Knowing full well that the politicians had their own
self-interests to advance when they were on the clock during the Hearing, I had
to remain attentive and patient. In
between the orchestrated political grandstanding and wonderment if there was a question
embedded in a lengthy statement by a committee member, there were some meaningful,
on the record, exchanges during the more than five hours of testimony that made
it worthwhile to stay tuned-in. Upon
reflection, here are my takeaways for each firm in terms of antitrust exposure.
Facebook
In hindsight, maybe the FTC should not have approved,
without any action, Facebook’s acquisitions of Instagram in 2012 for $1 billion
and WhatsApp, two years later, for $19 billion.
After all, Section 7 of the Clayton Act states that regulators should prohibit mergers and acquisitions where
the effect "may be substantially to lessen competition, or to tend to
create a monopoly." In assessing market potential of the mobile photo app and
messaging app, Facebook had the foresight to see the upsides to the acquisitions,
achieving synergies while eliminating competitive threats. Shame on regulators at the time for not evaluating
fully the downside risks and challenging the mergers. Hindsight is 2020. Regulators should lick their wounds on this
one and move on.
Amazon
When a partner is a
rival, business relationships get tricky.
Consider for a moment the streaming market. Netflix, a platform owner, needs valued
content to acquire and maintain subscriptions.
When Netflix started, all of the content it offered was licensed from third
parties. It spent a lot of money for
that content from the likes of Disney, Comcast, and ViacomCBS. Recognizing the potential risk of these
business partners becoming streaming rivals one day, Netflix began creating its
own content in 2012/2013. It turns out
it was a very good decision as these firms began going direct to consumers over
the past few years and began pulling their content from Netflix. Something they have every right to do.
Where are the similarities
with Amazon? Amazon has partners too. Lots of them. These partners sell their wares
on the e-commerce platform. Over 50
percent of sales volume is generated from third parties. Ask yourself…If you developed a new product,
would you look to sell it on Amazon in order to leverage the platform’s speed
and scale? It would be hard to say no,
even when acknowledging the firm’s reputation for using the data on its
partners to replicate successful product ideas.
While Amazon has policies against such behavior, there is strong evidence
that it is happening. Here is where external
regulations are needed in place of internal guidelines.
Amazon may also have
some exposure in using predatory pricing on products like Echo to drive
competitors out of the market. Bezos conceded that the firm uses promotional
pricing on its smart speakers. Legitimate
pricing strategy? Not when the below
cost pricing is combined with monopoly power and has credibility because losses
are financed or recouped from profits earned in other markets (e.g. AWS).
Google
Google is the firm most
exposed just based of the actions already taken by the European Commission and
what is anticipated from the DOJ by the end of the summer. Google’s bottleneck and vertical soup-to-nuts
control of search and display advertising was achieved largely through acquisitions
of firms like DoubleClick and Applied Semantics (renamed AdSense). The chokehold on serving, buying, and selling
mobile and online advertising limits choice and unfairly advantages Google.
Apple
Apple seemed to come
out of the Hearings relatively unscathed.
Tim Cook did not get asked many questions, but, when he did, they were mostly
centered on claims that the firm favored its own apps over those built by third
parties. The CEO was effective in
deflecting any hint at favoritism by repeating that there were millions of
third-party apps available on the Apple Store.
Where I think there
were missed opportunities to press Apple was on how it tied the launch of its
new streaming service, Apple TV+, to purchases of its hardware. Buyers of an iphone, ipad and other Apple devices
got a free one-year subscription to Apple TV+.
It is why that one month after launch, Apple had amassed over 30 million
subscribers on its platform. Not
bad! When you consider the elements to
support an antitrust violation of a tying claim, they are present here. The biggest factor being that Apple has
market power in the tying product (hardware) which it is extending into the
tied service (streaming). (Amazon has
been doing the same things for years by bundling for free its Amazon prime
video with its annual prime membership service.)
All Together
As operators of two-sided markets, these “new economy”
firms incur high fixed-cost and low marginal cost with the development and sale
of intellectual property. They also benefit
from network effects, collect and use big data, and have non-standard
relationships between price and cost. Dominance
in each market came initially from signing up a critical mass of users on both
sides of the market, and then maintained by continually innovating through growth
and/or acquisitions.
Again, dominance is not bad in and of itself. It is when it is abused, that there should be
concerns, even if it is perpetuated by the very tech companies we love as
consumers. It is why changes to how our
antitrust laws are written or interpreted for these “new economy” firms will be
challenging. Lawmakers and regulators
will have to check the rhetoric at the door and walk a fine line between being
too aggressive and too lenient. What are
the chances they will get it right?
