What Tech Regulation Could Look Like

"Did you hear the news?" asked my employee early Friday morning.

"What news?" I responded.

"Fitbit's being acquired by Google" she typed back.

I looked down at my FitBit Versa with its rose colored band and smiled. Why was I smiling? Recently, I had begun to worry about FitBit - most of my friends and family members had migrated to the Apple Watch. Not I. I had already moved smart watches once after my first smart tracker love, Jawbone, had declared bankruptcy in 2017.

My fears were justified. According to Strategy Analytics, at the end of 2018, Apple controlled fifty percent of the smart watch market. And my FitBit - they were second with twelve percent. Twelve percent! Adding insult to injury, in August 2019, after reporting disappointing earnings, shares of FitBit plunged. By the end of that day, the company was worth eighty two percent less than when it IPO'd in 2015. Yikes.

The Google purchase breathes second life into FitBit and keeps my Versa firmly planted on my wrist. To me, it's a victory but not everyone sees it that way. Concerns over privacy and Google's purchasing power immediately began filtering in, specifically those from the U.S. government.

David Ciciline representing Rhode Island's First Congressional District released the following statement -

“Google’s proposed acquisition of Fitbit would also give the company deep insights into Americans’ most sensitive information—such as their health and location data—threatening to further entrench its market power online”

Josh Hawley, a U.S. Senator from Missouri tweeted the following message -

“Why should Google be permitted to acquire even more companies while they’re under DOJ antitrust investigation?”

To this blogger, the Google acquisition of FitBit represents the arrival of the tech backlash. Since 2017, when it became apparent that foreign entities had attempted to sway voters on Facebook, there have been hints, whispers and tepid discussions about big tech being "too big."

Now, it's palpable. The love affair and honeymoon from the early 2000s is over. There are real conversations happening about what to do with tech. It's highly likely tech regulation will be a 2020 election agenda item. It's also fair to assume that Google is going to face significant inquiries on why this purchase is necessary.

Therefore, it felt fitting to summarize the various approaches being proposed for this week's byte.

The issue on the table - how to break up big tech. Unsurprisingly, Presidential candidates from the Democratic Party are leading the charge when it comes to dealing with big tech. Their proposals vary from mild to extreme.

Let's get started.

Break'em Up

When was the last time the government broke up a monopoly? Answer - January 1, 1984, when AT&T was divested into Regional Bell Operation Companies (RBOCs) meaning it could not sell local AND long distance service. It's been thirty-seven years since the break-up.

Yes, one of the proposals on the table is to break-up tech companies like Facebook, Google and Amazon. The reason? Control. Today, some large tech companies wear the hat of both platform AND participant.

Note - This blogger detailed this exact concern several months ago as Apple operates a platform and sells a service on it. Catch-up here.

“You can be the umpire – that is, you can run the platform, the marketplace – or you can have a team in the game – that is, you can be one of the competing businesses. But you don’t get to do both.” - Elizabeth Warren

In this proposal, big tech would designated as "platform utilities" - yes, you read that right, a utility - like the gas company. Any company that violates this provision has cause to be broken up.

Essentially, in the new world order - Amazon would have to pick what it wants to be a - marketplace where it facilitates the purchase and selling of goods OR a seller on the platform. The same would hold for Google - they could not run an advertising exchange AND run their own ads. Similarly, Apple could not run a music distribution platform and then sell their own service (i.e. Apple Music).

How realistic is this?

The proposal makes sense on paper and has a lot of backing. However, it's not something that could be established overnight or within two years of the 2020 election. Tech companies are well entrenched and well positioned financially to fight back.

In 2019, big tech has spent (covertly) big in lobbying -

Facebook $12.3M (25% increase)

Amazon $12.4M (16% increase)

Google $9.8M (41% decrease)

Apple ~$7.5M (8% increase)

Microsoft ~$10M (9% increase)

Overtly, tech CEOs, like Mark Zuckerberg, indicated he's willing to wage a legal crusade if the proposal above was adopted and Facebook was designated as a platform utility. You can expect the same type of behavior from Tim Cook, Jeff Bezos and Sundar Pichai.

Bring on the Oversight

Revive the Office of Technology Assessment.

Create stronger antitrust laws.

Create a U.S. Department of Technology

Further empower the Federal Trade Commission to review and reverse past mergers.

Unsurprisingly, the most popular stance taken by candidates is to add more oversight, regulation or create a separate entity to keep track of tech companies. The key questions have been:

Whether to make these retroactive or proactive

Retroactive would mean that previous mergers from the last decade (i.e. Facebook and Instagram) would be re-considered. Proactive would mean that future mergers (i.e. Google and FitBit) would be heavily scrutinized.

Create a new department or further empower the Federal Trade Commission (FTC)

In 1914, the FTC was created to break-up monopolies to promote competition and stop deceptive practices in the age of big oil, railroads and banks. So, it's only natural that over the past decade most tech complaints or violations have ended up with the FTC.

FTC Historical Actions -

September 2019 - Google and YouTube fined $170M

September 2019 - FTC announces it is probing Amazon

July 2019 - Facebook fined $5B

January 2014 - Apple refunds $32.5M

September 2002- Microsoft agrees to implement comprehensive security enhancements

The problem is - the FTC only investigates after an issue is reported. It is for the most part a reactive agency with the exception that they do review mergers (along with the FCC and the Justice Department), however, they do not make policy or conduct studies.

That responsibility used to be overseen by the Office of Technology Assessment (OTA) which provided detailed technical assessments to elected officials. It was phased out in 1995. Today, lawmakers must rely upon non-government organizations.

How realistic is this?

Very realistic in terms of proactive reviews and continued investigation into tech. As noted above, the FTC has been on a roll with investigating and levying fines against the tech giants. That directive will continue into the future. The question is whether the FTC's power will be expanded once again to write regulations.

Note - In the 1960s and 1970s, the FTC became aggressive in writing regulations but was widely believed to have overstepped their bounds. Ultimately, Congress stepped in and curtailed their abilities.

From this blogger's perspective, it's going to be incredibly challenging to revisit previous mergers - in the sense of time and money. A legal challenge to any of these giants will result in a lengthy trial. If the government wants to make quick changes - it has to enforce going forward.

One thing is clear - as the Democratic Primaries get underway, candidates will need to pin down their policy. To date, only Elizabeth Warren and Bernie Sanders have put forth comprehensive plans. 2020 is shaping up to be a year of potential policy changes for tech companies.

A final note, there are other proposals on the table (for example - Bernie Sanders plan to have employees own equity in companies with $100M annual revenue, Andrew Yang questioning if break-ups make sense in 2019, etc.).

There was not enough space to detail all - therefore, I recommend you visit this excellent summary from The New York Times who interviewed all democratic candidates on their stance to break-up or regulate big tech.