Google’s founders famously claimed, during their IPO in 2004, that they were “making the world a better place”. One of the things they pointed to as evidence was the burgeoning online economy their advertising supported: At the time, 39 cents out of every dollar in advertising Google collected was passed on to the independent web publishers who carried its ads.
Fifteen years on, things look very different. The absolute amounts have grown as a flood of advertising has gone online, but Google now passes on only 12 cents of every advertising dollar, keeping the rest for itself — a sign of how it is answering more internet search queries through its own services.
This, as tech commentator Tim O’Reilly points out, is the classic evolution of dominant tech platforms. Companies like this always end up trying to grab a bigger share of the applications or services they support. Microsoft did much the same, turning its Office suite of applications into the standard for Windows machines — in the process squeezing out independent PC application developers.
As more of life comes to revolve around digital platforms, is this an inevitable end-state that will leave Big Tech with too much power over an ever-growing share of the economy? Spotify’s antitrust complaint against Apple to the European Commission this week is the latest case in point. Like other app makers, Spotify is a beneficiary of the smartphone, and the mobile app stores that make distribution of its service easy. But Spotify is now crying foul, as Apple sees music streaming and other services as its next big business opportunity.
One possible response was floated by Democratic presidential hopeful Elizabeth Warren last week. She argued for carving out the tech platforms and treating them as regulated utilities, as part of a wider break-up of Big Tech. That, after all, has been a model for dealing with “natural monopolies” in other industries, from electricity transmission to railways. App stores, search engines and ecommerce platforms (Amazon) would all be forced to give equal treatment to all-comers, rather than favouring in-house products and services.
One common response to this in Silicon Valley is that tech is different (this is certainly how the tech companies see it). According to this argument, the dominance of today’s platforms is a temporary phenomenon based on the current state of computing, just as the Microsoft and IBM monopolies were in the past.
But when a technology is at its peak, it is hard to expect politicians and regulators to simply take this on faith. The centre of computing gravity may one day shift to intelligent cars, augmented reality glasses and “smart home” gadgets. But right now, the smartphone is the centre. Also, today’s tech leaders are investing heavily to make sure they are the ones who control the next dominant platforms.
But there are plenty of weapons short of break-up to restrain tech leaders from unfairly pushing out upstart competitors. The Spotify complaint points to one. Illegal “tying” of services — using a dominant position in one market to unfairly take over another — has been used before to restrain the power of tech companies, most notably Microsoft.
Regulators will need to be expansive in the use of their powers to be effective. The challenge by German federal regulators against Facebook is a case in point, attacking the company’s ability to use data collected for one of its service to support others.
Along with more activist regulators, the courts will need to do their bit. Two cases currently before the US Supreme Court highlight the issues at stake. One concerns the right of consumers to challenge the 30 per cent fee that Apple applies in its App Store.
The other is an appeal by Google, in a case involving Oracle. If the lower court ruling stands, it will become easier for companies with a dominant position to prevent upstart competitors from building services that tap into their technologies.
The threat of a break-up — if not the act itself — may also be a potent weapon. IBM and Microsoft were both threatened with that ultimate sanction. They survived intact, but wariness about overplaying their hands may have been one factor that allowed new competitors to grow up in their shadows.
For that reason alone, Spotify, along with every other app maker that has come to rely on Apple’s smartphone App Store, must be hoping that politicians like Senator Warren keep up the rhetorical attack.