Could the federal government take steps to break up or limit the activities of such tech giants as Facebook, Google, and Amazon?

It's not as far-fetched as it sounds. Standard Oil and AT&T were both dismantled into multiple entities because each had used its size and influence to reach near-complete dominance of its market. As Greg Ip notes in a fascinating Wall Street Journal piece (paywall), before it was forced to break up, Standard Oil accounted for 87 percent of U.S. refined oil sales, and the old AT&T (when it was a phone company rather than a wireless carrier) handled 93 percent of U.S. phone calls before it was ordered to divide into eight smaller companies.

Today's tech companies enjoy similar levels of market dominance, as Ip's story notes. In 2017, Google handled 89 percent of U.S. internet searches and Amazon sold 75 percent of ebooks. When you include Facebook's acquisitions such as Instagram and WhatsApp, 95 percent of young Internet users regularly use its products. And Facebook's mind-boggling 2 billion users give it more reach than Islam. Each of these companies (and arguably some others) could fairly be called a monopoly. Some already have been. Google, in particular, is facing antitrust action in Europe. And former Executive Chairman Eric Schmidt has testified before a Senate subcommittee on antitrust issues.

Fortunately for these tech behemoths, Ip notes, it's fairly difficult for a monopoly get itself sued by the U.S. government on antitrust grounds because to win such a suit, the government must show that the company's market dominance is harming consumers in some way. This usually means that the monopoly has either artificially raised prices or stifled innovation. That's a tough argument to make when Facebook and Google's consumer products are free, and Amazon's dominance is due in large part to a combination of low prices and free shipping to its millions of Prime members. Plus, all three companies are among the most innovative on Earth. 

But there are other ways to hurt consumers, and in its own way, each of these companies does. Consider: 

1. The Facebook user experience is so much worse than it should be.

As Ip points out, Facebook benefits from "network effect" in which a company whose business is to connect people with one another benefits when lots of people already use it. You may not love the Facebook user interface and you may even think some other social networks do it better but you use Facebook because that's where you'll find everyone you know, just as once long ago, telephone customers chose AT&T over other phone companies because their friends and family were already using it.

Because Facebook's 2 billion users give it such mighty network effect, it doesn't have to make its user interface especially appealing or fun to use, and it isn't. It's often confusing and causes frustration, for example when users want to save a video to watch later. You have to think that with a meaningful competitor, Facebook would put more effort into making its platform enjoyable to use, and not just "sticky."

Besides that, we have long had scientific research that shows using Facebook too much (which the platform is designed to encourage) can make people unhappy. Now we also know that Russians used Facebook to influence the 2016 election, mainly by pushing Americans into greater acrimony and divisiveness. If that's not hurting consumers, I don't know what is.

2. Google encourages bad content.

Some of the experts Ip talked with argue that Google caused the death of local search engines that connected users to local businesses, and Yelp claims that Google's lowering the rank of Yelp results (in favor of competing Google info) has harmed that company as well. As a consumer myself who's typed "restaurants near me" into my mobile phone more than a few times, I have to think a local company would do a better job of actually finding all the restaurants near me, rather than just some of them, as Google does.

But beyond that, consider the long-term effect of Google's search engine ranking that gives preference to sites with recently refreshed content. That's led nearly every website into a mad rush to publish new content as frequently as possible in pursuit of higher Google ranking. That, in turn, has led to a lot of truly awful content. Blathering, long-winded blog posts that don't really say much of anything, poorly researched articles knocked out in 15 minutes or less, endless re-working of the same basic story into slightly different permutations? Blame Google's search algorithm. Consumers deserve better.

3. Amazon is truly scary.

It's harder to make an obvious case for the idea that Amazon's dominance is bad for consumers, at least in the short term. And with 75 percent of ebook sales and 44 percent of online sales, it's also tougher to make the case that Amazon is a monopoly. But Amazon's aggressively low pricing of ebooks makes it tougher for book publishers to survive, and fewer book publishers means fewer traditionally published books. That's bad for everyone, consumers included. (And good for Amazon, which is itself a book publisher.)

But the breadth of Amazon's reach and influence should be disturbing to everyone. Consider that it's a significant player in everything from mobile devices to online retail to publishing and both paper and digital books. Consider that through Amazon Fresh and its purchase of Whole Foods (not to mention its Amazon itself), the company has a big hand in our food supply as well. Now consider that it's also far and away the market leader in hosted cloud services, which means that an online retailer that wanted to compete with Amazon will very possibly be doing so with a website that lives on Amazon servers. 

It's not great for startups either.

The Justice Department may not be worried about how these monopolies are affecting the startup ecosystem since its mandate is to focus on consumers. But where there are tech monopolies, startups can be stifled if their products in any way compete with one of the tech giants' offerings. According to Yelp's Luther Lowe, entrepreneurs simply assume they can't start a company that competes with Google products because Google will simply rank its own product or service above any new ones in its search results and no one will ever find the new entrant. This bad for those founders, who face a narrowing range of options as the giant tech companies continue expanding into new areas. In the long run, that's not good for consumers either. They've lost the chance to try out the new products those founders could have created. And maybe some of them would have been better than what the tech monopolies are offering.

Published on: Jan 17, 2018
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