Speaker 1: Back in April last year, Facebook CEO Mark Zuckerberg got
Speaker 1: hauled in front of Congress for two brutal days of questioning.
Speaker 1: We welcome everyone today's hearing on Facebook social media privacy
Speaker 1: and the use and abuse of data. I think you
Speaker 1: remember it a pale, kind of robotic Zuckerberg in an
Speaker 1: uncharacteristic suit, getting grilled by one lawmaker after another about
Speaker 1: the Cambridge Analytical scandal. The questions were mostly about the
Speaker 1: company's privacy lapses, but there was this one moment when
Speaker 1: the conversation turned to something a little different. Center Gram's
Speaker 1: up next, Thank you. This you here is a senior
Speaker 1: Republican senator from South Carolina, Lindsay Graham. If I buy
Speaker 1: a Forward and it doesn't work well and I don't
Speaker 1: like it, I can buy a Chevvy. If I'm upset
Speaker 1: with Facebook, what's the equivalent product that I can go
Speaker 1: sign up for? Well, there's the second category that I
Speaker 1: was going to talk about. Something at categories I'm talking
Speaker 1: about is a real competition you face because car companies
Speaker 1: face a lot of competition. If they make a defective car,
Speaker 1: it gets out in the world. People stop buying that car.
Speaker 1: There By, Another one is an alternative to Facebook in
Speaker 1: the private sector. Yes, Senator, the average American uses eight
Speaker 1: different apps, ranging from texts, email service. You provide, well,
Speaker 1: we provide a number of differencess Twitter the same as
Speaker 1: what you do. It overlaps with the portion don't think
Speaker 1: you have a monopoly. It certainly doesn't feel like that
Speaker 1: to me. Okay, that moment turned out to be a
Speaker 1: harbinger for the next eighteen months, not just for Facebook,
Speaker 1: but also for its biggest piers in the industry. And
Speaker 1: it's all come down to the same question, stated in
Speaker 1: different ways, where in this very serious monopoly moment, Google
Speaker 1: is a culminating in a storm of antitrust investigations and
Speaker 1: a sweeping proposal from who is now one of the
Speaker 1: leading candidates in the Democratic presidential primatis. It's time and
Speaker 1: today in the show, reporter Eric Newcomer will brief us
Speaker 1: on the current state of play in Washington and how
Speaker 1: a Democrat in the White House could take it even further.
Speaker 1: So stay with us, Amaki Ito, and you're listening to
Speaker 1: Decrypted Eric. How's it going great? Great? How are you doing?
Speaker 1: You know, our longtime listeners will recognize you as our
Speaker 1: uber reporter, but you've recently changed beats. Yeah, in February,
Speaker 1: I defected from San Francisco, moved to New York, followed
Speaker 1: Uber through the I p O, and now I'm diving
Speaker 1: into the hot story of the day, anti trust. You know,
Speaker 1: I want to start our conversation today with how we
Speaker 1: got here in the first place, which is maybe another
Speaker 1: way of talking about how your beat has become so
Speaker 1: interesting and so timely right now, So here's how I'm
Speaker 1: going to set it up. Just a few years ago,
Speaker 1: no one talked about technology and monopolies, right, it was
Speaker 1: the last thing on Washington's agenda, And it's really over
Speaker 1: maybe the last year two that we started hearing the
Speaker 1: steady drumbeat of how these companies have gotten too big.
Speaker 1: So set the context for us. Yeah, so we I mean,
Speaker 1: we talked about anti trust, but I think where this
Speaker 1: really started is just with a lot of anger towards
Speaker 1: technology companies. I love this country, thank you, thank you
Speaker 1: very much. Probably the biggest force in that is the
Speaker 1: election of Donald Trump and the role that Russian interference
Speaker 1: might have played in getting him elected. They allowed the
Speaker 1: private information of fifty million Americans to be harvested by
Speaker 1: the Trump campaign's consulting firm, and the role that Facebook
Speaker 1: played through the Cambridge Analytica scandal and advertising and just
Speaker 1: sort of the rise of bots, and just like that
Speaker 1: force I think has animated some of this which created
Speaker 1: all these spill on effects. My problem is with Facebook.
Speaker 1: So they're all these forces of frustration with tech that
Speaker 1: are now I think manifesting in this anti trust furor
Speaker 1: in different parts of the government. On a really basic level,
Speaker 1: what is antitrust. They're the rules to protect capitalism, right
Speaker 1: to stop price fixing, to block cartels. You know, it's
Speaker 1: what makes competition work. And you know, it really dates
Speaker 1: back in the United States to the eighteen hundreds. There
Speaker 1: were these small railroad companies that all consolidated and formed
Speaker 1: this giant conglomerate. And so then the government looked at that.
Speaker 1: They created the Sherman Antitrust Act, and there was this
Speaker 1: whole push, you know, we think about trust busting to
Speaker 1: crack down on big conglomerates. And then Standard Oil is
Speaker 1: perhaps the most famous historic example where all these oil
Speaker 1: companies were cobbled together to create this huge oil company
Speaker 1: that used its power to control the market, and the
Speaker 1: government cracked down on that and then in more recent
Speaker 1: history we have the breakup of A T and T,
Speaker 1: and then probably in very recent memory, the fight against
Speaker 1: Microsoft and the attempted breakup of that company, which ultimately failed.
Speaker 1: You know, Microsoft had a few rules imposed against it,
Speaker 1: had to open up some of its data to third parties,
Speaker 1: but you know it wasn't broken up. So let's the
Speaker 1: rule of thumb that tells us when companies violate these
Speaker 1: antitrust anti monopoly laws is very complicated and evolving. So
Speaker 1: I think, really, if you want to understand what happened
Speaker 1: from the nineties seventies today is this focus on consumer
Speaker 1: harm and the worry that antitrust should mostly be concerned
Speaker 1: with whether monopolistic behavior hurts consumers, whether it drives up prices,
Speaker 1: and much less oriented around whether consolidation makes it impossible
Speaker 1: for other businesses to compete or has some other harm,
Speaker 1: more focused on the competitive environment. What's happening today is
Speaker 1: a reconsideration in sort of the academic world, and then
Speaker 1: that's trickling over to the enforcement agencies that says, okay,
Speaker 1: it's not just about consumer harm. There are even if
Speaker 1: your Facebook right and you give your product away for free,
Speaker 1: there can be a problem. There are other harms there
Speaker 1: besides an obvious I have to pay more, you know,
Speaker 1: eric On a really broad level, Facebook and Google and Amazon,
Speaker 1: and maybe to throw an Apple there too, They're all
Speaker 1: really different business models, which I think makes it a
Speaker 1: little bit confusing. But what if our colleagues Ali was
Speaker 1: explaining to me recently that if you really abstracted out,
Speaker 1: you can think of them as all having created services
Speaker 1: that attract a lot of consumers, and then they use
Speaker 1: that pool of consumers to charge businesses access to those consumers,
Speaker 1: which I thought was really interesting. And you know, maybe
Speaker 1: in Facebook and Google's case, they make this free service
Speaker 1: that attracts billions of people and then they charge advertisers
Speaker 1: for access to these consumers. In Amazon's case, they charge
Speaker 1: sellers on the site access to Amazon's customers. And in
Speaker 1: Apple's case it feels a little different, but they're still
Speaker 1: charging app developers access to iPhone users through the app store.
Speaker 1: So I guess the way to think about it is
Speaker 1: that the victims here in this case are not the
Speaker 1: consumers like us, but they're actually the advertisers, the Amazon sellers,
Speaker 1: the app developers, right. I mean, the only caveat that
Speaker 1: I would give to that is, you know, even if
Speaker 1: consumers get something for free, competition might mean that they
Speaker 1: could choose between services with different values. You know, people
Speaker 1: talk a lot about it more privacy oriented social network.
Speaker 1: That would be my only caveat. So let's walk through
Speaker 1: the thing that each company did to attract regulator scrutiny.
Speaker 1: You want to start with Facebook, all right, even before
Speaker 1: we talk about antitrust. It's a five billion dollar settlement
Speaker 1: with the FTC and Facebook and Facebook just settled with
Speaker 1: the Federal Trade Commission over a five billion dollar privacy violation.
Speaker 1: So the ft now is investigating Facebook over its acquisitions
Speaker 1: because Facebook bought Instagram when it was then a small
Speaker 1: but promising photo sharing app, and obviously bought What's App,
Speaker 1: this messaging service, and that's effectively allowed it to block
Speaker 1: the formation of new competitors. Then Facebook also faces a
Speaker 1: new anti trust investigation coming against Facebook. Eight states are
Speaker 1: included in this investigation, which a multi state attorneys general
Speaker 1: investigation led by the New York Attorney General's office. They're
Speaker 1: looking at whether their tactics limited consumer choice, and also
Speaker 1: they're looking at whether what they did increase the cost
Speaker 1: of advertising. So that's another one and then Congress is
Speaker 1: also investigating in Facebook. And then the Department of Justice
Speaker 1: is also investigating Facebook. So yeah, we've got it. Yeah,
Speaker 1: we've got the FDC, a multi state attorneys general investigation,
Speaker 1: the Department of Justice, and Congress. Uh yeah, they're all
Speaker 1: looking at it. And and so for Facebook, these are
Speaker 1: related to the acquisitions it's made, specifically What's App and Instagram. Yes,
Speaker 1: got it, talk us through Google. So Google's already had
Speaker 1: to fend off and paid fines in the European Union,
Speaker 1: and now the United States is really turning its attention
Speaker 1: to the company. We now have a clearer sense of
Speaker 1: just how sweeping this action will be. Fifty attorney general's
Speaker 1: forty states, plus the District of Columbia and Puerto Rico
Speaker 1: are announcing this investigation into Google over concerns of antitrust.
Speaker 1: In the United States, the largest investigation against Google is
Speaker 1: being led by the Texas Attorney General's Office, who's brought
Speaker 1: together fifty states and localities. This huge coalition of attorneys
Speaker 1: general looking into how Google's add exchange works and what
Speaker 1: there how it sells ads blocks other competitors from the markets.
Speaker 1: They have very detailed questions asking about how they influence
Speaker 1: prices potentially in an advertising market. Then the Department of
Speaker 1: Justice is looking at Google. I think they're looking at
Speaker 1: history of antitrust complaints and trying to get more information there.
Speaker 1: And then what about Amazon. With Amazon, it's really a
Speaker 1: question of how they use their market power to manipulate
Speaker 1: or control sellers on their platform. The Federal Trade Commission
Speaker 1: is looking at, you know, how much revenue do these
Speaker 1: sellers get just from Amazon? Are they dependent on Amazon
Speaker 1: or they really able to go to eBay and other
Speaker 1: companies to make enough revenue. And we should know that Apple,
Speaker 1: even though it's an older company than Facebook and Amazon
Speaker 1: and Google, is somewhat of a target to I think
Speaker 1: it's the key, the key to understand Apples, the app
Speaker 1: store issues, and just the amount of control that running
Speaker 1: this app store could give the company. Is it hurting
Speaker 1: Spotify by placing Apple's own products way above and it's
Speaker 1: app store listing? So a lot of these inquiries are
Speaker 1: about the Apple App Store and how it throws around
Speaker 1: its weight and controls that store to its advantage. Presumably
Speaker 1: it'll take a while for these investigations to conclude. But
Speaker 1: you know, let's say any one of these agencies finds that,
Speaker 1: you know, one of these companies did engage in anti
Speaker 1: competitive behavior. What happens then? You know, there are all
Speaker 1: sorts of remedies. I think the one everyone thinks about
Speaker 1: is breaking them up, and that's something that Elizabeth Warren
Speaker 1: has talked a lot about and I think is on
Speaker 1: people's minds and would solve of or attempt to solve
Speaker 1: this sort of just they're too big and politically powerful
Speaker 1: and influential, so breaking them up as one. But then
Speaker 1: they're all sorts of remedies that that could be constructed.
Speaker 1: I was talking to a professor who suggested the data
Speaker 1: portability would be a potential remedy for Facebook, because the
Speaker 1: idea was, you know, if I split up Facebook into
Speaker 1: three or four different companies, the network is still a
Speaker 1: powerful force. So maybe one of those companies then just
Speaker 1: becomes the new monopoly. Because I want to go where
Speaker 1: my friends are, we all sort of migrate to to
Speaker 1: one of the four new companies, And does that really
Speaker 1: solve the problem. On the other hand, if the requirement
Speaker 1: is that I need to be able to easily move
Speaker 1: my data from Facebook to another company, then I could
Speaker 1: simultaneously use different social networks and would foster more competition.
Speaker 1: We'll be right back. So before the break, Eric, you
Speaker 1: walked us through the various investigations into the big tech companies.
Speaker 1: These are ongoing, but things could change a lot if
Speaker 1: a Democrat wins the White House. In uh, We're not
Speaker 1: going to go through all ten plus candidates who are
Speaker 1: running right now in the Democratic primary, but I do
Speaker 1: want to focus on a few of the top contenders
Speaker 1: who've talked about what they want to do with this issue.
Speaker 1: Walk us through some of the moderates first, the candidates
Speaker 1: who scare the industry a little bit less. What It's
Speaker 1: sort of interesting. I think Joe Biden. The consensus among
Speaker 1: people watching this issue is that what he would be
Speaker 1: comparatively friendly to the tech companies relative to sort of
Speaker 1: what i'll call the Bernie Warren wing. He's from Delaware,
Speaker 1: a famously pro corporate state, and he's got this reputation
Speaker 1: as just being a much more moderate candidate who's not
Speaker 1: out there on the stump saying, let's, you know, destroy
Speaker 1: all these companies and not taking on as an antagonistic
Speaker 1: role with the CEO. So he's definitely the candidate that
Speaker 1: if you're running Facebook's uh anti trust policy shop. You
Speaker 1: would probably be happy if he won't because it means
Speaker 1: you're gonna be okay. And then there's i'd say Pete
Speaker 1: Buddhaicech who's talking about this issue in a more cooperative way,
Speaker 1: but it's definitely surfacing the issue of antitrust. And Eric,
Speaker 1: what about Kamala Harris. She's a California Senator, so of
Speaker 1: course she represents Silicon Valley. Harris has been more of
Speaker 1: a moderate generally and hasn't come out very vocally on
Speaker 1: anti trust issues. She seems open to looking at it,
Speaker 1: but I don't think she's going to be the hardest
Speaker 1: driver on this set of issues. Then there's Bernie Sanders, who,
Speaker 1: true to form, is created using the bully pulpit. He's
Speaker 1: been pretty proud about saying that he wants to crack
Speaker 1: down on companies that are too big and tech is
Speaker 1: a part of that, but but it's much broader. And
Speaker 1: then there's Elizabeth Warren. Yeah, in March, she held this
Speaker 1: huge rally in Queens after Amazon had just given up
Speaker 1: on its vision of coming to New York tech conies.
Speaker 1: That is, they tell to tell city stays and pulay
Speaker 1: everyone doing what they want. So it is this very iconic,
Speaker 1: you know, American flag celebration of you know, the failure
Speaker 1: basically of Amazon. And it came while she was putting
Speaker 1: out this medium post that really documented her crusade against
Speaker 1: big tech das time. You know, she names Facebook, Google,
Speaker 1: Amazon and outlines exactly how she wants to break them up.
Speaker 1: Her idea sort of isn't two buckets. I'd say one
Speaker 1: is just simply unwinding mergers that have helped make these
Speaker 1: companies too big, the popetitions. So that's Instagram and what'sapp
Speaker 1: for Facebook, that's Nest and ways for Google, that's Zappos
Speaker 1: and Whole Foods for Amazon. And then the other part
Speaker 1: is that you know, a platform company with that generates
Speaker 1: more than billion dollars in revenue should not be allowed
Speaker 1: to also compete on the platform it operates. And so
Speaker 1: then she identify buys Amazon marketplace as a platform, meaning
Speaker 1: that it shouldn't be allowed to sell its own goods
Speaker 1: against other competitors on its marketplace. And we also want
Speaker 1: to run, so are you you can't to go? So
Speaker 1: those are the two real buckets, unwinding mergers that allowed
Speaker 1: companies to get too big and then policing platforms that
Speaker 1: are trying to compete with companies that operate on their platforms.
Speaker 1: Could you do it just by directing the federal agencies
Speaker 1: as president or would you actually have to push through
Speaker 1: new legislation through Congress. That's definitely a big question that um,
Speaker 1: the Medium Post does not answer. The Federal Trade Commission
Speaker 1: certainly has the power to look at old mergers, so
Speaker 1: I think that's part of the explanation for the focus there.
Speaker 1: But ultimately, you know that authority comes from Congress and
Speaker 1: things like the Sherman Act. But that Act is, as
Speaker 1: we've said, pretty vague, so then the courts have a
Speaker 1: lot of authority to interpret whether the agency really had
Speaker 1: the power to do what they're doing. I mean, Mark
Speaker 1: Zuckerberg in his leaked all hands meeting, like Elizabeth Warren
Speaker 1: who thinks of the right answers to break up the companies. Um,
Speaker 1: you know, if she gets elected presidents, then I would
Speaker 1: I would bet that we will have a legal challenge,
Speaker 1: and I would bet that we will win the legal challenge.
Speaker 1: But good luck. At the end of the day. If
Speaker 1: someone's gonna try to threaten something that existential, you go
Speaker 1: to the act and fight. Basically says, we can challenge
Speaker 1: these things in court. Then they're going to take years
Speaker 1: and years to play out, could be a decade. You know,
Speaker 1: A law would give her a lot more authority to
Speaker 1: expand their power. And you can imagine, you know, this
Speaker 1: is now an issue with bipartisan support. Maybe Republicans and
Speaker 1: Democrats come together to expand antitrust law in some ways
Speaker 1: that allows the FTC and d o J to go
Speaker 1: after tech companies. Obviously, like you said, there's so many
Speaker 1: ifs at this point. Right, it's if Warren wins the presidency,
Speaker 1: if she's then potentially able to push through new legislation
Speaker 1: that may or may not be necessary through Congress, if
Speaker 1: whatever she decides to do survives the courts. But let's
Speaker 1: say all of these ifs do happen. How bad would
Speaker 1: that be for Facebook, Google, and Amazon? They wouldn't be
Speaker 1: the iconic companies that they are today. What is Facebook
Speaker 1: without Instagram when so much of its growth coming from Instagram?
Speaker 1: What's Google without all its exciting projects? You know, if
Speaker 1: it doesn't have nest or ways, or if a big
Speaker 1: part of its advertising business has split off of it
Speaker 1: now competing with it that's a different company. And Amazon,
Speaker 1: you know, its identity isn't just this marketplace for sellers.
Speaker 1: It's the fact that it's buying whole foods and selling
Speaker 1: products cheaply of its own. And for these CEOs and founders,
Speaker 1: they wouldn't have this sort of sweeping power that they
Speaker 1: have today. So it would just really change how these
Speaker 1: men occupy and control aspects of our society. In the meantime,
Speaker 1: I wonder if the scrutiny alone will make them a
Speaker 1: little bit more cautious, Like I wonder if it will
Speaker 1: make them think twice before they buy the next Instagram.
Speaker 1: It's definitely possible. I mean, if you think about the
Speaker 1: case of Microsoft, that was a company that didn't have
Speaker 1: the most extreme end result in its antitrust battle with
Speaker 1: the government, but it still seemed to move slower afterwards,
Speaker 1: and it really missed, you know, the mobile era, for example.
Speaker 1: And I think there are a lot of people who
Speaker 1: think that the scrutiny alone made it just much more cautious,
Speaker 1: much more legally sensitive, and that type of thinking slowed
Speaker 1: it down. On the other hand, I think, you know,
Speaker 1: Mark Zuckerberg at Facebook has shown, you know, a willingness
Speaker 1: to continue to be bold even when there's a lot
Speaker 1: of critics. You know, he proposed Libra, this cryptocurrency. His
Speaker 1: company put that out in a time of massive government scrutiny,
Speaker 1: so I don't think it's a company that's been bound
Speaker 1: by pressure so far, Eric Newcomer will continue posting your
Speaker 1: stories on Bloomberg dot com, slash tech. Where else can
Speaker 1: our listeners follow this ongoing story. You know, I'm on
Speaker 1: Twitter at Eric Newcomer E R I C N E
Speaker 1: W C O M E R. And I'm sure I'll
Speaker 1: be writing about this every week for Fully Charged, our newsletter.
Speaker 1: There's so much to say. Thanks for making the time today.
Speaker 1: Of course, Decrypted is produced by me and Ethan Brooks,
Speaker 1: with helped him toil for Foreheads, and Laura Carlson. Our
Speaker 1: story editor is Anne Vandermain. Francesco Leavie is ahead of
Speaker 1: Bloomberg Podcasts. We'll see you next week. M