A disappointing hearing
Today, the long anticipated hearing by The House Subcommittee on Antitrust, Commercial, and Administrative Law which features Jeff Bezos, Tim Cook, Sundar Pichai and Mark Zuckerberg, the four powerful CEOs of big tech companies, took place. Suffice to say, I am not surprised at what transpired, but I am pretty disappointed. I don’t think that there is an objective or a desirable outcome from this hearing. While Democratic officials focused more on the issue at hand which concerns antitrust practices by these companies, their Republican colleagues, in particular Representative Matt Gaetz and Jim Jordan, were more interested in an entirely issue: alleged bias and censorship of conservative views on social media. Jim Jordan even compared Apple’s famous 1984 ads campaign to the so-called cancel culture almost 40 years later! Ranking Member Sensenbrenner even mistook Facebook with Twitter when he tried to question Mark Zuckerberg on Twitter’s decision to temporarily suspect Don Jr’s account. You don’t need to spend time on the hearing, but you can get some idea on the quality of this event based on those incidents.
Notwithstanding the difference in pointed questions, every lawmaker in this hearing did more grandstanding than listening. The 5-minute rule is there to ensure that every lawmaker has a chance to ask questions and that witnesses don’t digress. However, the rule’s side effect is that lawmakers don’t wait for witnesses to answer. Instead, they push their own assumptions/allegations on witnesses or just restrict complicated matters to a “Yes/No” question. If this hearing is to uncover how these CEOs approach competition, why is it that they weren’t allowed to talk more and elaborate?
The format of the hearing needs to change in order to yield results. I have a few thoughts in mind on what can be implemented:
- Every question at a hearing should stick to a topic. Anyone who violates this rule twice should be kicked out of a hearing. For example, Jim Jordan today didn’t ask questions on anti-competition. He threw allegations towards the witnesses on alleged bias to conservatives. So did several other GOPs. How do those questions belong to the Antitrust conversation at hand?
- Every lawmaker should have 5-10 minutes, but there should only 5-10 questions allowed. A limit on the number of questions can help ensure the quality of questions, give witnesses more time to elaborate and reduce grandstanding. Many issues are complicated and take some explanations.
- Before a hearing, questions should be compiled in advance on a portal/website and witnesses must answer in writing before appearing in front of lawmakers. Written answers offer witnesses space and time to elaborate and remove the constraints of time. During hearings, lawmakers can just build off of the written answers submitted in advance.
- Similarly, there should be a collection of follow-up questions that are answered after a hearing.
Not every acquisition of a competitor violates antitrust laws
Facebook and Google were grilled today on their previous acquisitions: Facebook on Instagram, WhatsApp and Google on DoubleClick. I was baffled by this line of question. Take Facebook’s acquisition of Instagram several years ago as an example.
When Facebook paid $1 billion to acquire Instagram in 2012, nobody could be 100% sure that it would be what it is today. At the time of the acquisition, Facebook was already a big player primed for its IPO and heavily invested while even though it was growing fast, Instagram had around 30 million users, generated no revenue and was valued at $500 million. The startup was struggling to grow its team and infrastructure. Joining Facebook did give Instagram benefits on the way to having more than 1 billion users, as the book No Filter noted below
“It was the most dire server problem in company history. Instagram was now important enough to be mentioned in every press story about the meltdown, alongside Pinterest and Netflix. Coworkers, none of whom did that kind of engineering, sent ice cream to the office as support. Sweeney ate several scoops to try to make it through the night, though he accidentally fell asleep multiple times on his keyboard.”
“The infrastructure wasn’t the only problem bubbling up to an intensity the tiny team could barely handle. Spam was everywhere on Instagram. So was troubling and abusive user content, which the community team could no longer finish sifting through in its shifts—and which was starting to appear in their nightmares. Frustration over the financials aside, selling to Facebook might give employees their lives back.”Excerpt From: Sarah Frier. “No Filter.” Apple Books.
“Systrom gave four reasons. First, he reiterated Zuckerberg’s argument: that Facebook’s stock value was likely to go up, so the value of the acquisition would grow over time. Second, he’d take a large competitor out of the picture. If Facebook took measures to copy Instagram or target the app directly, that would make it a lot more difficult to grow. Third, Instagram would benefit from Facebook’s entire operations infrastructure, not just data centers but also people who already knew how to do all the things Instagram would need to learn in the future.”Excerpt From: Sarah Frier. “No Filter.” Apple Books.
“So that summer, Zuckerberg directed Javier Olivan, Facebook’s head of growth, to draw up a list of all the ways Instagram was supported by the Facebook app. And then he ordered the supporting tools turned off. Systrom again felt punished for Instagram’s success.
Instagram was also no longer allowed to run free promotions within the Facebook news feed—the ones that told people to download the app because their Facebook friends were already there. That had always brought a steady stream of new users to Instagram.
Another of the new changes would actually mislead Facebook users in an attempt to prevent them from leaving for Instagram. In the past, every time an Instagram user posted with the option to share on Facebook, the photo on Facebook said it came from Instagram, with a link back to the app. Instagram’s analysis showed that between 6 and 8 percent of all original content on Facebook was cross-posted from Instagram. Often, the attribution would be a cue for people to comment on the photo where it was originally posted. But with the change mandated by the growth team, that attribution would disappear, and the photo would seem as if it had been posted to Facebook directlyExcerpt From: Sarah Frier. “No Filter.” Apple Books.
Consolidations in the same industry always involve reduction of competition. The fact that Facebook is a giant company doesn’t make every single acquisition it made illegal or inappropriate. That’s why I don’t get folks are so upset about Facebook’s acquisition of Instagram. I think it’s safe to say that having Instagram at its current size benefits end users, entrepreneurs and small businesses. There is no guarantee that without Facebook, Instagram would have had the same achievement. It’s also worth noting that the FTC, at the time, approved this merger. As a result, why suddenly did this issue become trending again?
Using data to launch private labels isn’t illegal or bad in and of itself
One of the popular themes in this hearing is the use of data from other businesses by big tech companies to launch competing products. Amazon is accused of using data from startups that work with its investment arm and from sellers on its website to launch competing products. First of all, if Amazon violates any confidentiality term to gain illegal access to sensitive data, then yes they should be held accountable. However, I don’t think using aggregate data stemming from activities on its own website to launch private labels is inappropriate or illegal. What do you think Target, Walmart, Kroger or a litany of other retailers do? Where do you think they got intelligence before launching their own private labels? Here is the revenue share by private labels of retailers. The practice went back to several decade. So, why suddenly is it an issue?
Furthermore, even though Amazon has 35%-40% of the US eCommerce, it still has to compete with brick-and-mortar stores. Hence, if you account for physical stores and the whole US retail market, Amazon occupies only 6%, according to Ben Evans. It’s a bit of a Catch-22 situation for lawmakers. Focus on eCommerce alone and it’s not fair. Look at the whole retail segment and Amazon is likely off the hook as they have only 6% of market share. Imagine that as a successful business owner, you were told not to venture in a different segment, how would you feel? You’d probably say: “wait a minute, that’s unAmerican and against capitalism. Why aren’t I allowed to compete in another category just because I was successful in one?”
What I’d have a problem with is if Amazon abuses of its power to promote its private labels without merits. Specifically, if Amazon pushes its own labels which don’t have any positive reviews at all ahead of more established brands with a lot of reviews, then it’s problematic and not in the best interest of consumers. In that case, Amazon’d deserve scrutiny and criticisms.
App Store commissions
I’ll write about this issue in more details later, but here are a few basic points I want to bring up. Every company that plows resources properly into an operation earns the right to make money from such an operation. Even as one of the biggest and richest corporations in the world, Apple should be able to do that too. As a result, when Apple is responsible for manufacturing its own devices and creating the operating systems that include the App Store, Apple earns the right to monetize their effort. It’s unreasonable to expect Apple to run a charity out of the App Store. Whether the 30% or 15% commission is too high warrants a legit discussion, but I strongly disagree with folks who say Apple should just charge developers its cost of running the App Store.
While developers are important, they are just one side of the coin. The other side is Apple customers. Apple needs to ensure that the user experience on the App Store is as pleasant as possible. Otherwise, they wouldn’t sell as many devices and make as much money any more in the near future. That’s why they have guidelines on the App Store. It’s not reasonable to expect Apple let developers do whatever they want when Apple’s brand is on the line. In life, there is no free lunch. Developers shouldn’t expect to leverage Apple’s infrastructure and reach to customers without abiding by their rules. We all know the saying that goes “my house, my rules”, don’t we?
There is a legitimate concern over the inconsistency of Apple’s rule enforcement. The concern is amplified when it comes to select cases in which Apple has a conflict of interest with regard to its own apps. On that front, I do agree Apple should be held accountable and scrutinized by users, developers, media and the authorities.
The hearing is a waste of time for the most part, in my opinion. There are interesting discoveries revealed by the committee in the documents submitted by the companies; which you can find here, but the format of these hearings needs upgrading and the answers we got today from the CEOs weren’t that meaningful. I do believe that some of the anti-competition claims on big techs should be fleshed out more.
Disclaimer: I own Apple and Amazon stock in my personal portfolio