortnite over a payment processing dispute. The dispute is still working its way through the courts, but it has made Apple’s monopoly over iOS software impossible to ignore.
The Fortnite case is only mentioned a few times in the report, but it looms in the background of most of the report’s analysis, alongside similar complaints from Basecamp and Protonmail. It also casts a shadow on power plays that might have previously seen as benign, like making Safari the permanent default browser for iPhones until iOS 14. There’s a long history of Apple Sherlocking popular iPhone apps, and the judiciary report makes it clear that some lawmakers see every case as a potential monopoly claim.
As you might expect, Apple vigorously contested the idea that it was a monopoly. “We have always said that scrutiny is reasonable and appropriate but we vehemently disagree with the conclusions reached in this staff report with respect to Apple,” a representative said. “Our company does not have a dominant market share in any category where we do business.”
Still, the proposed non-discrimination rules would have a fairly immediate impact on Apple. For years, Apple has refused to let third-party apps use NFC on the iPhone — a crucial barrier for any third-party payment apps hoping to compete with Apple Pay. Default apps for music and weather would get a close look from regulators, and it’s likely that the App Store rankings would become more transparent and equitable. But while the disruption would be significant, Apple’s core hardware business would likely remain untouched. Even services like Apple Music and Apple TV Plus would likely remain unchanged, although they would have to work that much harder to fend off rivals.
The bigger question is what happens to Epic and all the other companies hit by the so-called “Apple Tax.” The committee talked to Match Group, Spotify, and lots of other companies pushing for some kind of rollback on Apple’s 30 percent App Store commission, but the judiciary report stops short of calling for an end to the fees. In theory, the “structural separations” language could apply to the App Store, but it’s a stretch, and the committee’s language doesn’t single out Apple as a particular offender. And unlike Google and YouTube or Facebook and Instagram, it’s hard to imagine a regulator spinning off the App Store into a separate company from the iPhone. The two products are too closely linked, and for the most part, the judiciary report doesn’t attempt the difficult work of separating them. If Epic gets relief from Apple, it’s most likely to come from the courts, which will probably rule on the issue long before Congress has a chance to act on these recommendations. In the meantime, the Apple Tax seems to be outside the scope of the antitrust crusade.
Google has a monopoly in the markets for general online search and search advertising. Google’s dominance is protected by high entry barriers, including its click-and-query data and the extensive default positions that Google has obtained across most of the world’s devices and browsers. A significant number of entities—spanning major public corporations, small businesses, and entrepreneurs—depend on Google for traffic, and no alternate search engine serves as a substitute.
Of the four companies at the antitrust hearing in July, Google is probably the one that has been investigated the most. For years, European antitrust regulators have been paring back the company’s powers, and the US Department of Justice is expected to launch its own massive investigation in a matter of weeks. For other tech companies, regulatory action is a hypothetical threat, but for Google, it’s an everyday reality.
Because of that, Google seems to have done the most lawyering work on the specific details of the report. Longtime critics of the company have marveled at Google’s maneuvers in dealing with the committee — first denying that it held dominant market share and then claiming that it didn’t track the metric, even as internal emails seemed to show otherwise. On some level, it’s ridiculous: of course, Google is the most popular search engine, and Chrome is the most popular browser. Why beat around the bush?
But if you accept that Google holds a central position on the web, a lot of other conduct starts to look more suspicious. The report details intense data-scraping from sites like Genius and Celebrity Net Worth, essentially turning the sites into data-feeders for Google search. Google’s own products like Maps and Shopping have been steadily eating up real estate on the search page. At the same time, Google has been striking an ever-harder bargain with its business partners. One partner testified that the price of using the Google Maps API skyrocketed in late 2018, changing their bill from $90 to $20,000 a month from October to December of that year. To would-be regulators, that looks a lot like monopoly power at work.
There is a lot of soft power at work in these deals, and most of it has simply never been visible before, which makes it hard to say what Google would look like without them. The remedies proposed by the judiciary report look an awful lot like what’s happening in Europe already — and what’s likely to be pressed as part of the Justice Department’s case. Like most antitrust actions, they would be bad for their target and good for the competition — but how much of Google would be left on the other side? Would Chrome still be a dominant browser if it wasn’t getting a boost from Google search? Would search have faced more competition if it wasn’t bundled into Android? It’s a puzzling question, as much for Google as for the industry-watchers around it. But with House Democrats pushing this hard, it’s more likely than ever that we’ll find out.