The Congressional Report on Big Tech: Yes It’s Time To Do Something
The Congressional report on Big Tech is an important document. While I know many will see it as partisan, I found the research thorough and filled with important information. And my conclusion is yes, we do need to take some action.
How Important Tech Has Become
I’ve been a part of the tech industry since the 1970s, and it has changed a lot.
In the early days, computers and devices were a feature of our life.
Today tech dominates our life. We can’t live without it.
Think about your day. You can’t buy something, go somewhere, or call someone without using tech. Even landline phones (which are regulated) are barely being used.
What this means is that all the essential tools for daily life – the internet, our phones, the search engine, and our personal network – are dependent on these four companies.
But unlike your electric utility, we are not “served” by these companies we are “monetized.” Every interaction we have is used to generate revenue.
According to the report, the four companies detailed (Amazon, Apple, Facebook, and Google) are worth more than $5 Trillion and now make up more than a third of the market cap of the S&P 100.
This is a very high degree of economic concentration.
The report concludes that there is “significant evidence that these firms wield dominance in ways that erode entrepreneurship, degrade American’s privacy, and undermine the vibrancy of free and diverse press. They reduce innovation, eliminate choice, and weaken democracy.”
And I have to agree.
Yes Tech Is Good, But It’s Also A Public Service
One of the big philosophical issues is whether four companies that make up a more than 20% of our economy are businesses or public services. And as you read the report you understand that much of what has happened is a slippage from companies that sell “products” to companies that “serve society.”
Personally, I’m a huge tech fan I understand how these companies work. They’re not evil or unethical, but they are very greedy and they fall into the trap of “steadily-increasing growth.” Executives are paid based on their continuous quest for customer counts, traffic, revenues, and profit. So they operate like sharks in the ocean – constantly looking for more food.
The stock market itself is part of the problem. These companies have sky-high valuations (many trade at 10X revenue), creating enormous wealth for employees. If the growth slows and stock prices plunge, employees leave and the company loses luster. So every business unit, manager, and leader is focused on growth.
As you read the report (my version is marked up) you find examples of anti-competitive behavior, monopolistic behavior, and lying. And that’s why the Feds are getting involved.
Much of this report is about the role these monopolies play in society and our economy as a whole. And this gets to the issue of culture and how decisions are made.
Older tech companies like IBM, Microsoft, Cisco, and AT&T have faced these issues before, so they’ve learned that culture and citizenship really matter. The four companies in this report (Apple is an exception) have not had time to feel the weight of their decisions, so a lot of the “bad behavior” you read about is just a sign of immaturity.
Let me give you an example. I visited a business unit at Google and a friend who works there told me proudly “We have profile data on everyone in the world. Nobody hides their data from Google because they want to be found in Search. We have all the data about people from LinkedIn, Facebook, and everyone else already.” The concepts of privacy or user-permission didn’t even occur to him.
This was not an evil effort, but over time Google just “amassed” this data and the culture enabled it. Every product manager, business unit leader, or P&L owner is paid to optimize their part of the company, and if there isn’t a set of strong ethical principles, they do what they need to do.
The Real Issues Are Broader: They Impact Society
As the report explains, digital market dominance has a huge impact on our lives.
The news and media industry has shrunk by half, reducing the quality of real news (there’s plenty of clickbait news, however). The loss of privacy lets bad actors do bad things and erodes public trust. The lack of competition reduces innovation (there are now “kill zones” where no VC will fund startups because they are too close to one of these behemoths). And while we all love tech more than ever, we are paying high costs. Look at your credit card bill for online services, phone and media subscriptions, travel, and food – digital services have not reduced our cost of living. And as you may know, even Amazon has raised prices.
Some of the findings are even more problematic. Google, a virtual monopoly, decides when to promote its own products above yours. So if you spend money to create traffic for your product, Google may just decide (algorithmically) to promote its product above yours. You are now generating demand for a competitor. (Look at the ad by Basecamp to get the idea.)
Facebook acquires adjacent businesses to protect their market share. In fact, the company acquired a technology that shows them any competing social network so the can immediately spot competition. Recently, when Facebook acquired Giphy (a tool which seemed like a game), they gained the ability to monitor how we share pictures and motion graphics – further monitoring behavior.
Violent and extremist activity is actually good for Facebook. Remember you are not Facebook’s customer, the advertisers are. So anything Facebook can do to keep you clicking is good for them. Again Facebook is not “evil,” but their market dominance puts them in this highly conflicted position.
History Teaches Us A Lesson
I worked at IBM in the 1980s. The company was ethical, honest, and fair. But we had enormous monopoly power over the mainframe computing market, and IBM forced companies to buy IBM software and services to go with IBM hardware. It was a highly profitable decision for IBM at the time, but it was deemed a monopoly practice. The Federal Government filed a Consent Decree and forced IBM to “decouple” software, hardware, and services.
What happened? Companies like Cisco (who crushed IBM in networking products), Sun, Oracle, and hundreds of others went after these computing markets and built important, thriving, competitive businesses. IBM took a hit for a while, but the company reinvented itself and it is back on track again.
The same thing happened to Microsoft. As Ballmer talked about this week, Microsoft was building PC software, dominating its market, and then it started forcing hardware manufacturers to bundle Microsoft software. The Feds got upset and called Bill Gates into Congress. In an embarrassing appearance, Gates lied to Congress and was forced to decouple the browser and Office from hardware.
Was this good for the market? I really think the answer is yes. Since then companies like Google and Facebook were born, and Microsoft reinvented itself. The culture at Microsoft is now healthier than I’ve seen in decades, and I have become one of the company’s biggest fans.
The four companies in this report each have their own business issues.
- Apple charges a 30% tax on all transactions in the app store just because they can. They don’t need to charge such a high price, but what the heck, let’s just do it. And remember – we all pay this. You are paying Apple 30% of every dollar you spend on your i-Phone. According to the report, App Store revenues are $17.4 Billion in 2020, and estimated costs are less than $100 million. (When you buy a Starbucks on the iPhone app does Apple gets 30% of your coffee purchase? I’m wondering.)
- Google has crushed much of the media and advertising industry and most companies are dependent on Google for SEO and other go-to-market needs. The company has built very important products, but as the report points out, other industries have almost disappeared as a result.
- Facebook continues to buy up its competition, and has become the largest communication network in the world. AT&T, which used to be a regulated monopoly, never reached this level of penetration.
- Amazon, for all the goodness they create (and it’s a lot, we all know), puts many companies out of business. As testimony from a partner states, “Amazon is like the sun – you can get a good tan but if you get too close you’ll be incinerated.” And there is testimony of Amazon employees admitting to “going over the fence” to use third-party seller data to create competing Amazon-branded products.
I do not believe that these CEOs are unethical or evil. In fact quite the opposite. They are hard-working individuals who work tenaciously to create great companies, grow their business, and take care of their “customers.” But they each have issues to think about, and that’s what the Congressional Report is pointing out.
Crossing Over The Line From Company to Institution
In many ways, these organizations became “institutions” without realizing it. They each play a role in our social, political, and economic life – and all Congress is asking is for them to think responsibly about this role.
Some CEOs (Marc Benioff of Salesforce, Yvon Chouinard of Patagonia, Joey Zwillinger of Allbirds) really do wake up each day and think about society. But it’s more unusual than you think, and most companies “get religion” about their role in society after someone or something knocks them on the side of the head.
There is a huge movement around Conscious Capitalism (you should read the original book, it’s worth the time) and more and more CEOs do want to build businesses that contribute to society. It just gets harder and harder when you become dominant, overvalued, and very public in your presence. And that’s what this report is all about.
I actually thought Joe Biden’s comment about this issue was important. He doesn’t demonize any company for anything they do – he just wants to make sure we have guardrails and rules that make sure our entire country (and the world) is benefiting from what’s going on. And that, I believe, is what this Congressional report is all about.
Some of the things you read about in there are just “bad behavior.” But most of it is just plain “monopoly power.” In other words, these companies tie their products together, block competition, or secretly use data because they can get away with it. And since it’s not illegal, they feel it’s good business.
And if you are thinking about politics, read this line from Sacha Baron Cohen’s article in the Washington Post.
Zuckerberg seemed to equate regulation of companies like his to the actions of “the most repressive societies.” This, from one of the six people who run the companies that decide what information so much of the world sees: Zuckerberg at Facebook; Sundar Pichai at Google; Larry Page and Sergey Brin at Google’s parent company, Alphabet; Brin’s ex-sister-in-law, Susan Wojcicki, at YouTube; and Jack Dorsey at Twitter. These super-rich “Silicon Six” care more about boosting their share price than about protecting democracy. This is ideological imperialism — six unelected individuals in Silicon Valley imposing their vision on the rest of the world, unaccountable to any government and acting like they’re above the reach of law. Surely, instead of letting the Silicon Six decide the fate of the world order, our democratically elected representatives should have at least some say.
As he states, these companies’ business models are built on engagement, and nothing creates engagement like lies, fear and outrage.
Is Growth Always Good?
I’m also left with one other thought about this industry. Is revenue growth always good? Not necessarily.
What’s wrong with being a really great company that delivers outstanding products and services, makes a healthy profit, and doesn’t grow very fast? As long as you’re defending your turf, I think that’s a very fine outcome. (Warren Buffet buys companies like this.)
When you insist on rapid growth in every market, dominant market share, and “scorched earth” business – you eventually run into problems. Even today I read that Google is turning YouTube into an e-commerce system to compete with Amazon. While it sounds like a good idea for a startup, think about all the “tie-ins” this gives Google. Every time you search for anything will Amazon’s products even appear any more?
The noble role of business leaders is to “create value for customers” (it’s an old Peter Drucker line). If you find a problem, solve it, and make a profit – well then everyone is happy. Profit and growth are not “goals” but “outcomes.” When you simply look for any opportunity to grow, it’s not surprising you’ll cross some red lines.
I remember when Jeff Bezos once said “your margin is my opportunity.” What he was saying is that “I’m going to copy what you’re doing in a cheaper way.” Well, that’s fine: he took a lot of friction out of our lives and innovated in many ways. But as a “digital marketplace owner” his margins and profits are now enormous, and the barriers to entry are huge. Should we just let Amazon and Google fight it out? These are the questions the Congress is asking.
While I have not felt much confidence in the Federal Government lately, this report gives me faith that political leaders in Washington are at work. The report is educational, important, and non-partisan. It does not advocate any specific remedies or actions, but it clearly shows us what has been happening.
My hat is off to the team that did this work – it’s an important document and I recommend you read it. My marked up copy is here if you want to see what I found most important.