Regulation and Big Tech Under Biden
Joshua Warner February 15, 2021 8:51 AM
Joe Biden's entry into the White House has revived calls for Big Tech to be reined-in, but will the US and other countries tighten their regulation and raise taxes on Apple, Amazon, Alphabet and Facebook?
Innovate first, regulate later
There are many cycles in financial markets and one recurring theme is that between innovation and regulation. Governments use regulation and incentives as a way of guiding companies in a chosen direction, and new creations of industry require governments to rewrite the rulebook to ensure it is fit for the modern age.
Most countries with free markets typically follow an innovate first, regulate later policy so not to stifle progress. However, this often leaves governments in a difficult position of having to balance between creating regulation that is effective without hindering innovation and growth, and ensuring companies are not let so far off the leash that they become too powerful.
Throughout time, businesses have disrupted markets by providing revolutionary products or services that benefit society. However, the game-changing nature of some inventions leads to monopolies and a concentration of power among a handful of companies.
In the past, oil barons and railroad magnates were among those that became too influential and had to be brought down. Today, it is the companies that control our digital lives and data, so-called Big Tech – Apple, Amazon, Alphabet and Facebook – that are under the spotlight.
All four companies have grown into international behemoths and whilst they have all been around for a while, regulation has not kept up. The decision to follow the innovate first, regulate later policy means governments now face the challenge of updating the rules for Big Tech.
Will there be new regulation for Big Tech?
Big Tech is facing a whirlwind of criticism at home and abroad.
In the US, there are accusations that all four have monopolies in their markets and that they wield it at their benefit and to the detriment of others. There are claims they have fended off competition by buying any potential rivals that dare challenge them, and allegations that there is a wide range of conflicts of interest due to their roles as gatekeepers to the online world.
A subcommittee of the US House of Representatives released a damning review of Apple, Amazon, Alphabet and Facebook in 2019, which included testimonies from their bosses Tim Cook, Jeff Bezos, Sundar Pichai and Mark Zuckerberg on a wide range of questions about their business practices.
'To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons. Although these firms have delivered clear benefits to society, the dominance of Amazon, Apple, Facebook, and Google has come at a price', the report read.
The report went as far to claim that, if unchallenged, '30% of the world's gross economic output may lie with these firms, and just a handful of others' before 2030.
There are other battles too. There is growing international pressure to build a consensus on how to coordinate a new approach to taxing Big Tech and other major digital companies as they also try to ensure the rules are fit for purpose.
Will Big Tech regulation tighten under Biden?
There is appetite in Congress for something to be done about Big Tech, but it is not high on president Joe Biden's list of priorities. Only hours after entering the White House, Biden said his four top priorities were to coordinate a response to the coronavirus pandemic, implement an economic recovery plan, advance racial equality and tackle climate change. The only mention of tech came from a pledge to improve broadband access.
This suggests that there will not be any major political movement in the US against Big Tech in the near-term, especially during the pandemic when all four companies are providing digital services. It will ultimately depend on how much appetite there is the wider political sphere to pull the trigger.
Notably, it is not just Democrats urging for action. A group of at least 17 Republican members of the House have called on the president to 'enforce our antitrust laws against emboldened technology monopolies'.
Companies always prefer to mould their own regulation rather than allow politicians with little hands-on experience to talk amongst themselves and decide what is best for the industry. Considering Big Tech were among the largest donors to Biden's presidential campaign and have powerful lobbyists, there is a strong argument that the government will seek to work with Big Tech rather than against it.
Regulation and Big Tech: what could happen?
There is a high chance that Big Tech will face some potentially important changes in the coming years, but some are more likely than others.
Several countries have now, or are in the process of, introducing new taxes targeting Big Tech and other online companies, and some are also looking at changing their own rules. There is little doubt that they will have to contribute more to public purses in the future.
The situation was very different not too long ago when Donald Trump was in the White House. Although Trump clashed with social media platforms, he defended them as the international community started to introduce new taxes and rules for Big Tech, all of which are US companies.
Whereas Trump previously threatened tariffs, his preferred weapon of choice, to those that penalised American businesses, the international community seem emboldened to move forward with Biden at the helm.
Other countries know that Biden and the Democrats acknowledge Big Tech has become too powerful, and it will be difficult for the president to rein Big Tech in at home whilst telling the rest of the world not to.
Biden, regardless if he decides to pursue Big Tech himself, will have to make a big decision that could have large ramifications – will it be the US that moulds a new international framework to tax America's biggest companies, or other countries like the EU and Australia that lead the way?
Content licensing deals
Google and Facebook both benefit hugely from third-party content being distributed across their platforms and some countries want them to pay publishers to reflect this.
One key battleground that is being watch closely by other countries is Australia. The country is introducing laws that require the likes of Google and Facebook to pay news publishers for the content hosted on their platforms. This prompted Facebook to warn it would have to stop users sharing news while Google threatened to pull out of Australia altogether.
Notably, they are now trying to get ahead of the game by actively trying to strike licensing deals. Google recently agreed to pay news publishers in the UK by signing licensing deals with 120 of the biggest providers, suggesting it is now looking to try to mould its own deals rather than have them imposed by governments in order to secure more favourable terms.
Revoking of Section 230
If there is firm action taken against Big Tech in the US then the starting point will undoubtedly be Section 230, a piece of legislation that protects internet companies from being liable for the content they host. Biden said in January 2020, before he was elected, that he wanted to revoke Section 230 and there is support from both parties.
This could potentially force Big Tech and others to take greater ownership over the content they host on their platform, regardless if it has been created by their users. Right now, they can't be sued or held to account if a user posts something illegal or violates copyright laws. If Section 230 was revoked, then this would force the likes of Facebook to up its game when it comes to monitoring and managing content, which could introduce significantly higher costs.
New monopoly laws
There are also calls for monopoly laws to be revamped to prevent Big Tech from using their roles as gatekeepers to their advantage. This would ban practices like self-preferencing their own content, products or services over that offered by other companies on their platforms, or using their size and power to gain an advantage.
Proposals suggest all four should run more like a neutral provider of vital infrastructure such as the national energy grid or water utility, which doesn't pick and choose which companies to serve and has an obligation to provide an equal, fair and balanced service to all users. Google and Apple act as gatekeepers to smart devices through their ownership of the Android and iOS operating systems, Amazon controls ecommerce channels for small businesses, and Facebook owns the keys to our online social lives. But all of them have come under fire for abusing their positions of power.
For example, Apple removed Fortnite – one of the world's most popular video games – from its store last year after a disagreement with its maker EA over a hike in transaction costs, demonstrating the power it has to grant and revoke access to a huge market.
Separation and M&A bans
At the most extreme end of possibilities is forced separation and breaking-up Big Tech in order to restore competition into the market. All four companies have been accused of simply swallowing up any potential rival that enters the market, in turn increasing their size and power to make it even harder for a new competitor to enter.
For example, the US subcommittee report highlighted that Facebook was now competing more with its other apps Whatsapp and Instagram than it was with external competitors, demonstrating how the M&A free-for-all has ended up diminishing competition and concentrated power in the hands of four companies.
A more likely step will be increased scrutiny or even an outright ban on new acquisitions to prevent them from being able to buy-out new rivals, as well as new rules to protect smaller competitors. This could prevent them from buying a springboard into new markets and force them to focus more on organic expansion.
What could tighter regulation mean for Big Tech?
Apple, Amazon, Alphabet and Facebook are all very different beasts, but they all are being hit by the same accusations and criticism about their dominant positions as gatekeepers to their markets, allowing them to choose the winners and losers in the wider economy.
Still, the threat is greater to some compared to others. There is little debate that Facebook and Google are facing the most pressure. Amazon is certainly in the cross-hairs but for largely very different reasons, and Apple seems the most likely to escape any serious impact.
There could be big consequences from small changes. The fact both Facebook and Google said the requirement to pay news publishers in Australia could make their businesses unviable shows how vitally important the next few years are for Big Tech.
What could tighter regulation mean for Apple?
Out of the four companies under the spotlight, Apple is the most likely to fall into the surrounding shadow. One reason for this is that Apple is still predominantly a hardware company that makes money selling devices rather than profiteering off data like Facebook and Google. The fact it only owns a fraction of the smartphone market, with fierce competition from foreign rivals like Samsung and Huawei, means Apple is an important player for the US in the international market.
The main criticism of Apple is the control it has over its app store for the iOS operating system that powers all Apple devices, allowing it to control access to the hundreds of millions of iPhones and iPads around the world.
However, if it escapes scrutiny in the near-term then it will undoubtedly face it in the future as Apple shifts more to making money from services than hardware.
What could tighter regulation mean for Amazon?
Amazon faces criticism for its dominance in ecommerce, cloud-computing and the fact its never-ending expansion into new markets is stifling competition.
Over 60% of all product searches in the US are made on Amazon, and around 850,000 of its 2.3 million third-party sellers rely on the platform as their sole source of income. The level of competition is a concern considering Walmart, its next biggest competitor in the US, only has 54,000 third-party sellers. The fact it operates a marketplace and competes in it with its own products has also caused concern there is a conflict of interest.
Amazon benefits from the fact it that a lot of its business is transaction-based and involves selling physical goods, which may allow it to escape some of the focus on how digital services operate. Having said that, the fact Amazon's cloud-computing business AWS is by far the largest in the world is also prompting fears that it has too big a share of an increasingly important market.
One of the biggest threats for Amazon is that it could find it harder to secure regulatory approvals to acquire new businesses, which it uses to propel itself into new markets.
Amazon will also face unique challenges as conditions of its warehouse workers continues to be under the spotlight.
What could tighter regulation mean for Google?
In Big Tech, the one company that struggles to find any defence against claims it is a monopoly is Google. Nine out of 10 Americans use Google as their search engine and there is practically no competition from the likes of Microsoft's Bing or Yahoo.
The fact it owns the Android operating system means it has control over access to the bulk of smartphones and it also owns the world's most popular web browser and map app. There have also been calls for there to be a closer look at Google's cloud-computing division as it looks to make a big push in new areas like the Internet-of-Things.
Google is already facing trouble after the Department of Justice filed a lawsuit against the company claiming it has too much power in search, maps, and its app store. There is the possibility that lawsuit could act as an anchor for other lawsuits to be added, with several individual states also expected to file their own cases against the company.
What could tighter regulation mean for Facebook?
Facebook is arguably most at risk as politicians wrangle over how to handle Big Tech. Not only does it face the same allegations as the others that it holds a monopoly due to the volume of data it collects and the amount of online marketing dollars it attracts, it is also facing even louder criticism about how it manages content on its site.
Democrats have accused Facebook of allowing Trump to spread misinformation during the election as he voiced unfounded claims of voter fraud, while Republicans disapproved of the platform's decision to silence Trump in the aftermath. Biden has been critical of Big Tech but has saved his most damning criticism for Zuckerberg by saying in 2020 that he has 'never been a fan of Facebook' and 'never been a big Zuckerberg fan', adding that he believes the founder is a 'real problem'.
Like Google, Facebook is already facing legal challenges in the court with the Department of Justice having filed a case claiming the company is a monopoly and should be broken up by forcing it to sell Instagram and Whatsapp.
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