Welcome to the first issue of my newsletter. Every other week, I’ll be (1) exploring the arguments for and against a particular topic at the intersection of tech, business strategy, and policy; and (2) commenting briefly on a few articles I found interesting.
As I mentioned in my introductory post, my goal for this experiment is to sharpen my writing and thinking, to meet like-minded people, and to promote healthier discourse. If you know anyone who would be interested in the discussion, please forward this along.
📰 1 topic: Breaking up big tech
A few months ago, Vox reported that nearly 2/3 of Americans support breaking up big tech companies. Breakup sure sounds like a great rallying cry, but it’s important to understand the substance behind the positions for and against breakup.
Arguments in favor of breaking up big tech:
Anti-competitive platforms. Democratic candidate Elizabeth Warren has argued that a tech platform should not be allowed to promote its own offerings on its own platform, lest the platform undercut its competitors. For instance, Yelp has accused Google of scraping the former’s photos and reviews to populate the latter’s own search results. Allbirds has accused Amazon of ripping its design and price-undercutting.
Anti-competitive mergers. Chris Hughes, Facebook’s co-founder, advocates unwinding Facebook’s purchases of WhatsApp and Instagram. If there were more competitors, then consumers would have more optionality in choosing a social network to use (perhaps one that doesn’t collect their data).
Anti-competitive contracts. Apple holds a monopoly on iOS: App developers who want to reach iOS customers must go through Apple on Apple’s terms. For instance, all purchase transactions within an app must use Apple’s purchase API, which includes a 30% fee paid to Apple. Apple even forbids apps from linking to or suggesting that users visit a plain old HTML website to make the transaction. These contracts are a form of rent-seeking and are a disadvantage to companies building new apps.
Political corruption. In 2018, the top tech companies spent $70.9 million on lobbying and supporting candidates. Amazon paid nothing in federal taxes last year and meanwhile held a bidding war for states and cities eager to have its second headquarters.
Antitrust action distracts tech companies, resulting in innovation. Bill Gates says of Windows’ failure in the smartphone market: "If it hadn’t been for the antitrust case... we were so close, I was just too distracted. I screwed that up because of the distraction.” Some also argue that antitrust action makes tech companies more hesitant to act.
Arguments against breaking up big tech:
America’s competitive edge. The general argument is that American companies, to remain competitive in the global market, must be able to retain size. For example, Mark Zuckerberg and Sheryl Sandberg argue that Chinese companies won’t be broken up, so Facebook shouldn’t either.
Breakups are hard. Facebook is currently integrating the back-ends of its main app, Instagram, and WhatsApp. Breaking up Facebook after this integration would entail enormous technical costs, impose significant risks of data breaches, and pose questions of how to split the common ownership.
Disruption creates innovation. Antitrust action doesn’t. When a new infrastructural technology comes along, it creates an entirely new value chain that incumbents are structurally blind to. In the PC era, Microsoft dominated the market with Windows, but when the Internet and mobile came along, Microsoft was still stuck in a PC mindset. It was late to the search engine (Bing in 2009 vs. Google in 1997), and even though it was early to mobile (Windows Mobile in 2000 vs. iPhone in 2007), it was institutionally incapable of producing superior end user experiences because of its traditional focus on compatibility and licensing.
Breakup doesn’t address the underlying issue. The way top tech companies achieve their scale and strength is through network effects whereby the service becomes more valuable as more and more people use it. Along similar lines, aggregation theory suggests that users and suppliers come onto the tech platforms by choice, through a virtuous cycle of users begetting more suppliers, begetting more users. Breaking up Facebook, Instagram, and WhatsApp does not change the underlying power of individual networks. In other words, they can continue leveraging their networks to quash others. Is monopoly the equilibrium point for networked services and products?
Competition is just a click away. There is nothing stopping customers from visiting competitors’ websites directly, or downloading their apps. It is impossible for Facebook and Google to restrict consumers’ behavior, unlike the railroad monopolies of old. The world of bits is vastly different from the world of atoms, and breakup is therefore an outdated (and incorrect) remedy.
Personally, I acknowledge that tech companies have acted anti-competitively, and I am strongly in favor of tailored regulation, but I don’t think breakup is the right solution.
What are your thoughts? What arguments am I missing?
📚 5 articles
Sidewalk Labs + data governance in Smart Cities: Alphabet-owned Sidewalk Labs, which is building a futuristic smart-city waterfront in Toronto, pledged not to sell personal data for advertising. Because smart cities require an abundance of sensors, monitors, and data in general, it’ll be interesting to see how smart cities continue to unfold: Who will own the data (private firms or the government?) and how will that data be managed?
Facebook and Twitter through the decade: A quick look at the two social media giants. Where do you think they’ll go in the 20s?
Self-driving cars without steering wheels: New innovation often requires a new form factor. The iPhone wasn’t hampered by the constraints of a PDA or PC. Self-driving cars similarly won’t have the same constraints as today’s car.
The California Consumer Privacy Act: A new piece of legislation in California requires threshold companies to disclose data they have on users. The problem (as with much legislation in general) is that it’s so broad that apparently nobody knows how the rules work.
Snapchat’s Bitmoji TV: I haven’t used Snapchat in years, but they’re leaning hard into Bitmoji. Although the specifics of Bitmoji TV haven’t been released, I’ll be interested to see how the content gets created (i.e., whether Snap will throw cash at professional creators a la Netflix). It feels right to say that Bitmoji TV will compete with Netflix and Disney + even though all three have different value chains.