Elizabeth Warren pitches splitting Amazon, Google, and Facebook - The UpStream

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Elizabeth Warren pitches splitting Amazon, Google, and Facebook

posted Saturday Mar 9, 2019 by Scott Ertz

Over the past decade, a few companies have emerged as the strongest players in the technology field. The biggest of those faces have been Amazon, Facebook, and Google. Their moves tend to change the direction of the industry, whether or not they are the first ones there. Amazon was far from the first e-commerce platform, but without them, online shopping would be a very different experience. They were also far from the first to have cloud offerings (I think we all remember the Microsoft ad with Bill Gates and Jerry Seinfeld at the mall), but they made the term popular and brought the prices down significantly.

Google didn't invent email, but they changed what you can get for free. Before Gmail, a Hotmail or Yahoo account would give you 20MB of storage. After, both brands expanded their storage to 1GB, with those numbers shifting over time. Facebook didn't invent instant messaging, but they made it so that we could use IM to communicate not just with our friends, but also brands in our lives. All of this has come about simply because the companies had the resources to make it happen. In other words, their size.

Elizabeth Warren, a Democratic candidate for President of the United States, in an attempt to separate herself from a crowded field, has pitched destroying these three companies, simply because of their size. According to Warren,

Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as "platform utilities."

These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.

For smaller companies (those with annual global revenue of between $90 million and $25 billion), their platform utilities would be required to meet the same standard of fair, reasonable, and nondiscriminatory dealing with users, but would not be required to structurally separate from any participant on the platform.

To enforce these new requirements, federal regulators, State Attorneys General, or injured private parties would have the right to sue a platform utility to enjoin any conduct that violates these requirements, to disgorge any ill-gotten gains, and to be paid for losses and damages. A company found to violate these requirements would also have to pay a fine of 5 percent of annual revenue.

This means that Amazon could not sell their own white-label products, such as AmazonBasics. It might even mean that their hardware division (Amazon Fire and Echo products) would have to be separated from their software division (Alexa). The same could be said for Google, who would not be able to have Google-made Android devices. More importantly for Google, it would force a separation of Google AdSense (the company's business model) and Google Search (which generates zero revenue). That would essentially end the value of Google Search, possibly forcing the closure of the product, as it would no longer be financially viable.

In addition, Warren's idea involves unwinding mergers that she alone deems anti-competitive, despite already being approved by various governmental oversight agencies as not being anti-competitive. For example, she wants Facebook to give up Instagram and WhatsApp, Google to give up DoubleClick, Nest, and Waze, and Amazon to give up Whole Foods and Zappos.

There are so many problems with this idea. First and foremost, there would be almost no way to extract a brand like Instagram from the inner workings of Facebook or Waze from Google, without the platform simply collapsing. The two are so intricately intertwined that it would likely take years to try and pull them apart if it is possible at all.

More importantly, however, is the general terribleness of the move. We've seen companies broken apart out of fear in the past, and it is never a success. Regulators believed that separating Bell into regional pieces would make the telecommunications industry better. In reality, innovation stalled and the telecommunications infrastructure languished. Because of the split, the US rollout of cellular technology was majorly hindered, and the Baby Bells could not compete with other, larger companies, and today they have all been acquired by those companies.

When it comes to research expenditures, some simply cannot be accomplished by smaller companies. Some innovations must come in the form of huge investments. Android could not have been brought to market with the budget of the small Android, Inc. It needed the support of Google. Google Search could not have happened in a vacuum, it needed the revenue of AdSense to make it profitable. The idea of free delivery on orders (now offered by Target, Wal-Mart, and more), could not have been offered initially without the budget of Amazon. Destroying these companies, and their business dealings will only end in a slowdown of major innovations.


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