{"id":5786,"date":"2019-09-17T11:11:12","date_gmt":"2019-09-17T15:11:12","guid":{"rendered":"https:\/\/www.bu.edu\/questrom-magazine\/?page_id=5786"},"modified":"2019-11-18T11:36:43","modified_gmt":"2019-11-18T16:36:43","slug":"is-it-time-to-break-up-big-tech","status":"publish","type":"page","link":"https:\/\/www.bu.edu\/questrom-magazine\/fall-2019\/is-it-time-to-break-up-big-tech\/","title":{"rendered":"Is It Time to Break Up Big Tech?"},"content":{"rendered":"

Facebook CEO Mark Zuckerberg has turned the company into a behemoth; Senator Elizabeth Warren says she would break up the social media giant if elected president. Zuckerberg photo: Frederic Legrand\/Comeo\/Shutterstock<\/span><\/p>\n

The calls to break up Big Tech are getting louder\u2014and they\u2019re coming from both sides of the political aisle.<\/h6>\n

Senator Elizabeth Warren, a Democratic presidential contender, says companies like Amazon, Facebook, and Google have too much power over our economy, society, and democracy. President Donald J. Trump has said \u201csomething is going on in terms of monopoly,\u201d and it\u2019s \u201ca bad situation.\u201d <\/strong><\/p>\n

Many Americans agree with them. They worry about the volume of personal data the tech giants possess and the sway these companies have over their lives. Facebook has 2.4 billion active monthly users. Amazon accounts for nearly 40 percent of all e-commerce spending in America. Google gets more than 92 percent of global search engine inquiries. Apple became the first company to cross the $1 trillion mark in market capitalization\u2014a market cap larger than the GDP of Saudi Arabia.<\/p>\n

The government is upping its scrutiny of Big Tech, which is facing sweeping antitrust investigations by the US Department of Justice, Federal Trade Commission, and Congress. New laws could be coming too: Democratic Senators Richard Blumenthal and Amy Klobuchar introduced a bill dubbed the \u201cMonopolization Deterrence Act\u201d that would impose harsher penalties on Big Tech companies that engage in anticompetitive practices.<\/p>\n

But is it a good idea, or even possible, to split up these companies? We asked five Questrom professors about the questions\u2014economic, political, and customer-related\u2014we need to consider before rethinking our regulation of Big Tech.<\/p>\n

A BREAKUP MIGHT NOT BE LEGAL<\/h2>\n

Back in the 1880s,<\/strong> many companies in the United States were growing into monopolies using anticompetitive, oppressive business practices. As a result, Congress passed the Sherman Antitrust Act, in 1890, and the Clayton Antitrust Act, in 1914, outlawing monopolies, cartels, and trusts\u2014and they started picking the biggest offenders apart. The American Tobacco Company was broken up into four different firms. Standard Oil became 34 separate companies.<\/p>\n

Those broadly worded statutes still hold up more than a century later, says antitrust expert Michael Salinger<\/a>, Jacqueline and Arthur Bahr Professor of Markets, Public Policy, and Law. \u201cThese acts were passed before we had radio, telephones, television\u2014and yet, the principle that it should be illegal to monopolize a market through means other than providing a better product at a better price still holds true.\u201d<\/p>\n

But before we start smashing modern monopolies, we need to figure out if they\u2019ve actually broken long-established antitrust laws, says Salinger, who\u2019s also chair of markets, public policy, and law. \u201cThese companies need to have violated laws in ways in which an appropriate remedy would be to break them up. We can\u2019t just do it because some politicians think it\u2019d be a good idea,\u201d he says.<\/p>\n

That caution is echoed by Garrett Johnson<\/a>, an assistant professor of marketing: \u201cIt\u2019s frustrating that the conversation tends to go along the lines of, \u2018These companies are doing bad things, so we want to hurt them by breaking them up.\u2019 If we start breaking up companies wantonly, that\u2019s going to hurt innovation.\u201d<\/p>\n

As to whether these companies have violated antitrust laws, Salinger isn\u2019t so sure they have. \u201cYou have to ask how they got the market position they have. You\u2019re only guilty of monopolization if you\u2019ve attained your monopoly by means other than providing a better product at a better price. Look at Google. People want to search on Google. Their search yields useful information and it\u2019s free, so it\u2019s no wonder they\u2019ve got such a strong position in the market.\u201d<\/p>\n

One solution would be to stop companies getting too big in the first place. Timothy Simcoe<\/a>, an associate professor of strategy and innovation, believes we should pay more attention to Big Tech mergers before they happen. Take Facebook and its acquisitions of Instagram in 2012 and WhatsApp in 2014. \u201cI don\u2019t know that those mergers got a particularly hard look\u2014and maybe they should have,\u201d he says. That said, Simcoe doesn\u2019t think predicting which mergers will turn a company into a monopoly will be a simple task. \u201cOf course, that\u2019s easy to say and hard to do. Often, these technologies are nascent when acquisitions are proposed.\u201d Simcoe suggests tightening up merger reviews by giving more resources to antitrust agencies, and not placing a presumption of efficiency on every vertical merger.<\/p>\n

BLURRY BOUNDARIES<\/h2>\n

One of the main<\/strong> purposes of antitrust laws is to protect competition and the market. According to Kabrina Chang<\/a>, a clinical associate professor of markets, public policy, and law, the first step in determining whether a company has a monopoly is defining its market\u2014something that might not be so easy to do with modern tech giants. \u201cI don\u2019t know what the market is with Amazon,\u201d she says. Jokingly referring to Amazon\u2019s acquisition of Whole Foods in 2017, she asks, \u201cIs it groceries now?\u201d<\/p>\n

\u201cWhat does it mean when Amazon enters healthcare or groceries, or Google enters self-driving cars?\u201d says Marshall Van Alstyne<\/a>, Questrom Professor in Management and coauthor of Platform Revolution: How Networked Markets Are Transforming The Economy and How To Make Them Work For You<\/em><\/a>. \u201cThese are market adjacencies\u2014and you want to be able to bring in high quality and innovation to adjacent industries, but you might still be relying on the market power of a firm that\u2019s incumbent in a narrower industry. The boundaries are getting very challenging to define.\u201d<\/p>\n

One answer to the problem of blurry boundaries is to isolate what economists call a bottleneck resource\u2014what gives a company its monopoly power. \u201cWhat are the joints along which you carve to get the benefits you\u2019re hoping to get by breaking up these companies?\u201d asks Simcoe. \u201cSome economists suggest preventing monopoly providers from entering other industries, so for example, allowing Google to continue in search, but barring it from adjacent markets, like getting involved in airline reservations. If you can identify the bottleneck resource that gives them monopoly power, put that in a separate organization with a \u2018must-deal-with-everyone\u2019 sort of requirement, then you spin off all the unrelated businesses into a different unit.\u201d<\/p>\n

\"JeffAlthough Amazon has a market cap of more than $900 billion, CEO Jeff Bezos and the company insist it is not a monopoly. Bezos photo: Lev Radin\/Shutterstock
\n<\/span><\/div>\n

OUR DATA ISN\u2019T GOLD<\/h2>\n

Something else that<\/strong> may give us pause before breaking up tech companies is how much we\u2019ve come to rely on them. Google and Facebook have become integrated into our daily lives: the average person conducts three to four Google searches and spends 35 minutes on Facebook every day. We may be uneasy with the power of tech companies, but most of us willingly sign away our rights to get access to a service. How many times have you blindly accepted online terms and conditions?<\/p>\n

Perhaps one of the reasons we\u2019re so distrusting of Big Tech, says Chang, is the amount of power we\u2019ve let these companies accumulate\u2014over us, our data, and our democracy. \u201cThey have immense power, and they\u2019ve got immense influence in public discourse. There have even been Supreme Court cases that ruled that since social media is so important, it\u2019s unconstitutional to prohibit people from using Facebook. It really is a modern public square,\u201d she says.<\/p>\n

Senator Warren has argued that her plan to break up Big Tech would \u201cgive people more control over how their personal information is collected, shared, and sold\u201d and restrict the advantages analyzing our data gives bigger, more established firms. But our data might not be the cash cow we think it is. There\u2019s no doubt Big Tech companies make buckets of money from using our data, especially for advertising purposes\u2014in 2018, Amazon\u2019s ad business surpassed $10 billion and Google\u2019s ad sales totaled $116 billion\u2014but, says Johnson, \u201cthese high dollar amounts have caused some people to think that their data is a huge pot of gold being stolen from them by these evil companies. That\u2019s really an overstatement of what\u2019s going on.\u201d For example, on a per-consumer basis, Facebook\u2019s global average revenue per user hovers around $25 a year\u2014capping how much your data is actually worth. \u201cWith over two billion users, collectively, each of our $25 helps fund all of the free internet services we enjoy [from Facebook]. This notion that we are being robbed of our high-value data is really overstated, and I think that\u2019s crucial to understand,\u201d says Johnson.<\/p>\n

\u201cThis notion that we are being robbed of our high-value data is really overstated, and I think that\u2019s crucial to understand.\u201d\u2013Garrett Johnson, assistant professor of marketing<\/span><\/p><\/blockquote>\n

Van Alstyne, who\u2019s also chair of information systems, agrees that the use of our data isn\u2019t always bad. \u201cOn one end is using a single user\u2019s data in service of the goals and benefits of that particular user; for example, if you\u2019ve got a heart condition, the doctor wants to know all the data about your previous treatments to deliver the best in the next generation of treatment. Very few people object to that; that\u2019s exactly what should be happening. Then, on the opposite side of the spectrum, which is quite troubling, is using your data to exploit you, either through reshaping your opinions\u2014as in the case of Cambridge Analytica [which was accused of harvesting data from Facebook to help political campaigns]\u2014or price discriminating and charging you more.\u201d<\/p>\n

WHAT NEXT?<\/h2>\n

In Europe, regulators<\/strong> have pursued a privacy policy called the General Data Protection Regulation (GDPR), legislation that treats privacy as a fundamental human right, enhancing protections around personal data. \u201cGDPR applies to all data, all forms of personal data, whether it\u2019s extremely sensitive, like your health data, or less sensitive, like whether or not you clicked on an ad,\u201d says Johnson. He\u2019s studying the effectiveness of GDPR and says it\u2019s clear that even with limitations in place, websites continue to share information on their users.<\/p>\n

Van Alstyne thinks neither Europe nor the United States has gotten it quite right when it comes to Big Tech and data legislation. \u201cThe Europeans are a little too interventionist and quick to use government authority for privacy protection as distinct from wealth creation. By contrast, the American approach tends to be too much one of free markets and allowing firms to do as they please\u2014and while that creates value, it also creates serious distortions of who gets to keep that value. The ideal solution is really somewhere in between, continuing to have companies create value, but taking into consideration the European approach of fair allocation.\u201d<\/p>\n

He doesn\u2019t think it\u2019s enough to rely on legislation from a bygone age. \u201cIn the industrial era, we saw giant firms in energy, cars, iron, oil, and railroads. All of those were supply-side economies of scale, with high fixed costs and low marginal costs. Today, however, we\u2019re seeing giant demand-side economies of scale with Big Tech, and specifically with platforms like Facebook and Amazon. Treating them as though they\u2019re supply-side economies of scale gets it wrong.\u201d<\/p>\n

For Van Alstyne, legislation needs to consider how value\u2014for both consumers and companies\u2014is being created. Companies like Facebook, Apple, Google, and Amazon need to be asking how they can both yield a profit and provide beneficial products and services; should they produce their own goods or should they orchestrate those of others? A lot of Big Tech companies have chosen the latter through what Van Alstyne calls the inverted firm, a model where the company\u2019s focus shifts from producing value within to producing value outside of the firm, encouraging others to create on their behalf.<\/p>\n

\u201cIn an open ecosystem, you can harness third parties,\u201d he says. \u201cYou and I are creating the web pages, not Google. You and I are creating the posts, not Facebook. And current economists don\u2019t understand the inverted firm. We need new and better economics and legislation to get this right\u2014and to understand that the nature of creating value has shifted drastically.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Facebook CEO Mark Zuckerberg has turned the company into a behemoth; Senator Elizabeth Warren says she would break up the social media giant if elected president. Zuckerberg photo: Frederic Legrand\/Comeo\/Shutterstock The calls to break up Big Tech are getting louder\u2014and they\u2019re coming from both sides of the political aisle. Senator Elizabeth Warren, a Democratic presidential […]<\/p>\n","protected":false},"author":14030,"featured_media":0,"parent":5824,"menu_order":2,"comment_status":"closed","ping_status":"closed","template":"story.php","meta":[],"yoast_head":"\nIs It Time to Break Up Big Tech? - Questrom Magazine<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.bu.edu\/questrom-magazine\/fall-2019\/is-it-time-to-break-up-big-tech\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is It Time to Break Up Big Tech? - Questrom Magazine\" \/>\n<meta property=\"og:description\" content=\"Facebook CEO Mark Zuckerberg has turned the company into a behemoth; Senator Elizabeth Warren says she would break up the social media giant if elected president. 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