10/23/2019 A Guide to the US Antitrust Case Against FB, AMZN, AAPL, GOOGL - Bloomberg

Technology

Here’s a Guide to the U.S. Antitrust Case

Against Big Tech Companies
It’s going to be a long, expensive investigation with an uncertain outcome

By Molly Schuetz
June 8, 2019, 6:00 AM EDT

Photographer: Chesnot/Getty Images Europe

The U.S. government is sharpening its antitrust scrutiny of Big Tech. In a sign that formal
inquiries could be forthcoming, the Justice Department and Federal Trade Commission last
week divvied up antitrust oversight for Apple Inc., Amazon.com Inc., Facebook Inc. and
Alphabet Inc.’s Google.

While the timing caught some by surprise, the companies have been preparing for this moment
for a while, hiring lawyers and lobbyists and publicly making their case. History may be on their
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side: Corporate breakups are a significant, and rare, undertaking for the U.S. government. The
last major breakup of a monopoly was AT&T in 1982. Microsoft was ordered split up by a federal
judge in 2000 after the Justice Department sued the software company in 1998, a decision that
was reversed on appeal.

In the past few years, there has been a groundswell of calls to at least rein in, if not break up,
technolo y companies that are seen by some as having become too big and powerful in many
ways. U.S. Senator Elizabeth Warren has made perhaps the most detailed case for breaking up
and regulating the four companies, but the Massachusetts Democrat is not alone in her
aggressive views on the industry. 

Any formal investigation will take a long time. Government scrutiny of Microsoft lasted years. As
all sides dig in, here’s a look at some of the issues the government could home in on as it builds
its case, and some of the ways the companies might argue their way out.

APPLE

The Case:
Though perhaps best known for the iPhone, Apple’s vulnerability is the App Store, which
supports tools and games for mobile devices and increasingly holds the key to the company’s
growth. Apple and Google control more than 95% of all mobile app spending by consumers in
the U.S., meaning that most developers must work with them to reach millions of smartphone
users. Spotify Technolo y SA is among those that have long complained about the 30% cut Apple
takes of each app, claiming it amounts to an effective tax on competitors. Some smaller
developers sued Apple this week, claiming the App Store suppresses competition. The European
Union is already preparing to look into the case and Warren, in her proposal, said the App Store
should be separated from the rest of Apple because its own apps compete with those of outside
developers. Last month the Supreme Court ruled that a large antitrust case, regarding App Store
pricing, could proceed.

The Defense:
Chief Executive Officer Tim Cook is adamant that Apple is “not a monopoly” in any way. He
points to its share of the smartphone market in the U.S., which is only about 30% and is even
lower on PCs. ``We don’t have a dominant position in any market,” he said in an interview
Tuesday with CBS. Apple has long sought to distinguish itself from the rest of  big tech, from
providing tighter security on its hardware and software to highlighting that it doesn’t monetize
users’ data. Regarding the App Store, Apple recently added a new section to its website to show
the benefits it provides to developers, such as reaching a huge global audience and handling
payment and identity details, thereby taking friction out of the sign-up process. Apple, along
with Google, has also pointed out its ability to filter out fake apps and malicious software, making

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its store more secure.

FACEBOOK

The Case:
Facebook has received a barrage of government criticism over the past year due to the sheer
amount of data it collects on some 2 billion users and its control over content posted on
the platform. Digital advertising, where Facebook and Google together control about 60% of
spending in the U.S., is also an area where regulators might seek to base a case. Warren and
Representative David Cicilline, the Democratic chairman of the House’s antitrust panel, have
suggested that Facebook’s acquisitions of Instagram and WhatsApp might need to be unwound.
Chris Hughes, one of the company’s co-founders, recently wrote at length why he thought
Facebook is a monopoly run by a chief executive officer whose “influence is staggering.”

The Defense:
Facebook CEO Mark Zuckerberg has said he welcomes regulation, but that breaking up the
company wouldn’t address legislators’ privacy and data concerns. In fact, Facebook argues that
its size actually enables it to do the things that regulators want to see, such as better policing of
content, which would be much harder if Instagram or WhatsApp were separate companies.
Furthermore, in an age where the government is concerned about the rise of China, Facebook
argues that the U.S. needs its big tech companies. Breaking up Facebook would simply clear the
way for Chinese tech companies, which don’t share American values, to step in and dominate,
Zuckerberg has said. As for digital advertising, Facebook notes that it doesn’t even lead the
market. EMarketer pegs its share at 22% of the U.S. market in 2019. Facebook’s $55 billion in
advertising revenue last year was less than half of Google’s. And, other social media companies
are growing in key demographics, like Snapchat, which said earlier this year that it now reaches
90% of 13- to 24-year-olds in the U.S.

GOOGLE

The Case: 
Google appears to be the company that’s facing the most serious antitrust scrutiny now, after the
FTC closed a two-year investigation in 2013 without any action. The company has a large or a
majority market share in several important industries: Search, digital advertising and mobile
operating systems. And Google could face concerns similar to Apple for its own app store.
Google commands about 37% of the U.S. digital ad market, according to EMarketer, where it sells
much of the online real estate available to advertisers, such as search ads and spots that play
before YouTube videos. In search, where Google has 90% of the market, opponents claim the
company can manipulate rankings to favor its own listings. And Google’s Android smartphone
operating system is by far the most popular in the world, with 85% of the market, outpacing
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Apple’s iOS with 14%, according to IDC. The company  has already gone several rounds of
antitrust scrutiny with the European Union and has been forced to pay billions of dollars in three
different cases, including a record $5 billion fine for the practice of tying its search and browser
tools to Android. Google has also made many enemies among smaller businesses, ranging from
media to advertising technolo y companies that are now assembling evidence to help the Justice
Department, according to a person familiar with the situation. 

The Defense:
Google has well-defined arguments ready to push back, honed over years of doing battle with the
EU and the FTC. To counter the claim of favortism in search, Google argues that it's only trying to
surface the best information faster for users. Google is appealing the $1.7 billion EU fine for
stifling competition in the online advertising market. Regulators’ demands for Android will force
Google to change its business model and start charging customers for the software, rather than
giving it to handset makers for free, the company claims. Google may also argue that the global
nature of the internet means it doesn’t actually have the power that its critics say it does,
pointing to companies such as Amazon and Tencent Holdings Ltd. The internet has low barriers
to entry, and if someone builds a better search engine or advertising system, customers can
easily switch over, the argument goes. Google likes to say that “competition is only one click
away.’’ 

AMAZON

The Case: 
The antitrust debate about Amazon focuses on the retailing giant’s perceived dominance of e-
commerce, where it has nearly 50% of U.S. online sales. Since it’s both a retailer and a
marketplace for third-party sellers, Amazon has drawn scrutiny over whether it uses its clout and
huge amount of sales data to give itself a leg up over smaller vendors – an issue the EU is already
investigating. Warren has suggested that Amazon, like Apple, should be barred from competing
with other players that sell on its marketplace. Regulators may also look into Amazon’s
fulfillment practice, in which the company handles all aspects of fulfilling customer orders from
shipping to packing and storing, according to Vox. The problem is that Amazon often charges
much lower fees than competing platforms. Amazon Prime could also be a target. While
consumers may love the fact that they can get free shipping on a wide range of goods and
services with the subscription program, the FTC has shown interest in the question of whether
bundling these services allows Amazon to undercut competitors on price, according to Vox.

The Defense:
Every time Amazon buys another company in another sector it sends a jolt of fear throughout
the industry -- whether groceries or pharmaceuticals or logistics. But Amazon claims it actually

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only holds a small percentage of the total retail market in the U.S. and faces formidable
competition from the likes of Walmart Inc. The company, also a frequent target of Senator Bernie
Sanders of Vermont for its treatment of workers, also prides itself on being able to keep prices
low for consumers.

— With assistance by Gerrit De Vynck, David McLaughlin, Mark Gurman, Spencer Soper, and Kurt
Wagner

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