Big Tech Brief: What You Need to Know About Congress’ High-Profile Tech CEO Hearings

The House Antitrust subcommittee grilled the CEOs of four of the largest tech companies in a display that showed the preliminary results of their investigation that began in 2019.

On July 29th, the House Antitrust Subcommittee brought together the CEOs of Google, Facebook, Amazon, and Apple to examine each company’s dominance in their respective marketplaces. Together, these companies added more than $2 trillion in combined market value during a time when Americans and small businesses have been hit with the worst economic crisis in decades. The shared displeasure of Big Tech brought together congress members from both sides of the aisle in what Rep. Ken Buck called “the most bi-partisan effort that he has been involved within 5.5 years of experience.” How heartwarming to see Big Tech bringing us together in a time when the country is more politically divided than ever.

The hearing wasn’t a surprise. Congress began its investigation into these companies in 2019 and came to well prepared with “millions of pages of evidence” of internal documents and testimonies from market participants. This was a clear improvement from the 2018 hearing in which Senators asked Mr. Zuckerberg if their e-mails in WhatsApp were monitored by Facebook. Despite whether you believe this investigation will create any real change or not, I think we can all agree that there is hope that Boomers may actually understand youth after all. Although we will have to see what the current administration decides to do with TikTok, but I digress.

The choice to question the CEOs of all four companies concurrently, rather than separately, was an interesting one. Scott Galloway commented that this was a major weakness that prevented the committee from going deep enough into any given issue and leaving the American public with general sentiments rather than real conclusions. Regardless, it generally did not seem to detract from the intensity of the hearing which went something like this: Congress asked Tech CEO if the company ever conducted horrible action X. Tech CEO attempted to deflect the question or reiterate their corporate values. Congress revealed they already knew the answer to their question from their investigations and moved to the next question because they were limited in time. A notable exception was Mr. Bezos who mastered the art of simply talking over the questioner.

Google

A major argument against Google was that the company had transformed from “a turnstile to the web into a walled garden which keeps users on Google’s sites” at the expense of other online businesses. As an example, lawmakers highlighted how Google scraped content from Yelp reviews to build its own business and significantly reduce web traffic to Yelp’s website. This example highlights an important question about ethical product development. Part of Google’s mission is to present information in the most useful way. From a user perspective, it’s useful to have information appear directly in the search page. However, it's economically disastrous for underlying websites that provide the data and rely on the web traffic for their business models.

The second major argument was that Google broke its commitment to keep DoubleClick’s user data separate from Google’s user data and effectively “destroyed anonymity on the internet.” Specifically, lawmakers found that merging the two datasets allowed Google to connect user information from Gmail, search history, and location data to users’ browsing data across the rest of the internet collected from DoubleClick cookies. This allowed Google to serve highly targeted ads to increase profit while users had no agency to prevent this intrusion of privacy.

This was a concern ever since Google acquired DoubleClick in 2007. At the time, the FTC conducted an eight-month investigation into the acquisition to determine whether the deal eliminated competition between the two firms in the digital advertising space, ultimately approving the deal. It is difficult to say whether Google’s purchase was anticompetitive after-the-fact because it's unclear if Google’s superior management or the combined firm’s dominant position should be credited for its rise.

Key Takeaways:

• Evidence shows situations where Google misappropriated content from other companies to keep users within its websites
• Google broke its 2007 commitment to separate Google and DoubleClick user data and infringed on user privacy in order to serve targeted ads


Facebook

Similarly, Facebook was scrutinized for its 2012 acquisition of Instagram which Rep. Jerry Nadler claimed was executed to eliminate competition. As noted by the Verge, Nadler quoted emails from Zuckerberg that revealed Mr. Zuckerberg saw Instagram as a threat that could siphon business away from Facebook. In his response, Mr. Zuckerberg admitted that he believed Instagram was a competitor but asserted Instagram only became the company it is today due to Facebook’s involvement and investment. At the time, Instagram competed with several photo-sharing apps such as VSCO Cam, Path, and PicPLz, none of which have grown to the size of Instagram.

Facebook was also scrutinized about perceived censorship of speech, a topic especially important for the upcoming election. Although Facebook’s stance has been that it “does not want to become the arbiter for truth”, officials pointed to inconsistencies between the company’s stated approach and actual practice. In fact, earlier this year, Facebook was accused of violating its own narrative for its treatment of coronavirus information and far-right conspiracy theorists.

The issue of free speech on social media platforms has been a topic of debate for quite some time. As noted by the American Bar Association, private companies, such as Facebook, are not bound by the First Amendment and are free to limit or control speech to their liking. Although Mr. Zuckerberg has repeatedly asserted that Facebook does not intend to restrict speech on its platform, the company maintains community guidelines that do prohibit some forms of harmful or hateful speech, giving rise to human judgment for edge cases that could be problematic.

Key takeaways:

• Evidence showed that Facebook acquired startups for the purpose of eliminating competition (with Instagram being a prime example)
• Facebook continues to be investigated for its handling of controversial posts on its platform


Amazon

For Amazon, its relationship with third-party sellers was the main point of contention. Rep. Lucy McBath played a testimony from a third-party bookseller who was allegedly blocked out of the platform, seemingly to stop them from competing against Amazon’s own book sales. For quite some time, Amazon has been accused of systematically taking advantage of third-party sellers and favoring the sales of its own products, even though these third parties often have no other options to turn to.

Earlier this year, the Wall Street Journal revealed that Amazon used data from independent sellers to develop competing private-label products, a practice that prohibited its own policies. In written statements, employees acknowledged several instances that these actions occurred, simply because the policies were not enforced or monitored. Additionally, the company was pushing to have Amazon brands make up 10% of its retail sales by 2022, providing a clear incentive to favor its private-label business. Mr. Bezos explained, “we have a policy against using seller-specific data” but “could not guarantee that the policy has never been violated.” For further reading, Lisa M. Khan lays out the paradox Amazon faces as both a retailer and platform in this detailed article.

Key takeaways:

• Amazon was accused of blocking third-party sellers on its Marketplace to favor sales of its own products
• Evidence shows that Amazon used data from third-party sellers to develop its own line of competing white-label products, contrary to its own stated policies


Apple

In his testimony, Mr. Cook touted that the App Store was developer-friendly with 84% of apps paying zero commissions, and the remainder paying 15% or 30% of sales depending on the nature of their products. Lawmakers, however, called into question the lack of transparency in Apple’s app review process and lack of consistency in applying commission rates to third-party developers. In fact, their findings showed that developers have no way to know how Apple reviewed apps, and Apple’s decisions to approve or reject apps seemed arbitrarily “made up along the way”. In the EU, lawmakers recently instituted new rules requiring Apple to give developers a chance to appeal decisions to remove apps from the App Store and to provide greater transparency into ranking algorithms. I would expect similar requirements to be implemented in the US as well.

With respect to commissions, evidence showed that Apple made exceptions to its commission structure to favor larger developers, creating an uneven playing field for competition. Further, lawmakers were concerned that there was nothing stopping Apple from significantly raising commissions in the future. In their response, Apple stated that they haven’t changed the commission structure of the App Store since its launch (which is true) because they face fierce competition in attracting developers to the platform (which is laughable). Given that the only other real option to develop mobile apps is Android, its safe to say there isn’t that much “real” competition for talent. For further reading, Ben Thomson posted a fantastic analysis of antitrust issues in Apple’s App Store and how they evolved over time.

Key takeaways:

• As the sole gatekeeper between app developers and users, Apple is accused of arbitrarily rejecting apps to benefit itself at the expense of developers
• App developers are overly dependent on the App Store, which remains a closed system, giving Apple incentives to arbitrarily raise commissions as high as it wants in the future

Conclusion

The hearing was an opportunity for Congress to reveal the preliminary results of the past 12+ months of investigations rather than a chance to get to the bottom of any particular issue. Compared to earlier hearings, I was pleasantly surprised by the level of knowledge the lawmakers displayed about each of the different platforms, an indication that their investigations may bring forth real actions. However, questioning all four CEOs concurrently left many issues unaddressed due to a lack of time.

For Messrs Pichai, Zuckerberg, Bezos, and Cook, the hearing gave insight into the political forces that can reasonably be expected to affect their enterprises over the next few years. Each faces a unique set of antitrust issues stemming from years of market dominance. In the short term, I expect each of these companies to increase their lobbying efforts to persuade lawmakers that they operate competitively in open marketplaces. Over the long term, there are questions about whether these companies can operate as they are currently structured.