Congressional report blasts Google, Apple, Amazon and Facebook as monopolistic ‘gatekeepers’ of the digital economy

The more than 400 page report details alleged market abuses by each company with specific examples. It says that, “As Amazon, Apple, Facebook, and Google have captured control over key channels of distribution, they have come to function as gatekeepers. A large swath of businesses across the U.S. economy now depend on these gatekeepers to access users and markets.”

Google was the first to release a statement responding in particular to the idea of breaking up the company: “Americans simply don’t want Congress to break Google’s products or harm the free services they use  every day. The goal of antitrust law is to protect consumers, not help commercial rivals. Many of the proposals bandied about in today’s reports—whether breaking up companies or undercutting Section 230—would cause real harm to consumers, America’s technology leadership and the U.S. economy—all for no clear gain.”

Facebook, Apple and Amazon will similarly dispute the findings and recommendations in the House report, which has no direct legal force. However it will be broadly influential and potentially previews some of the of the arguments and evidence that might show up in the anticipated U.S. government antitrust cases, which appear to be imminent — at least against Google and possibly Facebook.

Google is a system of ‘interlocking monopolies’

The report observes that “Google has enjoyed strong and steady profits, with profit margins greater than 20% for nine out of the last 10 years, close to three times larger than the average for a U.S. firm.” It also cites financial analysts who argue “Google is well positioned to maintain its dominance, noting that ‘Alphabet has established unusually deep competitive moats around its business.’”

The report finds Google has an effective monopoly in search, using its size, data and “gatekeeper” status to impede competition or to exact favorable concessions from others dependent on its ecosystem. It also criticizes Google for “misappropriating” content from third parties and favoring its own vertical content in search results.

Using examples that are undoubtedly drawn from Yelp and TripAdvisor, the report describes Google’s alleged effort to push third party content down the SERP and to elevate its own vertical content:

When the Local OneBox appears on the page, links to [the company’s] website with highly relevant [results] get pushed down the page into the lower section for organic search results. This demotion puts [the company] at a competitive disadvantage relative to Google’s local search results and jeopardizes the health of [our] business—and this problem is further exacerbated in the growing mobile context where links to [our] website may be pushed off the small screen or the first page of search results altogether.

This argument was initially rejected by the FTC during its original antitrust investigation of Google roughly eight years ago. But the market has changed since that time.

The report further argues that “Google has also actively demoted certain rivals through imposing algorithmic penalties.” Picking up a Yelp argument, it contends that Google’s in-house vertical content would be unlikely to survive Google’s own “demotion criteria.”

Below are some of the additional findings about Google:

• Google is “siphoning off traffic from the rest of the web, while entities seeking to reach users must pay Google steadily increasing sums for ads.”
• Google “has maintained its monopoly over general search [ ] through a series of anticompetitive contracts,” and specifically app pre-install rules for Android OEMs.
• Google’s massive “trove” of user data helps “[reinforce] its dominance across markets” and its variety of services, which are linked together, function “as an ecosystem of interlocking monopolies.”

Facebook sought to ‘acquire, copy or kill competitors’

Facebook argues it faces broad competition from Twitter, Snapchat, Pinterest and TikTok. However, citing data about usage and reach, the subcommittee report bluntly states, “Facebook has monopoly power in the market for social networking.” It adds Facebook “has held an unassailable position in the social network market for nearly a decade.” Network effects, data advantages and “high switching costs . . . discourage direct competition by other firms to offer new products and services.”

Much of the discussion of Facebook in the report focuses in on its acquisitions strategy and whether buying Instagram and WhatsApp was done to end their competitive threats to the company. The report cites internal Facebook memos and documents that describe the company’s M&A strategy as a “land grab” and a tool to “neutralize competitive threats and to maintain Facebook’s [dominant] position.”

“Facebook used its data advantage to create superior market intelligence to identify nascent competitive threats and then acquire, copy, or kill these firms,” the report asserts. It further provides examples of alleged “steps taken to abuse data, to harm competitors, and to shield Facebook from competition.”

The report cites instances where Facebook/Instagram copied competitor features (e.g., Snapchat Stories) in an effort to “destroy” them:

Snapchat co-founder Evan Spiegel turned down an offer from Mr. Zuckerberg to acquire the company for $3 billion. Thereafter, Instagram—owned by Facebook—introduced the Stories feature . . . which was “nearly identical to the central feed in Snapchat, which [was] also called Stories.” Less than a year after its introduction, Instagram Stories had more daily active users (200 million) than Snapchat Stories (161 million).

Citing the example of Vine, among others, the report adds that Facebook also selectively denied access to its “social graph” to harm and neutralize perceived competitors. “In 2013, Facebook claimed that the short-form video app Vine . . . ‘replicated Facebook’s core News Feed functionality.’ In response, Facebook cut off Vine’s access to Facebook’s APIs. In doing so Facebook was able to degrade consumers’ experience of Vine and reduce the platform’s competitive threat. Twitter shut down Vine in 2016.”

Finally the report discusses, at some length, Facebook’s “monopoly power in online advertising in the social networking market” and cites third party testimony that Facebook advertising is “unavoidable,” a “must have” and “difficult to replace” given its scale and capabilities.

Apple and Amazon have ‘durable market power’ that harms competition

Apple and Amazon aren’t characterized as “monopolies” in quite the same way as Google and Facebook but are described as having “durable market power,” which is unlikely to change absent antitrust intervention. For Apple it’s iOS and the App Store. In Amazon’s case, it’s a range of advantages and behaviors that create “lock-in” for both consumers and third party merchants selling on the platform.”

Regarding Apple, the report claims:

• The company’s durable market power is “due to high switching costs, ecosystem lock-in, and brand loyalty. It is unlikely that there will be successful market entry to contest the dominance of iOS and Android.”
• Apple’s control over iOS also “provides it with gatekeeper power over software distribution on iOS devices.”
• Apple’s monopoly power over software distribution on iOS devices allows it “to generate supra-normal profits from the App Store and its Services business.”

The complaints and concerns surrounding Amazon are broader:

• Amazon is a “gatekeeper for e-commerce” because of its large market share, supply chain, network effects and logistics advantages
• Amazon has monopoly power over most third-party sellers and many of its suppliers. “They cannot turn to alternative marketplaces, regardless of how much Amazon may increase their costs of doing business or how badly they are treated.”
• “Amazon expanded its market power through avoiding taxes, extracting state subsidies, and engaging in anticompetitive conduct—tactics that have given the company an unfair advantage over actual and potential competitors.”
• “Evidence shows that Amazon is willing to use its increased market power in e-commerce during this [COVID] crisis to exert pressure on suppliers and favor its own first-party products over those sold by third-party sellers.”

Finally the report argues that Prime generates online shopping “lock-in” among the majority percentage of American households that have memberships. It further contends that “Amazon’s acquisition strategy has led to fewer choices for consumers in terms of differentiated online retail channels, as well as reduced competitive pressure in terms of price and quality.”

Remedies, including ‘structural separation’

The report’s discussion of potential remedies and recommended changes in antitrust law is extensive and highly technical. What the subcommittee ultimately concluded is that current antitrust enforcement mechanisms are largely inadequate to deal with the concentration of power in the digital economy. Accordingly, the report offers “a menu of reforms . . . for purposes of potential legislative activity during the remainder of the 116th Congress and thereafter.”

It recommends strengthening existing antitrust laws and enforcement, as well as crafting some new rules, including, “nondiscrimination requirements, prohibiting dominant platforms from engaging in self- preferencing, and requiring them to offer equal terms for equal products and services.” It also argues for a “presumptive prohibition against future mergers and acquisitions by the dominant platforms.” In other words, big companies seeking to make a sensitive acquisition would have a much higher bar to clear.

Congress may have trouble passing sweeping new antitrust law, given some disagreement on the need for it among Democrats and Republicans — although both parties appear to agree on the basic findings of the report.

Most controversially, the report proposes “structural separation” as a possible remedy, without suggesting specific breakups (e.g., Google-Android or Facebook-Instagram). This is what Google immediately zeroed-in on in its response, cited above.

When they come, it’s likely that the Justice Department and FTC antitrust cases will include a request, among other remedies, that key properties be divested to restore competition. This is because fines have not been successful in the past in Europe to deter perceived anticompetitive behavior.

But for marketers, little or nothing will change as a result of this report — or potentially for years — as the coming antitrust actions wend their way through the judicial system.