There has been a lot of “monopoly” talk of late. Companies like Google, Amazon and Facebook in particular. They have created such scale that it is feared they can crush competition that enters their domain and use their financial strength to extend their reach into new domains. As is customary in America where there is great wealth, there is great power and the desire to question that power. Which is where the Department of Justice comes into play. They start raising question such as, “Has the competitive playing field been reduced”? Is just one company determining the playing field? Are these companies practicing anti-competitive methods in order to prevent or crush competition?. This goes all the way back to the the Sherman AntiTrust act of 1890, under the legendary leadership of President Benjamin Harrison (ok – who out there knew this fact? As a fyi, President Harrison is not considered legendary). The Sherman Antitrust act would only really start being used in-force under President Theodore Roosevelt (he was a legend). We have a history of making sure market power does not get consolidated to one company. We are a competitive nation, monopolies tell us a business has won, America says great, we now need to break you up and create a competitive marketplace. Capitalism and market dynamics are part of the American DNA.
The DOJ is not new to me, as for a while it was a dominant part of my life. After the launch of Windows 95 at Microsoft things started to change, specifically as it related to the emerging Internet Browser wars. As usual when it came to competition, Microsoft was laser focused and at that time it was a little company called Netscape that raised our ire. A little internal memo suggested that Microsoft make the browser a standard part of Windows, which had 90% market share at the time (I think it still does). All PC’s that shipped would come with Microsoft’s Internet Explorer. Microsoft was leveraging its greatest asset, Windows, to squash little old Netscape. Marc Andreesen had stated earlier that the graphical browser would become the dominant user experience reducing Windows to “a buggy set of device drivers”. The war was on and Netscape knew it could not compete with Windows when it came to distribution, market share and the fact that Microsoft made the browser free. The rest is history and I shall not regurgitate too much.
One thing I will say is during the crisis the joyful youth and passion of Microsoft employees was changed forever. Steve Ballmer told everyone at the company to not focus on the trial, but focus on their day to day work. This proved an impossible task. In an interesting twist of fate Microsoft was out PR’d by the Justice Department. The duo of Joel Klein and Janet Reno seemed like they were always on the offensive and Microsoft was always playing defense. In reached a head when during one company internal meeting with leadership an employee commented, “What is going on? I do not even recognized this company being portrayed in the media”. The DOJ had succeeded in putting Microsoft into a very negative light. It was a hard lesson. We got cornered and lashed out like a wounded animal but the damage had been done and the DOJ won the day. For many Microsoft employees who were passionate about the company and the rapid pace of change we were stoking it was a painful experience, but a lesson learned. In many ways the rise of FAANG (Facebook, Apple, Amazon, Netflix and Google) has been great as it has turned the focus away from Microsoft.
When I look at the current set of anti-trust candidates, they are all pretty much in the same part of their business lifecycle as Microsoft was when we were taken to court. Still young but becoming middle aged. Publicly traded companies with high flying stock prices. They have CEO’s that are cultural icons as they amass wealth beyond the layman’s comprehension. A billion dollars is frivolous spending money. They are arrogant and believe they will pave the way for the future of the global economy. They see the world through the blinders of their corporate prison. See no wrong, do no wrong. How can people possibly be opposed to us? We are the good guys and gals. But if we peel back the layers of the onion it becomes apparent that there is reason for concern.
If we look at all three companies in question one thing they have in common is data. And not just a little bit of data but exabytes and beyond (next up zettabytes, than yottabytes). More importantly they know how to use that data and manipulate it to their financial benefit. Most importantly that data is about you, the individual. The ability of these companies to harness, analyze and target you as an individual at breakneck speeds is unparalleled in human history. If I buy soccer shoes for my kid next thing I know on my Amazon page I have ads for soccer shoes or soccer apparel. A similar company trying to sell me soccer gear is at a significant disadvantage. Even if they have data and can write great algorithms they are at a significant disadvantage. You need data and the more data the better, this becomes paramount as we are now in the era of AI. Data is the fuel AI needs.
Each company had different anti-trust challenges. In Facebook’s case it may be a bit different. We learned in the 2016 Presidential elections tha social media can be manipulated by “bad actors” – namely Russia, but there are others (China, Iran, etc..). Facebook has become a national security issue and based on its business practices the arbiter of truth. Because of its scale each day millions of voices are heard and to be honest many in rage, some following down ill advised conspiracy paths. There is a ton of noise on social media. The lines of the public sector and private sector have crossed over and become rather blurred. Watching Mark Zuckerberg testify before congress (via Zoom) was in some ways uncomfortable, but he did acknowledge there is a role for government to play, while maintaining our first amendment rights. It has created the question of Facebook being the arbitror of facts. There are extreme organizations that (left and right) use Facebook to spread doctrine and “alternate” facts and Facebook is left to decide who can post and what they are allowed to post. In the end they are left with the worst case position of acting as political supervisors. They have to determine facts and when is what is being spread hostile and when is it humorous. They are being asked to a responsible and credible news organization, when nearly all content is supplied and distributed by ordinary people. I do not know how this story will play out. One thing we do know is social media is being used and played by bad actors to spread divisive and harmful information.
Amazon is a different story. We think of them as the book seller turned ecommerce giant, and then for kicks, started the whole cloud computing phenomenon. My take on Amazon is maybe a bit different. For a while I have thought they are the supply chain company. The old business adage is “building a product is easy, building a supply chain, now that is hard”. Amazon seems to revel in looking at their suppliers and ask the simple question, “why are we paying them? Can we do it better?”. During Covid-19 on my street it seems an endless stream of Amazon Prime delivery trucks are going by my house. If I go to the airport I see Amazon Prime Planes. This is all business that used to belong to FedEx and UPS. A thing to admire about Amazon is for all the cash they bring in they have never seemed interested in piling up cash like Apple, Microsoft or Google. They re-invest in the existing business and the opportunities to create new businesses. They are a hyper aggressive company. This of course has brought them into the cross hairs of the DOJ. In a lot of ways Amazon offers the simplest of solutions just break up eCommerce and Cloud. They would still both be behemoths in their perspective markets. During a crisis there are winners and losers. COVID-19 has been a great opportunity for Amazon to dominate the industry even more. They crush small business like ants. With small businesses dying, Amazon is thriving.
Google has been in the lead of search for some time and in mobile search it is clearly the dominant player with 95% market share. The DOJ brought a lawsuit against Google back on Oct 20th. Google has owned search for a couple of decades and have amassed a dominant position in the industry. They are part of the FANG group of stocks that seemingly drive the tech market. They are so prominent that “Google” is a verb. They built the search business model that left everyone scrambling to catch up. They have built up vasts amount of cash and more importantly are the search engine of choice out of habit. Habits are difficult to change. Even more difficult to regulate. There are alternatives out their to Google Search, such as Microsoft’s Bing, but even Microsoft with all its financial resources has not been able to crack or even dent the market share in search that Google has. You would have thought that Apple would have scrapped Google for Bing, given Steve Job’s loathing of Google, but at the time (before Job’s passing) Bing was in no position to compete with Google and for Job’s user experience trumped everything. Can the government break up Google? Force mobile phone providers to seek other search partners (hard given many are not US Companies)? Governments regulating and defining free markets is dangerous, but free markets are not saints, they are more Darwinist in their approach. Those they crush are just a lesser species.
With all the litigation going on what should these companies do? From experience I would say: cooperate. Microsoft in its youth and arrogance fought the DOJ. Thinking we would win on our technical merits and business acumen. We thought the public was on our side until they were not. A second thing is do not underestimate the ability of the DOJ. They are pro’s and they will have witnesses, primarily academics and your competition. The DOJ has been thinking about the case long before it ever became public. Do no make it a contentious case, because it will not only affect public perception but employee moral. It is a delicate balance in a hyper competitive industry, you do not want to pull your punches, but you need to continue to move forward.
What will the government do? The lines in the industry are much more opaque than they were 20 yrs ago, because those lines do not reside within borders. They live in the cloud we call the internet. If the government went draconian and came down really hard on Google, who says Bing would bick up eth scraps? Maybe an unknown competitor in China would prove to be the best? Russia? And then you get back to the issue of data. Where does it reside. The DOJ is treading a fine line, this is not like the easy old days of AT&T where you are talking a physical separation of a company that resides within US borders. Even if you broke up any of these companies there is no saying its popular replacement would be a US based company, because it would be on the web and not as predictable of an outcome.
Good Night and Good Luck,
Hans Henrik Hoffmann
Hans Hoffmann's Blog 