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Facebook needs more than a $5 billion fine. It needs a new business model

The Federal Trade Commission (FTC) is letting Facebook off the hook.

On Wednesday, the FTC announced a $5 billion fine on Facebook over rampant privacy abuses that violated a 2011 order — the largest in the agency’s history. But even multibillion-dollar fines don’t cause tech giants enough pain to stop bad behavior. For Big Tech, fines are a rational cost of doing business.

Google, for example, has handed over more than $9 billion to the European Commission since 2017 for antitrust violations, without skipping a beat. And immediately after reports earlier this month that Facebook would settle with the FTC, the company’s stock rose nearly 2%.

Instead of fines, changing destructive business models and anticompetitive practices is the only way to lessen the platforms’ harms. These fixes fall into four main buckets, spelling out the acronym PAIN: privacy, antitrust, interoperability and non-discrimination.

Privacy

Meaningful privacy regulations, not crafted by Big Tech lobbyists, would not only protect Americans from ubiquitous surveillance, but would also level the competitive playing field.

Facebook and Google have 360-degree views of what their users read, think and do thanks to their ability to track users across millions of websites and in the real world. To get an idea, you can see all the data Google has collected on you here.

Publishers and content creators that don’t read your emails, know every search you’ve done, track your location, know who your friends are, know every YouTube video you’ve watched or what you’ve purchased across the web, for example, can’t really hope to compete with Google and Facebook for targeted advertising dollars. That’s why Facebook and Google are capturing the lion’s share of advertising revenue. Last year, Google’s ad revenue rose to $116 billion, and Facebook’s rose to $56 billion. Meanwhile, news publishers’ combined ad revenue fell to $16.4 billion in 2017.

Antitrust

More aggressive enforcement of existing antitrust laws would go a long way toward opening up competition and promoting innovation. Antitrust enforcers need to do a better job of identifying and suing to block tech platforms’ acquisitions of competitive threats. They need to unwind illegal mergers they didn’t catch. And enforcers need to bring more monopolization cases, like United States v. Microsoft Corp., that go after anticompetitive conduct.

After all, today’s tech giants are following Microsoft’s playbook. In its Android case, the European Commission found that Google required phone manufacturers to install a suite of apps on Android phones as a condition of installing the must-have Google Play app, just like when Microsoft illegally maintained its monopoly power by requiring computer makers to pre-install Internet Explorer, and not its competitor Netscape.

Amazon, too, is being investigated by the European Commission for practices related to awarding the Amazon “buy box” that captures the majority of product sales and for how it uses merchant data. Apple has been accused of discriminating against Spotify and giving favorable treatment to Apple Music. And internal Facebook documents published by the UK parliament provide evidence of Facebook identifying WhatsApp as a competitive threat before buying it. The Clayton Act, Section 7, prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

Interoperability

Interoperability is a tried and tested anti-monopoly tool that has been used successfully to promote innovation by reducing barriers to entering markets. For Big Tech, interoperability would allow users to authorize networks to securely communicate with each other, much like how consumers with different email services can send emails to one another.

Regulators and antitrust enforcers have imposed these requirements against AT&T and Microsoft, opening up competition in long-distance calling, telephones and internet browsers. Imposing interoperability on Big Tech, which hasn’t yet been done, is a powerful key to unlocking competition in the sector, and even the tech company Mozilla has advocated for interoperability to the FTC.

Non-discrimination

Tech platforms that provide essential communications and information services should be subject to rules that prohibit discrimination in price or terms, which we have repeatedly applied to network monopolies in our history. From the post office to the telegraph to cable TV, American government has required non-discrimination policies to protect the free press and democracy. Non-discrimination is the principle behind net neutrality, holding that those who control the infrastructure don’t get to pick the winners and the losers of the internet. Our representatives should require the same of Big Tech.

For example, Google was found by the European Commission to have abused its dominance by prioritizing its own comparison shopping services in Google search and tweaking its algorithms to demote competitors in search results. The Commission imposed a non-discrimination remedy, requiring Google to treat competitors the same way it treats itself, but it has been accused by complainants of not properly enforcing the remedy. Google, with its 92% search market share, should not be able to bury its competitors in search results.

But why should we put America’s superstar companies in PAIN? Certainly not to punish the platforms merely for being big or for being successful — a narrative the many voices on Big Tech’s payroll like to push. The Big Tech platforms argue that they provide benefits to consumers and face rigorous competition. They say they protect users’ privacy and that consumers prefer the companies’ products and services over the offerings of competitors that depend on their platforms.

Rather, these measures are necessary to change practices that are destroying competition and harming innovation. A major problem is that the dominant tech platforms are internet gatekeepers that also compete against companies that must get through their gates to reach users. But of course, this is not a fair competition. Rather, tech platforms have platform privilege — the incentive and ability to prioritize their own products and services over competitors’. Tech platforms get to both umpire the game and play in it, too.

A fine alone is not a real consequence. When it comes to fixing Big Tech, if it doesn’t hurt, it doesn’t work. And while requirements to adjust business models and practices may be painful for the tech giants in the short term, such changes will be sweet medicine for competition. Loosening the grip of internet gatekeepers will make our markets function again, give entrepreneurs and disruptive innovators a fair shot, and ensure that no one company has too much control over speech or commerce.

 

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