On October 6th 2020, the House lawmakers released a 449-page report investigating how Amazon, Apple, Facebook and Google managed to turn from “scrappy” start-ups into “the kinds of monopolies we saw last in the era of oil barons and railroad tycoons”. This comparison is not misleading since data is referred to as the new oil.
Here are my key takeaways why the committee came to the conclusion, that all of these companies are monopolies. In brackets you can see the page to which the text refers or where the citation originates.
1. Facebook
1.1 Social Networking
The committee’s report explains that Facebook has a monopoly position in social media. And that, according to Facebook’s internal sources, it has a higher reach, longer user engagement time and significantly more users than its competitors on the market. Also, the fact that Facebook’s market position has only increased in importance over the last decade, despite the changing market environment, is seen by the committee as a demonstration of “monopoly power” (134).
Facebook’s own list of competitive companies includes Microsoft Bing, Yelp and BuzzFeed. Facebook calculates its market share as “time spent on Facebook compared to time spent on the Internet”. Based on this metric, Facebook claims to have no monopoly (136). This view does not coincide with the views of the Committee. On the contrary, the metric used internally shows that it has a monopoly status (137).
Reach
In December 2019, the Facebook app reaches 200.3 million users (74%) in the United States, putting it in third place among all apps. Facebook Messenger reaches 4th place with 183.6 million users (54.1%). Instagram reached the 6th place with 119.2 million users (35.3%) (138). No figures are shown for WhatsApp. Since SMS are mostly all-inclusive in the US, the app is not that popular as it is in Europe.
2019 Germany’s Federal Cartel Office (Bundeskartellamt) found that, …, “ Facebook achieves a user-based market share of more than 90%” (135).
Barriers to Entry
Network-Effects: “Facebook’s significant reach among users, and high levels of engagement, create very strong network effects.” (141). The report states that the greatest competitive market pressure now comes from its own product family. For example, Instagram vs Facebook or WhatsApp vs Facebook Messenger. This is evidenced by a Facebook internal memorandum by Mr. Cunningham “Possible End States for the Family of Apps” (142).
Switching-Cost: The second high barrier to market entry is the “cost” of switching. Facebook users would have to rebuild their social network on a new platform. In this process they would lose access to their data on Facebook. For example, pictures, posts and other content. As a result, Facebook users are bound to the platform (145–146).
Access to Data: “Facebook has a significant data advantage in the social networking market. While data may be non-rivalrous — meaning users can provide the same piece of data to more than one platform — it creates another entry barrier, reinforcing Facebook’s monopoly power.” (148)
Facebooks Acquire-Copy-Kill Strategy
Since its founding in 2014, Facebook has acquired 63 companies. The majority of these companies were software companies like Instagram, WhatsApp, Face.com, Atlas, LiveWire and Onavo. But also several virtual reality and hardware companies such as Oculus (150). Facebook has used its market power to extend its dominance and identify and acquire competing companies (161). “Facebook’s internal documents indicate that once it identified a competitive threat, it attempted to buy or crush them by cloning their product features or foreclosing them from Facebook’s social graph. Facebook took these steps to harm competitors and insulate Facebook from competition, not just to grow or offer better products and services.” (163). In an 2012 e-Mail from Mark Zuckerberg to other senior executives, Mr. Zuckerberg wrote that cloning other apps helps Facebook by building out more social use cases and prevent other companies from getting a foot in the door (163).
1.2 Digital Advertising
Facebook’s main source of income is digital advertising. In 2019, $70 billion in revenue could be generated. Almost 27% more than in the previous year. The report states that Facebook has a monopoly in online advertising in the social networking market (170). “Facebook reported an average revenue per user (ARPU) of $7.05 worldwide and $36.49 in the United States and Canada in July 2020. It has also averaged significant annual growth — 26% on average over the past five years. In contrast, its closest competitor, Snap, reported in July 2020 that its ARPU “remained flat” at $1.91worldwide and $3.48 in North America.” (171) “With more users and usage time than any other social network, Facebook provides the largest audience and the most valuable data for social network online advertising. Facebook’s ad revenue per user is growing, demonstrating the value that advertisers see in working with the firm Facebook has also expanded its user base in the growing mobile market, which positively affected the network effect as it became more valuable to advertisers, and resulted in more ad revenue growth. The main drivers behind growth in online advertising have been growths in the mobile ad market and the video ad format. Most Facebook users are now accessing Facebook and its apps via mobile devices.” (172) Facebook claims to have a significant advantage over the competition in terms of accuracy in targeted campaigns, reach and user engagement. While targeting the users “real identity” (172).
2. Google
2.1 Search
Googles dominates the market of online search queries. 92% of global search queries are performed by Google. Over the last decade, Google has been able to hold its own in a changing market, such as mobile-first, and expand its dominance over competitors. “Several factors render Google’s power in online search generally immune to competition or threat of entry. General online search strongly favors scale due to (1) the high fixed costs of servers needed for crawling and indexing the entire web , and (2) the self-reinforcing advantages of click -and query data, which let a search engine constantly improve the relevance of search results.” (177)
Google claims to operate in a very competitive market with a large number of market participants. And name Bing, DuckDuckGo and Yahoo! In addition, they would compete against a large potpourri of companies such as Amazon, eBay, Kayak and Yelp with non-general online searches. Google argues that this means that Google’s actual share of searches is less than its market share for general online searches (178).
Google has become the standard search engine in mobile and desktop ecosystems through integration in systems (e.g. Android) as well as through contractual agreements (e.g. with browsers). Because Google has the most widely used mobile operating system, Android, Google has maintained its market dominance as the most important entry point to the Internet. To gain access to the Google Playstore, manufacturers were forced to install Google Search exclusively. By sharing the revenue agreements, Google was also able to secure its place as the standard search engine in most browsers. For example Apple’s Safari Browser (181).
“DuckDuckGo said this lack of options compelled it to invest in browser technology, including the creation of its own browser for Android and iOS and various browser extensions. It noted, however, that ‘the same default placement challenges exist in the browser market, just one level up — with the device makers requiring millions or billions of dollars to become a default browser on a device.’” (182)
Self-Preferencing
As stated in the report a large amount of the web traffic for smaller pages comes directly from Google. But since the start in 1998, when only links to search results were displayed, there is now more and more content in the form of info boxes which display results directly on Google and thus actively skim web traffic (183).
These info boxes are the result of Google’s tactics to fight specialized vertical search engines (e.g. travel search engines). In 2005 a Google Program Manager summarized the dangers:
- Loss of traffic from google.com
- Related (ad) revenue loss
- Missing opportunity if a competitor creates a platform to build verticals
- If a competitor builds a constellation of high quality verticals — Google will be hurt
(183)
“ Documents show that Google developed a multi-pronged strategy to thwart the threat. Two of these tactics included: (1) misappropriating third-party content, and (2) privileging Google’s own services while demoting those of third parties. Through these practices, Google exploited its dominance to weaken potential rivals and boost its search advertising revenue.” (184)
Threatening Innovation and the Open Internet
“Through misappropriating third-party content and giving preferential treatment to its own vertical sites, Google abused its gatekeeper power over online search to coerce vertical websites to surrender valuable data and to leverage its search dominance into adjacent markets. Google’s conduct both thwarted competition and diminished the incentive of vertical providers to invest in new and innovative offerings.” (193)
AdWords and Degraded Search Quality
In 2000, Google published AdWords, a keyword based advertising platform that allows advertisers to place ads next to search results. The report criticizes that Google increased the amount of sponsored results over organic search results and the blurring of markings for advertising links over the years (196). “Internal data shown by one market participant to the Subcommittee demonstrates that ‘organic search listings have been pushed down over time, and click throughs’ (clicking to visit a site) on the first organic results have decreased by two-thirds over the past 3 years.’” (198)
2.2 Advertisement
In 2019, Google alone accounted for 83.3% of Alphabet’s total advertising revenue. Over 50% of the global digital advertising market is dominated by Google (206). In July 2020, the UK Competition and Markets Authority found that Google had significant market power, enabling it to achieve 30–40% higher ad prices than its direct competitor Bing. “Market participants and Google’s documents suggest that Google is likely to maintain its lead in search and display advertising due to high entry barriers. Most critically, as other sections of this Report found, Google can mine its ecosystem — including Search, Chrome, Android, and Maps — to combine a unique set of user data points and build troves of online behavioral data that drive its ad business.” (207).
On third party stated: “Google is now not only a seller and broker of digital advertising across the Internet, but they now also control significant portions of the web browsers, operating systems, and platforms upon which these digital ads are delivered. This gives Google the ability to single-handedly shift an entire ecosystem in nearly any direction they decide, based simply on their scale. Google can then use its dominance to demand a higher share of ad revenues from buyers and sellers, and there is little leverage available to counteract this position in a negotiation.” (207).
Mergers
In 2007 Google Doubleclick acquired a marketplace for online advertising for $3.1 billion. The FTC concluded that “the display advertising market was highly competitive.
2010 Google acquired AdMob, the leading mobile ad service at the time. The FTC had antitrust issues but saw Apple as a serious competitor. Apple ended its efforts to create its own mobile ad network in 2016.
2011 Google acquired AdMeld, a leading supply side platform. The Justice Department’s Antitrust Division concluded: “.. unlikely to cause user harm”.
(208/209)
Combination of Data
“When Google purchased DoubleClick, it told Congress and the FTC that it would not combine the data collected on internet users via DoubleClick with the data collected throughout Google’s ecosystem . In 2016, however, Google reversed this commitment, and subsequently combined DoubleClick data with personal information collected through other Google services effectively combining information from a user’s personal identity with their location on Google Maps, information from Gmail, and search history, along with information from numerous other Google products.” (210)
In the 6th hearing of the subcommittee Representative Val Demings (FL-D ) came to the conclusion that Google’s merger strategy was “part of a broader pattern where Google buys up companies for the purposes of surveilling Americans , and because of Google’s dominance users have no choice but to surrender” (210).
Other Areas of Concern
- “Depriving advertisers and publishers of key market and pricing information and maintaining market opacity ;”
- “Leveraging its market power in search advertising to compel advertisers to use Google’s products in the display market;”
- “Leveraging control of YouTube to foreclose competition in digital video ad serving, in part by excluding rival ad servers from having access to YouTube;”
- “Inhibiting interoperability between Google’s ad platforms and non-Google ad platforms”
- “Using its search dominance to impose standards like AMP that, by further depriving publishers of user data, benefit Google’s ad business.”
(211)
2.3 Android and Google Play Store
Google bought Android in 2005 for $50 million. Today Android has a 75% share of the global mobile market. In the United States, however, Android only has a 47% share, while Apple has 52%. Android is “a free, open-source mobile operating system”. In practice, however, manufacturers must fulfill a license agreement to gain access to the Google App universe. (212) What this means for the sales figures, if this does not happen, Huawei had to experience painfully due to the US sanctions.
“The Subcommittee’s investigation revealed that Google has used Android to entrench and extend its dominance in a host of ways that undermine competition. These include: (1) using contractual restrictions and exclusivity provisions to extend Google’s search monopoly from desktop to mobile and to favor its own applications; and (2) devising Android Lockbox, a covert effort to track real-time data on the usage and engagement of third -party apps, some of which were Google’s competitors. Additionally, Google’s Play Store now functions as a gatekeeper, which Google is increasingly using to hike fees and favor its own apps. Overall, Android’s business practices reveal how Google has maintained its search dominance through relying on various contractual restrictions that blocked competition and through exploiting information asymmetries, rather than by competing on the merits.” (213).
The Play Store
“Because Google’s Play Store is the primary way that users install applications on Android devices, the Play Store effectively functions as a gatekeeper for software distribution on a majority of the world’s mobile devices. The Subcommittee’s investigation reveals that Google uses this gatekeeper power in several key ways… First, Google uses its Play Store gatekeeper power to charge high fees to mobile developers. Amazon, Spotify, Netflix, Epic Games, and Tinder have all expressed public concerns about Googles app store fees, along with Apple.” (219)
Google charges a 30% commission for App Store purchases. Plus a 30% commission for in-app purchases and transactions (220).
Even though Android leaves open the possibility to install alternative app stores or to side-load apps. It`s not that easy as Epic’s recent lawsuite against Google claims:
“Google ensures that the Android process is technically complex, confusing and threatening, filled with dire warnings that scare most consumers into abandoning the lengthy process. For example, depending on the version of Android running on a mobile device, downloading and installing Fortnite on an Android device could take as many as 16 steps or more, including requiring the user to make changes to the device’s default settings and manually granting various permissions while being warned that doing so is dangerous.” (220).
2.4 Chrome
2008 Google launched it’s own web browser, based on the open-source browser chromium, called Google Chrome. “Chrome initially set itself apart by offering an address bar that also functioned as a Google search bar, and by enabling users to sign into the browser, offering a faster browsing experience compared to other browsers. Chrome was also integrated with other Google products. By signing into the browser, Chrome automatically signed users into Gmail, YouTube , and additional Google services when users visited those sites , while also allowing users to sync their bookmarks, passwords, and other browser settings. While automatic sign-in provided a more streamlined user experience, it also helped Google build more detailed user profiles by connecting activity data to the user’s Google Account.” (223)
Only 4 years after its launch, Google Chrome became the most popular web browser and today has a worldwide market share of 66%. This makes Chrome the most used entry portal into the Google product world.
“Google used its search engine dominance and control over the Android operating system to grow its share of the web browser market and favor its other lines of business. Reciprocally, Chrome’s dominance in the browser market gives it significant gatekeeper power over managing and monitoring users’ browsing activity power Google can wield to shape outcomes across markets for search, mobile operating systems, and digital advertising. These advantages across markets feed back into and reinforce one another, advantages that standalone browsers lack.” (225)
2.5 Google Maps
“Google dominates the market for digital maps with over a billion users. Between Google Maps and Waze which Google also owns — the corporation captures an estimated 80% of the navigation app market.” (230).
In 2003 Google Labs launched “Search by Location”, a service that limits search queries to the user’s geographical location. 2004 Google bought Where 2 Technologies, a startup that created web-based maps. This was followed by Keyhole, a company that produced maps from satellite images and ZipDash, a provider of real-time traffic information. Google launched Google Maps in 2005.
“Although Google Maps was not generating revenues, Google was investing in it heavily. Google’s documents show that from 2008 to 2009, the company spent $32 million on the Street View program and $88.7 million on Ground Truth [Effort to make maps better] overall.” (232)
“In 2013, Google purchased Waze, an Israeli crowd-sourced mapping provider, for $1.3 billion. The acquisition solidified Google’s dominance inturn-by turn navigation, eliminating its only meaningful competitive threat.” (233)
Pricing
While Google Maps remains free for the normal user. Google introduced a pay-as-you-go pricing model for the Maps API in 2018. Developers stated the increase in pricing equals 1400% (239).
Uber states that: “We do not believe that an alternative mapping solution exists that can provide the global functionality that we require to offer our platform in all of the markets in which we operate.”. Uber Paid $58 million for the use of Google Maps between 2016 and 2018 (235).
“In effect, Google makes market participants pay twice to access Google Maps — first by giving Google their valuable usage data and then again by paying Google’s volume-based fees for API calls.” (240)
Tying
“Developers who do not have a Google Cloud account, and therefore do not have an API key, are effectively locked out of Google Maps. Even if an application is built on a non-Google cloud platform, developers are forced to use GCP for the Maps API portion of their app.” (242)
2.6 Google Cloud Platform
Google’s Cloud is Alphabet’s fastest growing product line. The Google Cloud is the third largest provider of IaaS services in the United States with a higher growth rate than Amazon Web Services (245).
“According to interviews with market participants and Google’s internal documents, Google employs two strategies that raise concerns about potential anticompetitive conduct. First, Google appears to leverage its dominant business lines, including popular APIs such as Google Search and Maps, along with machine learning services, to attract customers to its platform through discounts and free tier services. For example, according to internal strategy documents, in 2018 Google “launched a program with the Play team to provide GCP credits to game developers based on their Play Store spend, to increase focus on Play and incentivize migration to By harnessing Google’s advantages in existing markets, GCP is undermining competition on the merits.
Second, Google’s documents suggest the company is considering bundling its popular machine learning service with other services that Google is seeking to promote. One recent Google cloud pricing strategy document explains, the question that we need to think about is whether we use our entry point with Big Query to get a customer to use all the services such as Data Proc, Data Flow, as a suite and give them a price break on the Analytics Suite because it will be much harder for them to migrate away from us if they use all the other services.” (246)
3. Amazon
Amazon was founded in 1994 by Jeff Bezos as an online bookseller. The company grew rapidly not only disrupted the book retail business. Soon they started to look for other retail businesses. Today, with over 500,000 employees, Amazon is the second largest private employer in the United States and operates in more than 30 countries worldwide. The product range includes e-commerce, consumer electronics, video and music streaming, movie and game production, groceries, cloud services, publishing and logistics.
Although Amazon is already represented in the most important markets and dominates many industries, it has been able to continue its strong growth. In 2019, sales increased by 20% over the previous year to approximately $280 billion with a profit of $11 billion. Retail operations remain the largest revenue source, but Amazon Web Services (AWS; Cloud) continues to grow steadily (248).
“One of the unique features about Amazon’s commerce site is its fast and free shipping on an extremely broad selection of products. Amazon Prime Members can choose from over 100 million items that are available for free, two-day delivery in the continental United States. Walmart, by contrast , has only single -digit millions of products eligible for free, two -day shipping.” (249)
There are two types of sales at Amazon.com Items sold directly by Amazon and third-party merchants who use the Amazon marketplace to sell their products. Amazon does not limit the number of sellers, so there can be multiple sellers for the same product. The buy box algorithm selects the suggested seller. “Industry experts estimate that about 80% of Amazon sales go through the Buy Box, and the percentage is even higher for mobile purchases.” (249)
Third party sellers are independent traders who can sell products on the Amazon marketplace. Amazon charges a certain percentage of the price and a fee. Merchants have three options:
- Fulfillment by Amazon: The goods are sold by the merchant and fulfilled by Amazon
- Fulfillment by Merchant: The goods are sold and fulfilled by the merchant
- Seller Fulfilled Prime: The goods are sold and shipped by the merchant. But gets a Prime badge
3.1 Amazon.com
Market Power
Although there are no tangible numbers, the committee believes that Amazon has a significant share of the U.S. online retail market. The market researchers of eMarketer assume that Amazon has a market share of 38.7%. Whereby these are “overly broad” in their considerations according to the report. As a counter-example, they cite the company Jumpshot, which has determined that Amazon achieves an average market throughput of 74% in a broad product range. In the U.S. market, Amazon accounts for over half of all print book sales and over 80% of e-book sales. (254)
In response to the committee’s request for a list of the ten largest competitors, Amazon named 1,700 companies. “… Including Eero (a company Amazon owns), a discount surgical supply distributor, and a beef jerky company.” (255)
“Regardless of the precise boundaries of e-commerce or online marketplaces , the sum of evidence that Subcommittee staff examined demonstrates that Amazon functions as a gatekeeper for e-commerce . Amazon is the most-visited website in the world for e — commerce and shopping. In a submission to the Committee , an e — commerce market participant said that ‘many of the 64% of American households that have Prime memberships are effectively locked into Amazon for their online shopping.’” (256)
“Prime members will continue to use Amazon and not switch to competing platforms, despite higher prices and lower-quality items on Amazon compared to other marketplaces, and despite recent increases in the price of a Prime membership”. According to a recent survey, Prime members spend an average of $1,400 annually on Amazon, versus $600 for non-members. (260)
Barriers to Entry
According to the report, it is highly unlikely that Amazon’s market position can erode in the near future. As the barriers to market entry are very high (260):
- Network effects make it difficult to reach a similar number of buyers and sellers
- Switching costs are high when shopping outside the Amazon ecosystem
- Building a logistics network of comparable size is almost impossible
Mergers
Amazon bought over 100 companies over the past two decades. Some remarkable, picked by the committee are (262):
- 1998 IMDB.com
- 2008 Audible
- 2009 Zappos ($1.2 billion)
- 2013 Goodreads
- 2014 Twitch
- 2017 Whole Foods ($13.7 billion)
- 2018 PillPack ($1 billion) and Ring ($1.2 billion)
Amazon bought up a number of rivals. For example Zappos and Quidsi. According to the subcommittee, Amazon saw both competitors as a threat. (262) Quidsi was at that time the owner of Diapers.com as seen by Amazon as its “largest and fastest growing competitor in the on-line diaper and baby care space,” and its “ #1 short term competitor.” “Specifically, Amazon’s [internal] documents show that the firm entered into an aggressive price war, in which Amazon was willing to bleed over $200 million in losses on diapers in one month.”. After a few month Diapers.com was struggling and then Amazon bought it. Eight years later, Amazon closed down Diapers.com due to lack of profitability. (263)
“Amazon’s acquisition strategy has led to fewer choices for consumers in terms of differentiated online retail channels, as well as reduced competitive pressure in terms of price and quality. Additionally, Amazon’s expansion into a diverse array of business lines — from brick-and-mortar supermarkets to home security — has reinforced its significant stockpile of consumer data. With more data about online and offline consumer behavior, Amazon’s acquisitions set in motion a self-reinforcing cycle, creating an ever-widening gap between the platform and its competitors. As one former Amazon employee told Subcommittee staff, ‘Amazon is first and foremost a data company, they just happen to use it to sell stuff.’” (262)
Treatment of Third-Party Sellers
Over the course of the investigation, the Subcommittee heard from numerous sellers who described abusive tactics or mistreatment by Amazon in a variety of circumstances. For example CEO of PopSockets David Barnett testified: “After the two companies decided on a minimum price at which Amazon would sell PopSockets, Amazon sold the products for a lower price and then demanded that PopSockets pay for the lost margin.” Mr. Barnett estimates that in 2019 his company incurred losses of $10 million in revenue from when he stopped selling to Amazon Retail and Amazon blocked one of his authorized distributors from selling on the marketplace. (268)
Mr.Barnett noted in his testimony: “When there is bullying by an extremely successful company with all these partners that continue to do business with it, one has to ask how is it that such a successful business maintains partnerships with so many companies while bullying them. It is because of the power asymmetry . . . that companies tolerate this.” (269)
“Amazon’s treatment of sellers indicates that it sees them as a source of profit, rather than ‘Amazon’s treatment of sellers indicates that it sees them as a source of profit, rather than partners.’” Amazon has significantly increased the seller fee in the last decades. The platform now takes an average of 30% of each sale, compared to 19% in 2015. (273) “Amazon’s pattern of exploiting sellers, enabled by its market dominance, raises serious competition concerns. For many sellers, there is no viable alternative to Amazon, and a significant number of sellers rely on its marketplace for their entire livelihood.” (274)
Another point of criticism in dealing with third-party sellers is Amazon’s asymmetrical access and use of third party seller data. According to the committee it appears that Amazon, with that data, “.. would (1) copy the product to create a competing private-label product; or (2) identify and source the product directly from the manufacturer to free ride off the seller’s efforts” (274). As an example for the abuse of seller data, a former third -party seller testified: “… His business created its own line of table game products with a unique design and color palette. Once these products became top sellers, Amazon again swooped in to reap the rewards of his work . Amazon copied his designs, down to the color palette, and started selling their competing products at unsustainable prices. Ultimately, he exited his seller business…” (279)
Most-Favored-Nation and Price Parity Provisions
Amazon also uses its dominant position in e-commerce as leverage with other businesses to require most-favored-nation (MFN) clauses or similar price parity provisions to guarantee that it will always receive the best prices and most favorable terms. While these clauses are not inherently anticompetitive, Amazon has a history of using MFN clauses to ensure that none of its suppliers or third-party sellers can collaborate with an existing or potential competitor to make lower-priced or innovative product offerings available to consumers. (295)
Predatory Pricing
As part of its business strategy, Amazon has historically placed a higher premium on long-term growth at the expense of short-term profitability. As noted earlier in this Report, Amazon did not post its first full-year profit until 2003 — a decade after the company was founded. Consistent with this trend, Amazon has adopted a predatory-pricing strategy across multiple business lines at various stages in the company’s history. (297)
Because of the nature of its marketplace business, Amazon’s below-cost prices on products and services tend to lock customers into Amazon’s full marketplace ecosystem. As a former Amazon employee told the Subcommittee, “Above all else, Amazon’s goal is to keep the customer shopping on Amazon.” Once a customer is locked in, they are less likely to change their behavior even when Amazon’s pricing is not competitive. (297)
Prime is cited as an example of this pricing policy. The price for membership was $79 in 2005, today it is $119, and an Amazon executive wrote in 2013 with regard to the prime: “the better course is to let the existing Prime program grow . . . and then raise prices later assuming a lower elasticity in future years,” once customers are locked in. (297)
3.2 Fulfillment and Delivery
Market Power
“As Amazon’s commerce business has grown, it has also developed a significant logistics business surrounding fulfillment and delivery of third-party orders with its Fulfillment by Amazon (FBA) program . More than 73% of all Amazon Marketplace sellers reportedly rely on this program to fulfill their orders.” (302)
Amazon’s shipping infrastructure consists of “ trucks, trailers, intermodal containers, and delivery vehicles. Its truck fleet consists of more than 10,000 trailers. It also has its own freight airline, Amazon Air, with about 50 leased aircraft, and plans to expand its fleet to 70 by 2021. (302)
Parcel volume handled by Amazon’s delivery service now rivals the top carriers, including UPS, FedEx, and the U.S. Postal Service. In 2019, Amazon delivered 2.5 billion parcels, or about one- fifth of all e-commerce deliveries. An analysis by Morgan Stanley concluded that Amazon will overtake UPS and FedEx in market share for delivery by 2022. (303)
Monopsony
Amazon exercises direct power over hundreds of thousands of workers across the United States. “There has been a growing amount of public reporting in recent years regarding Amazon’s treatment of warehouse employees, including strenuous working conditions, unforgiving packing and sorting quotas, and unfair firings.” Amazon Warehouses also have a tendency to depress wages when they enter a local labor market. For example, since Amazon opened a warehouse in Lexington County, South Carolina in 2011, the county has seen average annual wages for warehouse workers fall more than 30, from $47,000 to $32,000 annually. (304)
3.3 Alexa’s Internet of Things Ecosystem
Amazon has significant investments in the Internet of Things ecosystem, centering its strategy around Amazon’s voice assistant, Alexa. In 2014, Amazon launched the Alexa -enabled Echo smart speaker 1904 Since then, Amazon has built the largest ecosystem of devices and applications connected to the Internet of Things, creating a broad portfolio of services, development tools, and devices for its Alexa platform. (305)
Market Power
Amazon’s Alexa represents one of three emerging voice assistant platforms domestically, along with Google Assistant and Apple’s Siri, but has a more expansive collection of integrated devices and voice applications than its competitors. The Echo family captures over 60% of the smart speaker market in the U.S. (306)
Barriers to Entry
The voice assistant market has strong entry barriers due to the significant investments required to compete in the market. These include investments inartificial intelligence, voice-enabled hardware, and cloud computing infrastructure, which are critical inputs Amazon has been developing for years.
Amazon’s Alexa Voice Service is also hosted on Amazon Web Services, allowing it to bind products and developers to its cloud platform . In turn, this relationship gives Amazon a potential head- start on turning its Alexa business partners into customers through the cross-sale of Amazon Web Services and other Amazon products and services down the line. (307)
Mergers
Over the years Amazon has acquired many companies in the field of natural language processing, machine learning and other related technology companies to advance Alexa. (307)
One of Amazon’s strategic goals for Alexa has been to use its voice assistant to reinforce the company’s dominance in e — commerce and strengthen its presence in offline retail. In2017, Amazon acquired Graphiq, a technology company that collects and organizes details about “ products, places, and people to simplify online research. In 2017, Amazon purchased Blink, followed by Ring in 2018 both to solidify its position in the home security market. In an internal document, Amazon recognized that security could “feed our flywheels (Prime, Alexa) while being a large, profitable business in its own right.” (308)
Self -Preferencing
Amazon has the largest voice application “store” of third -party skills, as well as first-party services that represent popular voice assistant applications, such as Amazon Music and an e-commerce platform that itcan favor over third -party applications. Amazon favors its services in Alexa by making them defaults for common voice commands. For example, Amazon.com is the default store for basic voice commands related to shopping. “ Alexa, add milk to my cart” adds milk to the user’s Amazon shopping cart. (310)
Predatory Pricing
Amazon uses a predatory pricing strategy to increase its sales of smart home devices by pricing its products below cost. It is common for Amazon to sell these products in bundles at steep discounts. Several smart home device manufacturers told the Subcommittee that when Amazon sells certain devices in a bundle or at a steep discount, it makes it nearly impossible for companies who specialize in making one piece of voice-assistant enabled hardware to compete on its merits. (312)
Gatekeeper Power
Amazon Marketplace is an important distribution channel for voice-enabledelectronicsin its Alexa ecosystem. Amazon decides the availability and placement of products on its site. As a result, Amazon can use the threat of delisting a product on its marketplace to ensure that Alexa is enabled on other company’s devices, or to secure other favorable contractual terms. (312)
Misuse of Data
Amazon has access to information about consumer use of third-party applications on Alexa-enabled devices and uses its dominant position int he voice assistant market to collect more data from within the Alexa ecosystem. (314)
3.4 Amazon Web Services
Amazon Web Services (AWS) is considered the pioneer of cloud computing and has sustained a first-mover advantage for over a decade. AWS officially launched in 2006 featuring two of it score IaaS offerings, Simple Storage Service (S3) and Elastic Compute Cloud (EC2). Since then AWS became the largest cloud provider. (315)
Market Power
AWS represents close to half of global spending on cloud infrastructure services with three times the market share of Microsoft, its closest competitor. (318)
While AWS contributes to less than 15% of Amazon’s annual revenue, it consistently accounts for over 50% of the company’s operating income. In 2017, AWS accounted for over 100% of Amazon’s operating income, due to losses in the company’s international business. In the first quarter of 2020, AWS accounted for 13.5% of Amazon’s total revenues yet 77 % of its operating income. (316) Profits earned through its cloud services enable Amazon to invest heavily into expanding its cloud operation, as well as to support its other lines of business.
Mergers
The report states that Amazon has acquired a significant number of cloud computing firms over the past decade. “In some instances AWS has acquired cloud technologies that previously integrated with multiple clouds, only for AWS to make it an AWS-specific product after acquisition, foreclosing competitors and increasing consumers’ switching costs.” But fails on giving an example for this. (321)
Misappropriation of Data
Cloud platform vendors compete by expanding their first-party cloud offerings, such as those offered through the AWS Management Console. Market participants note that one way AWS has expanded its offerings is by creating proprietary versions of products that have been developed under open-source licenses. (325)
“As cloud computing grew in popularity, open-source software vendors began offering versions of their software on the AWS Marketplace, where application developers could easily integrate the software. Market participants explain that AWS was able to use the data collected on their customers, including usage metrics, to learn which third-party software was performing well and ultimately to create their own proprietary version offered as a managed service.” (326)
Harms to Innovation
Amazon’s practice of offering managed service versions of open-source software has prompted open-source software companies to make defensive changes, such as closing off advanced features and changing their open-source license to be less permissive. Market participants believe these changes significantly undermine innovation. Several noted that more closed-off licenses will result in fewer free, open-source features available to startups building prototypes and research labs that cannot afford access to paid features. (328)
Self -Preferencing
According to market participants, once a product based on open source or otherwise is available in the AWS Management Console, it becomes an easier choice for existing AWS customers relative to purchasing a managed service from a third- party vendor or self-managing open-source software. (329)
4. Apple
Apple is by far the oldest of the GAFA companies. In 1976 the Apple Computer Company was founded by Steve Jobs, Steve Wozniak and Ronald Wayne. After 12 days Ronald Wayne sold his company shares. One year later Apple Computer Inc. was founded. Apple was an early pioneer in personal computer business and had a strong product with the Apple II. Today, the company “designs, manufacturers, and markets smartphones, personal computers, tablets, wearables, and accessories , and sells a variety of related services.” Apple’s hardware products include the iPhone, iPad, Mac, Apple TV, and AirPods ; its Services business segment includes the App Store, iCloud, AppleCare, Apple Arcade, Apple Music, Apple TV+, and other services and software applications. Apple is leading in tightly integrating its services and software applications with its products to ensure a seamless experience for consumers. (330)
Through strong marketing and a high brand loyalty of the buyers, Apple is able to place similar products at higher prices compared to the competition. As a result, Apple achieves the highest margin among the GAFA companies. In 2019, with a total turnover of $260 billion a profit of $98.3 billion (37.8%) was realized. In August 2020, companies market cap exceeded $2 trillion for the first time. Apple became not only the most valuable tech company but also overtook Saudi Aramco to become the most valuable company in the world. (331)
In the U.S. Apples mobile operating system iOS has a market share of 52%. (212) Apple is also the leading smartphone vendor in the U.S. with a market share of 45%. Globally, Apple accounts for less than 20% of the smartphone market, and roughly 25% of smartphones and tablets run on iOS worldwide. (331)
Unlike Android, the only legal way to get apps on your iOS device is the Apple operated App Store. “According to Apple, the App Store ecosystem, including direct sales of apps, sales of goods and services inside of apps, and in-app advertising facilitated more than $138 billion in economic activity in the U.S. last year.” (332)
4.1 iOS and the App Store
Market Power
Especially in the U.S. Apple has significant and durable market power in the market for mobile operating systems and mobile app stores, both of which are highly concentrated. iOS is the second most used operating system for mobile devices in the world. Apple installs it on all of its mobile devices and does not license it to third parties. (333)
Apple’s market power is durable due to high switching costs, ecosystem lock-in, and brand loyalty. It is unlikely that there will be successful market entry to contest the dominance of iOS and Android. (334)
‘Apple claims the App Store competes in a larger software distribution market that includes other mobile app stores, as well as the open internet, personal computers , gaming consoles , smart TVs , and online and brick-and-mortar retail stores.’
The committees report states that: “Apple’s monopoly power over software distribution on iOS devices appears to allow it to generate supra-normal profits from the App Store and its Services business.” (334)
Mergers
In 2019, Apple CEO Tim Cook told CNBC that Apple buys a new company every two to three weeks , with a focus on acquiring talent and intellectual property. (337)
Apples 2020 shopping list contains small firms, including artificial intelligence and virtual reality startups, an enterprise software maker, a contactless payment startup, and a weather application, among others. Apple’s biggest purchase to date was Beats Electronics for $3 billion, a consumer audio products manufacturer, which helped launching Apple Music and placing its own product, the AirPods. (338)
‘It is common for Apple to integrate apps it purchases into its own pre-existing apps or into the iOS mobile operating system . Examples include acquisitions of Swell, a podcast app that Apple acquired in 2014, and HopStop, a transit navigation app it acquired in 2013.’ (338)
Commissions and In- App Purchases
Since there is no other way for software publishers to distribute their software than the Apple App Store, they are forced to accept Apple’s commissions. Apple charges a 30% fee for apps purchased through the App Store. Apple also charges a 30% fee for all in-app purchases. Apps with subscription models, like newspapers, pay 30% in the first year and 15% in subsequent years. “Apps are not permitted to communicate with iOS users that the app may be available for purchase at a lower price outside the App Store, provide links outside of the app that may lead users to find alternative subscription and payment methods, or offer their own payment processing mechanism in the app”. Apple describes its policies as a standard industry practice and says that other app stores charge the same fees. (339)
Apple does not take any commission on purchases for “physical goods or services that will be consumed outside the app”. For example Uber or Etsy. Apple noted that 84% of all apps distributed do not pay commissions or fees. Violating against the rules may result in removing the app from the App Store. Thus lose of access to all iOS devices. However, Apple does not apply the same rules for everyone. The report lists numerous exceptions to this rules. For example e-reading and video streaming. (340)
“Apple notes that its 30% commission has remained static for most apps for more than a decade. A group of developers that filed a lawsuit against Apple because of this policy argue that the persistence of Apple’s 30% rate over time, particularly “despite the inevitable accrual of experience and economies of scale,” indicates there is insufficient competition.” (341)
Phillip Shoemaker, former director of app review for the App Store, stated that their are high efforts (resulting in high costs) to review all apps to perceive a high quality and high security standards. To address this concern some developers argue in favor of allowing third-party payment processors like PayPal, Square, and Stripe to compete in the App Store. They explain that the most likely competitors are already trusted and widely used for e-commerce transactions. (345)
In June 2020, the European Commission announced that it had opened a formal antitrust investigation of Apple’s App Store rules and conduct, including “the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the availability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.” (347)
In August 2020, Epic Games made a conscious decision to offer an alternative to Apple’s IAP. Epic’s payment processor requires only 10% giving the consumer a large discount. This led to Apple banning updates for Fortnite and threatening to remove the app from the App Store. The lawsuit between Apple and Epic begins May 3, 2021. (346)
‘In response to the COVID-19 pandemic, some businesses moved physical events online, often booking through an app and holding the event through a video chat application. Educators have also shifted resources online, including through apps. The New York Times reported that Apple demanded a 30% commission from these virtual class offerings. As a result, one company stopped offering virtual classes to users of its iOS app. The Times reported that Apple threatened Airbnb that it would remove its app from the App Store if Airbnb did not comply with Apple’s demand for a share of its revenues.’ (348)
Default Apps, Default Settings and Private APIs
“It is widely understood that consumers usually do not change default options. This is the case “even if they can freely change them or choose a competitive alternative.” (352)
For the current iPhone models Apple pre-installs about 40 Apple apps. Many of them are set as standard and cannot be replaced. According to Apple the user can delete most of the pre-installed apps. Until September 2020 neither the web browser nor the email apps were replaceable. (352)
“The European Commission’s 2019 report on competition in digital markets explained that privileging access to APIs can provide an advantage to those with greater access over those with more innovative products.” (352)
Besides pre-installed apps and only partially opened default settings, closed APIs (or private APIs as it called in the report) are another factor why third party applications cannot compete with Apple apps. For example, Apple’s mobile payments service, Apple Pay, an in-house app that enjoys an advantage due to its ability to access certain functionalities, such as near-field communication (NFC), on the iPhone that are off limits to third-party apps. (354) Not only restricting competition but also limiting innovation.
‘Like Apple Pay, Safari is another pre-installed app that enjoys advantages over rivals. Safari is Apple’s default browser on iOS and Mac devices. … Apple’s policies require alternative browsers apps for iOS (iPhone) to use Apple’s WebKit browser engine.’ (355) As a result competitive browser vendors would not only have to rebuild to their own product but also makes it harder to improve the product to compensate the cost of switching effect for users.
Self-Preferencing
‘In 2019, the Wall Street Journal and The New York Times both conducted extensive investigations and reported that Apple appeared to be favoring its apps in the App Store search results. The Wall Street Journal explained that “Apple’s mobile apps routinely appear first in search results ahead of competitors in its App Store, a powerful advantage that skirts some of the company’s rules on search rankings.”’ (358)
Apple’s apps “ranked first in more than 60% of basic searches, such as for ‘maps’” and “Apple apps that generate revenue through subscriptions or sales, like Music or Books, showed up first in 95% of searches related to those apps.” (359)
Despite the fact that Apple’s pre-installed apps do not have ratings or reviews — factors that Apple says are most influential in determining app ranking — many of Apple’s pre-installed apps “still tend to be ranked first, even when users search for exact titles of other apps.” For example, Apple Books has no reviews or rankings and appears first in a search for “books,” while competing apps have tens-of-thousands of customer reviews and ratings of 4.8 or 4.9 stars on Apple’s five-star rating system. (360)
‘Apple’s position as the provider of iOS enabled it to designate the App Store as the sole means for app developers to distribute software to iPhone users. Apple’s public statements, including testimony by Mr. Cook that Apple’s apps “go through the same rules”’ (361)
Competitively Sensitive Information
‘In addition to investigating allegations Apple engages in self-preferencing in the App Store, the Committee sought information regarding whether Apple exploits third-party developers that rely on distribution in the App Store. Developers have alleged that Apple abuses its position as the provider of iOS and operator of the App Store to collect competitively sensitive information about popular apps and then build competing apps, or integrate the popular app’s functionality into iOS. The practice is known as “Sherlocking.” The antitrust laws do not protect app developers from competition, and platforms should continue to innovate and improve their products and services. However, Sherlocking can be anticompetitive in some instances.’ (361)
Apple claims to play by the same rules as all other app developers. But, as numerous examples in the report show, Apple likes to use its position to copy innovations and ideas. Steve Jobs once noted that “we have always been shameless about stealing great ideas”. While the Apple Developer Agreement, which grants Apple the right to clone third-party apps, the third-party developer guidelines state that you should come up with your own ideas and not just copy other successful apps. (363)
Excluding Rival Apps
‘ In 2018, Apple announced its Screen Time app, a new feature bundled with iOS 12 that helped iOS users limit the time they and their children spent on the iPhone. Thereafter, Apple began to purge many of the leading rival parental control apps from the App Store. Apple explained the apps were removed because they used a technology called Mobile Device Management (MDM). The MDM technology allowed parents to remotely take over their children’s phones and block content. Apple noted that MDM could allow the app developer to access sensitive content on the device.’ (364)
‘Although Apple claimed its conduct was motivated to protect privacy and not intended to clear out competitors to Screen Time, Apple reinstated many of the apps the same day that it was reported the Department of Justice was investigating Apple for potential antitrust violations.’ (366)
4.2 Siri — Intelligent Voice Assistant
Market Power
Siri was introduced in October 2011 with the iPhone 4S. ‘Apple describes Siri as “ an intelligent assistant that offers a faster, easier way to get things done on Apple devices,” helping users to “make calls, send text messages or email, schedule meetings and reminders, make notes, search the Internet, find local businesses, get directions, get answers, find facts, and more just by asking.’ (372)
In January 2018, according to Apple, Siri was active on over 500 million devices. Which makes Siri the most used voice assistant in the world. Apple claims to not collect market share data. The market research company FutureSource Consulting states that Siri (as of December 2019) has a global market share of 35%. Together with Microsoft, Google and Amazon, Apple is one of the leading providers of intelligent virtual assistants. (372)
Mergers
Siri itself is the product of a startup (Siri, Inc) that was purchased by Apple two months after the initial launch of the Siri app. The acquisition was followed by numerous other takeovers to improve Siris underlying technology. (373)
Conduct
‘As with many of Apple’s other products and services, Apple has taken a walled garden approach to the intelligent voice assistant market by, among other things , limiting interoperability by restricting how digital voice assistants work on Apple devices and how Siri works with non- Apple devices, and by using Siri to guide users to its own products and services.’ (373)
Apple does not allow competing digital voice assistants to replace Siri as the default on Apple devices. Siri is exclusive for iOS devices Third party manufacturers can produce Siri-compatible devices, but they must be connected to an iOS device to operate. ‘In addition to keeping Siri closely tied to Apple hardware, Apple has used its voice -enabled devices to strengthen consumer engagement with its own services and apps. For example, as of the writing ofthis Report, by default requests to Siri to play music open the Apple Music app ; requests for directions open the Apple Maps app; and requests for web searches open the Safari app . To use a competing service through Siri a user must adjust the device’s settings and identify the service in the command to Siri (e.g. “ Hey Siri, play the NationalAnthem on Spotify” )’ (374)
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