At the end of April, The New York Times published an opinion piece that was widely circulated among my network entitled “Is It Time to Break Up Google?”. I saw a lot of people excited at the idea, and the concept of a monopolistic Google obviously resonated with many. Unfortunately, I thought that it was a poor article and that there was not nearly enough critical thinking being applied.
When it was shared on an email list I’m on, I hammered out a rant explaining my issues with the article. This post is an attempt to clean that rant up into a reasonable state for wider discussion. I’m sure there are a bunch of areas where I am also wrong, and I’d love to hear others’ opinions.
I should start by saying that I am generally sympathetic to the idea that Google is dominant in search advertising, and is potentially abusing that power. I think that there's a good chance there needs to be some kind of intervention (and indeed I’ve written a few articles about it - since as far back as 2007 1, 2, 3).
But I still didn't like the article, and here’s why:
It bundles tech companies together while making weak cases for them being monopolies
The article starts by highlighting the size of the tech behemoths that have become the biggest companies in the world. Apple, Alphabet (the parent company of Google), Amazon and Facebook have joined Microsoft which was the only tech company in the top five as recently as 2007.
The largest of them all (Apple) is very clearly not a monopoly. Apple is only the sixth-largest computer manufacturer, and even in the high-end (if that is a distinct market) they are likely below 50% market share (they were around 30% in 2007). Smartphones is Apple’s biggest market - in this market they are the largest player, but with less than a 20% share and less than a 60% share of the high-end market (if that is distinct). You may be able to make a case for them monopolising the tablet market, but only because it’s a declining market generally in which other players have declined faster, and iPads make up only about 7% of Apple’s revenue. None of this is addressed.
Instead, we get weak arguments for Google, Facebook, and Amazon being monopolies. The author says:
Google has an 88 percent market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77 percent of mobile social traffic and Amazon has a 74 percent share in the e-book market. In classic economic terms, all three are monopolies.
Now, I was really pleased to see search advertising identified as the market in which Google is dominant. Too many people talk about “search” share - but while that is interesting in some analyses, it’s not a “market” in the antitrust sense.
The arguments for the other tech behemoths as monopolies misses the mark, though. Monopolies need a market to monopolise, and:
There's no way that "mobile social traffic" is a market you can monopolise. Mobile advertising would be an interesting market - but Facebook isn't a monopoly there (Google also has a huge share)
You might get away with claiming that “e-books” is a distinct market (and that Amazon has a monopoly over it) but (a) I'm not sure -- I think the relevant market is "books" and (b) if e-books is the thing, it's a tiny part of Amazon's business (it’s hard to find concrete numbers but this article estimates ~$2.1bn in the US, so the global number is probably a few % of the total ~$130bn of revenue). Regardless, it’s certainly not the reason it's a stock market behemoth. Amazon is not a monopoly in any of its interesting markets (retail, even books, AWS, streaming content etc.)
It’s possible that some of this confusion stems from the fact that the author appears to be conflating “monopoly” with “big” - highlighted best by the statement that:
We need look no further than the conduct of the largest banks in the 2008 financial crisis
None of the banks were monopolies.
Poor arguments about innovation and “reallocation” of money
The author claims that:
It is impossible to deny that Facebook, Google and Amazon have stymied innovation on a broad scale
Now. I think it is quite possible that they have stymied innovation, but “impossible to deny” is far too strong - especially when coupled with a complete absence of any kind of argument or evidence. I can certainly see specific areas where each of them may have harmed innovation - but they also each have caused or enabled huge innovation on the other side of the ledger. Just look at the innovation that AWS alone has unleashed on a “broad scale” as one example - and that is just Amazon.
The article continues by saying that:
Billions of dollars have been reallocated from creators of content to owners of monopoly platforms
Leaving aside the euphemistic use of “reallocated”, this is still a weird claim, because I think it’s pretty difficult to pin this on an abuse (or even use) of monopoly power. Newspapers didn’t lose advertising revenue to Google because Google abused their monopoly. Search adverts are simply better than newspaper adverts. It’s almost perfectly backwards - Google got their financial dominance because their adverts were effective - they didn’t use their financial dominance to stop people buying adverts in newspapers.
There are almost no arguments for the headline’s proposal
Of the 21 total paragraphs, the author spends nine arguing for regulation rather than break-up. This is supposedly based on Google and Facebook being natural monopolies - though there is no argument put forward about why this should be the case. It’s not at all clear to me why it would be in the public interest to have only one search engine and one social platform and to regulate them as utilities.
The author suggests three other non-break-up interventions:
Prevent future acquisitions - but this does nothing at all to address the issues the author has been railing against - Google remains dominant in search advertising regardless of whether they can buy Snapchat(!) or not
Regulate as a public utility - this appears to be based on the claim that these big companies are natural monopolies - though there is little argument made as to why that should be the case. The interventions are even weirder - I'm not even going to get into how it's very much not patents preventing other search engines competing with Google
Remove "safe harbor" protection - probably the weirdest idea of all. For one thing, this appears to be targeted at YouTube, a facet of Google unmentioned up to this point (and he’s surely not arguing that Google is a monopoly provider of internet video / internet video advertising, is he?). Even if you consider it at face value, it’s hard to see how this would do anything to change their position as a monopoly provider of search advertising
Finally, in one brief sentence, we get to a single mention of the headline idea - of breaking up Google. So how should it be done? Which bits should be broken off from the main entity? Apparently they should be forced to sell DoubleClick - the display ad platform. How on earth is that supposed to remedy Google’s dominance in search advertising? This does nothing to undo or prevent any of the harm outlined earlier in the article. So we’re left with a weak argument for doing a thing that won’t help anyway.
For a clearer view into why big tech companies are in danger of becoming monopolies, and the ways in which US antitrust law (in particular) is poorly-equipped to deal with them, I highly recommend these articles from Ben Thompson of Stratechery (the only paywall I currently pay for - though these are all outside the paywall):
Aggregation theory - explaining how the current tech environment results in huge companies with massive power
Antitrust and aggregation - explaining why US antitrust law is poorly-equipped to handle these monopolies because it focuses on direct harm to consumers (which is less clear here) rather than harm to competition (which is much easier to prove). EU law focuses on the latter - so that's my best bet for some kind of action - that we'll see it come out of Europe.
Do we need regulation?
I'm also somewhat sympathetic to the idea that tech monopolies get toppled by new tech faster than by governments (it wasn't the DoJ or the EU that broke the Microsoft OS monopoly, but rather the internet and mobile).
If we do need intervention, I don't know what a good intervention would look like for Google, but for all the reasons above, I do think this NYT article is full of bad arguments and bad interventions.
I’d love to hear your thoughts in the comments or on Twitter.