When people talk about tech giants such as Amazon, Facebook, and Google, they usually talk about the great and powerful innovations that they’ve brought to the table, that have perpetually transformed the contemporary world. Of late criticism of, these same tech titans holding back the power of innovation from other smaller companies as they have become, what you may call, a tech monopoly has been gain traction.
In a podcast episode of Innovation For All, Sheana Ahlqvist talked to Sally Hubbard, an antitrust expert, and investigative journalist at The Capitol Forum, regarding tech giants building monopolies. Here are some key highlights from the podcast.
Let’s recall the definition of monopoly.
“A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. Monopoly market makes the single seller the market controller as well as the price maker. He enjoys the power of setting the price for his goods”.
In a nutshell, decrease the prices of your service and drive everyone else out of the business. A popular example is John D Rockefeller, Standard Oil’s chief executive, who ruined other competitors by cutting the prices of the oil until they went bankrupt, immediately after which the higher prices returned. Now although there is no price-fixing in the case of Google or Facebook since they offer completely free services, they’re still a monopoly. Let’s have a look.
How are Amazon, Google, and Facebook tech monopolies?
If you look at each one of these organizations – Amazon, Facebook, and Google have carved out their own markets, with gargantuan and durable market power vested in the hands of each one of them.
According to the US Department of Justice, a market share of greater than 50% has been necessary for courts to find the existence of monopolistic power. A dominant market share is a useful starting point in determining monopoly power. Going by this rule, Google has dominated the search engine market, maintaining an 86.02 % market share as of July 2018, as per Statista. This is way over 50%, making Google a monopoly. The majority of Google revenues are generated through advertising. Similarly, Facebook dominates the social media market, with its worldwide market share of 66.67%, making it a monopoly too. Amazon, on the other hand, has 41% market share in the e-commerce retail market which is expected to increase significantly to 50% of the entire e-commerce retail market’s GMV, by 2021. This brings it pretty close to being a monopoly soon in the e-commerce market soon.
Another factor that is considered under the Sherman Act, a part of the antitrust law, when identifying a firm that possesses monopoly power, is the existence of anti-competitive effect i.e. companies trying to maintain or acquire a dominant position by excluding competitors or preventing new entry. One recent example that comes to mind is when Google was fined with $5 billion in July this year for breaching EU’s antitrust laws. Google was fined for 3 types of illegal restrictions on the use of Android, cementing the dominance of its search engine. As per EU, Google denied its rivals a chance to innovate and compete on merits, which is illegal under EU’s antitrust laws.
Monopolies and Social Injustice
Hubbard points out how these tech titans don’t have any major competitors or substitutes, and even if you don’t pay most of these tech giants with money, you pay them with your data. This is more than enough for world domination, which is always an underlying aspiration for tech companies as they strive to be “the one” in the eyes of their customers, by carefully leveraging their data. This data also put these companies at an unfair advantage over other smaller and newer businesses. As Clive Humby, a British mathematician rightly said, “data is the new oil” in the digital economy.
Hubbard explains how the downsides of this monopoly might not be visible to the consumer but affects entrepreneurs and small businesses who are greatly harmed by the practices of these companies. Taking Amazon, for instance, no one wishes to be dependent on their competitor, however, since Amazon has integrated the service of selling products on its platform, not only is everyone competing against Amazon but are also dependent on Amazon, as it is Amazon who decides the rules for the sellers. Add to this the fact that Amazon comprises a ginormous amount of consumer data in hand, putting it in an unfair advantage over others as it can dominate its products over others. There is currently an ongoing EU investigation into Amazon’s use of consumer and seller data collected on its platform to better its own products sold on its platform.
Similarly, Google’s monopoly is evident in the fact that it gets to decide the losers and winners of the internet on its Google search, prioritizing its products over the others. An example of this is Google getting fined with 2.7 billion dollars by EU, last year after it ruled the company had abused its power by promoting its own shopping comparison service at the top of search results.
Facebook, on the other hand, doesn’t have a direct competition, leaving users with less choice in terms of Social network sites, making it a monopoly. Add to that the fact that other major social media platforms such as Instagram and Whatsapp are also owned by Facebook.
Hubbard explains how Facebook doesn’t have competition, so it can prioritize its profits over the other factors such as user data as it’s really not concerned about user loss. This is evident in the number of scandals that Facebook has gotten itself into regarding user data.
Facebook is facing a whole lot of data and privacy-related controversies, Cambridge Analytica scandal being the most popular one. Facebook suffered the largest security breach in its history that left 50M user accounts compromised, last month. Department of Housing and Urban Development UD) filed a complaint against Facebook in August, alleging the platform is selling ads that discriminate against users based on race, religion, and sexuality. ACLU also sued Facebook in September for enabling sex and age discrimination through targeted ads. Last week, the New York Times published a bombshell report on how Facebook has been following the strategy of ‘delaying, denying and deflecting’ the blame under the leadership of Sheryl Sandberg for all the controversies surrounding it.
Scandals aside, even if a user finds the content hosted by Facebook displeasing, they don’t really have a choice to “stop using Facebook” as their friends and family continue to use the platform to stay in touch. Also, Facebook charges advertisers depending on how many people see a message instead of being based on ad clicks. This is why Facebook’s algorithm is programmed in a way that it prioritizes more engaging branded content and ads over the others.
Monopoly and Gender Inequality
As the market power of these tech giants increases, so does their wealth. Hubbard points out that the wealth from the many among the working and middle classes get transferred to the few belonging to the 1% and 0.1% at the top of the income and wealth distribution. The concentration of market power hurts workers and results in depresses wages, affecting women and other minority workers the most.
“When general wages go down or stagnate, female workers are even worse off. Women make 78 cents to a man’s dollar, with black women making 64 cents and Latina women making 54 cents for every dollar a white man makes. As wages by the bottom 99% of earners continue to shrink, women get paid a mere percentage of fewer dollars. And the top 1% of earners are predominantly men”, mentions Sally Hubbard.
There have also been declines in employee mobility as there are lesser firms competing due to giant firms acquiring smaller firms. This leads to reduced bargaining power in the hands of an employee. Moreover, these firms also t impose non-compete clauses and no-poach agreements putting a damper on workers’ ability to switch jobs.
As eloquently put by Hubbard, “these tech platforms are the ones controlling the rules of the arena in which the game is played and are also the ones playing the game”. Taking into consideration this analogy, it’s anyone’s guess who’ll win the game.