Aug 14

Do We Really Need a ‘Breakup’ of Big Tech?

Editorial Staff
Aug 25, 2020

Image: Morning Brew via Unsplash

When the major banking institutions landed on their feet after the financial crisis of 2007-2008 thanks to the Emergency Economic Stabilization Act, often called the “bank bailout of 2008,” the global community cemented its belief that some companies are simply “too big to fail”. But twelve years later, the winners of the brewing financial crisis caused by the COVID-19 pandemic – the major American tech corporations – do not seem to have the same immunity.

In contrast to the bipartisan support for big banks in 2008, the Democrats and the Republicans have now come together in their scrutiny of Big Tech. Yet despite the lawmakers’ consensus on the need to regulate increasingly powerful tech giants, their rationales are far from similar, and the solution to the problem of technological monopoly is far from simple.  

Antitrust laws developed by the government to ensure fair competition have protected consumers from predatory practices of big businesses for decades. Rooted in the prevention of price discrimination and tying, antitrust regulations traditionally applied to goods and services that customers had to pay for with hard cash.

Today’s tech economy, however, relies on a fundamentally different business model. Many tech companies, such as Facebook and Google, get their revenue not from goods or services but from the sale of data. Ignorant to this reality for many years, users were happy to use major online platforms free-of-charge, until they realized that their personal data became as valuable as their money.

Editorials have long labeled Facebook as an advertising company – and this assertion is easy to believe given the dominant role of ads on the social media platform. The company’s effective user data-driven advertising system allows Facebook to generate over 98% of its revenue from ads. Despite selling cloud computing services and hardware like its Pixel phones, Google’s parent-company Alphabet has also recently reported that it gets nearly 80% of its revenue from advertisers.

Selling user data is not an inherently illegal act. Yet for a long time, Google and Facebook have built up a powerful data duopoly aimed at defeating smaller advertising market players. In 2019, Google faced a $1.7 billion fine from European regulators for preventing companies using its AdSense product from displaying search ads with its competitors. The same year, the U.S. Federal Trade Commission issued a $5 billion fine to Facebook for failing to protect its vast userbase data from third parties. The company was found to serve ads by using phone numbers provided for security and lying to users that its facial recognition software was turned off by default.

It was the European Union that paved the way for personal data protection by implementing the General Data Protection Regulation (GDPR), aimed at protecting user privacy and promoting competition by “wrestling the ever-growing power out of the hands of the few.” In contrast, the United States has yet to introduce a federal regulation to limit Big Tech’s ability to weaponize its access to user data against smaller competitors.

To combat the adverse consequences of the tech giants’ domination, the U.S. administration has to go beyond performative hearings and come out with a concrete set of regulations. Some of these regulations have already been outlined by progressive politicians like Elizabeth Warren, who suggested that the government “break up Big Tech.” But as critics have recognized, this omits the possibility of a dialogue with the companies that today have become as socially significant as to be labeled the modern-day “utilities.”

In this sense, Yandex (which has been described as Russia’s Amazon, Uber, Google and Spotify all in one) looks like it may be ahead of the curve.  In November 2019, the tech giant announced a set of targeted governance changes aimed at ensuring the company could continue to develop as it had always done, but while nevertheless putting in place certain mechanisms to protect the interests of all its stakeholders.  This went a long way in addressing any concerns of public authorities, and Bloomberg wrote that Big Tech in the US might want to take note of how Yandex successfully avoided potential regulatory threats by yielding some power to outside interests.

As regulators increasingly take on major tech companies, it is important to remember that the legislation’s ultimate goal is not to suppress tech companies, but to protect consumers and even out the digital playing field to support fair competition and innovation. A Big Tech “breakup” is only beneficial if it leads to a new, healthy relationship between technology companies and the societies they purport to serve.

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