Cleland served as Deputy United States Coordinator for Communications and Information Policy in the George H. W. Bush Administration. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent analyst in his field. Scott Cleland has been profiled in Fortune, National Journal, Barrons, WSJ’s Smart Money, and Investors Business Daily. Ten publications have featured his op-eds. For a full bio see: www.ScottCleland.com.
Latest posts by Scott Cleland (see all)
- Why New FTC Will Be a Responsibility Reckoning for Google, Facebook, Amazon - April 28, 2018
- How Did Americans Lose Their Right to Privacy? - April 6, 2018
If one considers the evidence, it is evident that U.S. antitrust enforcers have enabled the current “new normal” of online winner-take-all platforms: Alphabet-Google in e-information, Amazon in e-commerce, Facebook in e-social, Uber in e-transportation services, Airbnb in e-accommodation services, and a “unicorn” queue of online winner-take-all platform wannabes.
Summary of Conclusions
U.S. antitrust officials should be alarmed by the extreme early concentration of a relatively young twenty-year old, U.S. online company marketplace.
Five online winner-take-all platforms — Google, Amazon, Facebook, Uber and Airbnb — already command ~80% of U.S. online companies’ revenue share and market capitalization.
And they are collectively capturing 82% of U.S. online companies’ revenue growth share, meaning they are growing more dominant not less.
Adding to the reality that their respective platform dominances are lasting, is the fact thatthese platforms are also dominating the consumer data collection and analysis that is essential to being able to compete, grow, and succeed going forward in online revenue growth and diversification, and to innovate to compete in artificial intelligence, machine learning, and targeted advertising.
“If data is the new oil,” these winner-take-all platforms are extracting, organizing, and leveraging the most valuable and specific, potential, mass consumer data sets anywhere.
And as long as the DOJ and FTC continue to not consider privacy/data to be a non-price factor in antitrust enforcement, DOJ unwittingly will be the key enabler and protector of these online platforms’ data-driven, winner-take-all, market power maintenance and extension long-term.
Why U.S. Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms
If “competition is a click away,” how could today’s Internet ecosystem, become as winner-take-all online in the 21st century, as late 19th century America was when monopoly “trusts” in steel, oil, and railroads, precipitated the world’s seminal antitrust laws?
The public Internet obviously happened in 1994 and fundamentally changed how most markets and competition worked. However, U.S. antitrust enforcers obviously have not adapted antitrust enforcement to the new online market contexts, because if they had, we would not have America 1890’s redux.
It will be telling if the new Trump Administration antitrust team comes to acknowledge that all is not well in the U.S. antitrust universe, and that there are accelerating, serial, online winner-take-all, outcomes that are uncharacteristic of offline markets, and that would have been prevented in offline markets via normal antitrust enforcement.
At bottom, Trump Administration antitrust enforcers find themselves at an historic crossroads.
Are all these winner-take-all platforms “innocent” monopolies and winners on their own legal merits?
If yes, does the online marketplace inherently multiply “natural monopolies” that have no need to engage in anti-competitive behavior to foreclose competition or require antitrust enforcement, oversight or utility regulation?
If no, are these online winner-take-all platforms at least partially a result of U.S. antitrust non-enforcement and/or anti-competitive foreclosure behaviors warranting antitrust investigation and potentially antitrust enforcement action?
The evidence U.S. antitrust non-enforcement producing online winner-take-all platforms.
To start, why are these five companies considered online winner-take-all platforms?
Google Amazon, Facebook, and Uber are on this list because they each are roughly ten times bigger by revenues, users and inventory than their nearest competitor; and Airbnb is included also because its value is about eight times is nearest competitor HomeAway and its 2.3m room inventory is already more than the top three hotel chains combined, and separating more.
In addition, these five winner-take-all platforms command 77% of the total revenues, 82% of the total revenue growth, and 80% of the market capitalization, of the overall online market of online-based and founded companies. (These estimates use the Internet Association’s 39 members as the best proxy for this online market and excludes Microsoft here, because it did not originate online and it has no dominant online market positions or online network effects.)
The current “winner-take-all” term to describe these online platforms came from billionaire Sir Richard Branson and was captured in an excellent New Yorker piece by widely respected Silicon Valley blogger and venture capitalist, Om Malik.
What makes these online platforms winner-take-all?
Ironically, Alphabet-Google Chairman Eric Schmidt has provided some of the best explanations for this online winner-take-all platform phenomenon.
In 2011, Dr. Schmidt explained: “The fastest path to wealth is the construction of these digital platforms, in which a company becomes the center of activity and where other people depend on you.”
In 2012 he elaborated: “We believe that modern technology platforms, such as Google, Facebook, Amazon, and Apple are even more powerful than people realize. These platforms constitute a true paradigm shift, and what gives them power is their ability to grow – specifically their speed to scale. Almost nothing, short of a biological virus, can scale as quickly, efficiently or aggressively as these technology platforms, and this makes the people who build, control, and use them powerful too.” [Note: Apple is not an online-based company and hasn’t continued its growth.]
In 2013, Dr. Schmidt further explained: “Platforms are where the aggregated value occurs; the way the industry creates wealth is creating platforms.”
So specifically, what is the “juice” or “special sauce” that Google, Amazon, Facebook, Uber, and Airbnb all share that make them winner-take-all platforms?
All have aggregated consumer demand to their online branded interface to such a dominant extent that suppliers and competitors effectively must “depend” on these dominant functional interfaces to succeed overall in the marketplace.
Thus, all are de facto online gatekeepers that have aggregated and “cornered” the demand for an online market via an effective form of monopsony power over a functional market segment of the economy, i.e. a dominant buyer with which all sellers must deal to succeed.
Here may be why U.S. antitrust enforcement has stumbled. Online markets are different; they are more prone to monopsonization of demand, whereas offline markets are more prone tomonopolization of supply. (Most antitrust precedents involve monopolies and not monopsonies.)
Thus, Page’s Alphabet-Google, Bezos’ Amazon, and Zuckerberg’s Facebook, are the 21stcentury information, commerce, and social online monopsonists, which are mirror analogs to 19th century Rockefeller-oil, Carnegie-steel, and Vanderbilt-railroads offline industrialmonopolists.
In examining the more monopsonization-prone online world thru the lens of court precedents built on the monopolization-prone offline world, U.S. antitrust has developed an enforcement blind spot, and maybe even an enabling role in facilitating widespread monopsonization of the online economy.
Simply, in offline monopolized markets, the consumer is the real customer and the one that is hurt by anti-competitive behavior.
However, in online monopsonized markets, disintermediated competitors and potential competitors are the real customer and the one that is hurt by this anti-competitive, monopsonist, winner-take-all behavior.
Thus, if an antitrust enforcer assumes even unconsciously that an alleged antitrust offender must be a monopolist to break antitrust law, and sees a price of free and conveniences to the consumer, they have a popular bias to conclude this must be pro-competitive nirvana – the opposite of a traditional offline antitrust problem.
However, this is a grave mistaken assumption, if the alleged antitrust offender is a potentialmonopsonist of demand, where supply prices of free may be an anti-competitive monopsonization strategy to corner, extend, and maintain monopsony-control over online demand for online products and services.
Now one can begin to see how U.S. antitrust non-enforcement can produce online winner-take-all platforms.
So, what is different about these monopsonized markets that requires different antitrust enforcement?
Google, Amazon, Facebook, Uber and Airbnb, are all “intermediary platforms” that mediate or serve as a broker between consumers and suppliers and/or advertisers.
While Section 230 of the 1996 Telecom Act provides online intermediary platforms immunity from liability for what third parties do on their platforms, it does not provide any antitrust immunity for what the online platform may do anti-competitively to third-party competitors and potential competitors that must use these monopsonized intermediary platforms to reach their consumers (per the Telecom Act’s Section 601 antitrust savings clause).
The first epic failure of U.S. antitrust was to not recognize and deal with these emerging monopsonists before they became five full-blown monopsonist-gatekeepers of consumer demand.
The ongoing epic antitrust failure here is not addressing the profoundly anti-competitive market dynamic of five monopsonist intermediary platforms systematically crushing competition from direct competitors and from suppliers across the economy.
In the offline world, it has been well-known and long-appreciated that dominant intermediary platforms are considered “exchanges.”
To ensure competitive markets in most commodities and financial instruments, the government has long required that they are transparently traded on public exchanges where the consistent standard is that the owners and operators of the exchange cannot legally also trade for their own account on that exchange, because that would allow them to unfairly self-deal, front-run, or engage in insider trading via abuse competitors’ confidentiality.
If antitrust authorities appreciate the above, and can understand that no sport team can win a game against a team that is also the referee and owner of the stadium, why are U.S. antitrust authorities to date doing nothing to address the apparent anti-competitive systemic risk to the economy of rampant anti-competitive monopsonization of most online intermediary markets?
Normal retail suppliers of content, products, and services are getting crushed systematically behind the scenes by these winner-take-all platforms and antitrust authorities appear largely oblivious to this economy wide anti-competitive dynamic because, they are ignoring that these platforms are winner-take-all, precisely because they can’t lose operating as both a player and a referee/market-owner.
Simply, U.S. antitrust authorities need to enforce antitrust law against online monopsonists of demand as much as they do offline monopolists of supply.
What else do U.S. authorities need to do to address the anti-competitive “new normal” of serial online winner-take-all platforms?
Two more things.
First, the DOJ and FTC should restore privacy as a relevant non-price factor in antitrust enforcement to address these online platforms’ data dominance that ensures no competitor has much chance to compete effectively in targeted advertising, artificial intelligence and machine-learning, which depend on, and are driven by, the amount and quality of the datafueling the algorithmic computations. “Data is the new oil.”
Over a decade ago, the Bush DOJ and FTC decided to no longer consider privacy to be a relevant non-price factor in antitrust enforcement, which oddly reduced consumer welfare in the online private-data collection context, when a key part of modern antitrust analysis supposedly is to judge a transaction or behavior with a view to its net effect on consumer welfare.
This seminal decision has fostered the perverse market dynamic where many online advertising companies now effectively compete based on who can take advantage of consumer privacy most, rather than compete based on whom best can protect consumer privacy.
Common sense tells us that law enforcement committed to maximizing the effect of deterrence signal neither the exact time/place of their police patrols, nor where they won’t patrol.
However, with privacy and antitrust, authorities have unwittingly telegraphed to the marketplace exactly where they won’t provide accountability, so potential privacy bad actors know they can get away with broad scale anti-competitive abuse of consumers’ privacy with relative impunity.
The predictable anti-competitive result of totally ignoring privacy as a non-price factor in consumer welfare is five online winner-take-all platforms, Google, Amazon, Facebook, Uber, and Airbnb, which all know along with their competitors, that they are unbeatable and unassailable precisely because they command overwhelming relative data dominance of all dimensions of the markets’ activities, supply, demand, inventory, price, usage, interests, place, time, amount, quality, etc.
That fateful decision effectively greenlighted mass-hoovering of all data, private, public, and competitor-confidential, about a market, that in turn generates exponential inter-network effects that inherently make an unlevel data playing field where these five platforms increasingly can’t lose, and their potential competitors increasingly can’t possibly win.
If people or companies have no control over how their private or confidential information is collected and used, there’s little prospect for vibrant competition long-term in the online era.
Second, the DOJ and FTC need to investigate and adapt to these online winner-take-all platforms’ data dominance when it comes to arbitraging the Hart Scott Rodino (HSR) process and the thresholds for reviewing mergers.
When a handful of companies know all the most relevant competitive information in a market, like Google obviously does from dominating search and most information apps; Amazon does by dominating retail ecommerce and Marketplace; and Facebook does by dominating what people share, like, and message; is an exceptional anti-competitive advantage in detecting startups, nascent trends or potential competitive threats to either kill in the crib, or buy cheap at a very early stage.
We know the dynamic of these platforms arbitraging the HSR antitrust review process exists because Alphabet-Google Chairman Schmidt told reporters that Google made a 2010 decision to accelerate acquisitions of companies below the HSR threshold, i.e. the amount that is subject to DOJ/FTC notification and waiting period.
Serial acquisition of many dozens of early-stage acquisitions has had an obvious role in facilitating Google, Amazon and Facebook’s online winner-take-all platforms, given the evidence of Alphabet-Google’s 206 acquisitions in 19 years; Amazon’s 77 in 19 years; and Facebook 62 in 12 years.
When one looks at these five online winner-take-all platforms, a close observer also appreciates that they are part of an effective American version of a Japanese Keiretsu.
Amazon’s Jeff Bezos was one of the earliest investors in Google.
Google’s Chief Legal Officer served on Uber’s Board of Directors.
It is apparent from public information that Google and Facebook abruptly stopped competing with each other in 2014 and have de facto divided up the digital advertising market since.
The open question here for antitrust authorities to consider and explore, is this apparent American keiretsu dynamic more likely to indicate a pro-competitive or pro-collusion trajectory going forward?
Forewarned is forearmed.
[Originally Published at Precursor]