Saturday 25 May 2019

Brendan Keenan: 'Breaking up big tech may be a good idea but it will be hard to do'

New revolution: Facebook is threatening to swallow up more firms with a China-inspired pivot which combines its messaging with an array of services, including purchases and payments. Photo: PA
New revolution: Facebook is threatening to swallow up more firms with a China-inspired pivot which combines its messaging with an array of services, including purchases and payments. Photo: PA
Brendan Keenan

Brendan Keenan

If you want to understand the Information Revolution - a revolution which may turn out as profound as the industrial one - best to start with something simple. Something like Airbnb.

What could be simpler than using the internet to let out your house as a holiday home or book one, with or without breakfast? But look at the consequences. I was reminded of those when a friend said they were having difficulty finding such accommodation in Spain because of new regulations designed to limit the effects of Airbnb.

This new digital marketplace has been hugely disruptive. It has been blamed for everything from putting traditional B&Bs out of business, to putting customers at risk, to increasing the price of houses and causing the eviction of sitting tenants.

And all it is is an exchange of information, but on a scale and at a speed previously impossible.

The other revolutionary thing is that almost everyone uses the San Francisco company Airbnb Inc. One can hardly think of the name of a rival service. In this new world there is usually no such thing as a close rival. Nearly half of all ecommerce goes through Amazon. More than 70pc of all internet traffic goes through sites owned or operated by Google or Facebook.

It may be significant that one area of competition involves a physical object - the smartphone - where the initially unlikely Samsung of South Korea gives Apple a run for its money. Where services and information are concerned, it seems to be "winner takes all".

Dominance was an issue in the industrial revolution too. In the USA it reached extraordinary proportions. Best-known is John D Rockefeller's Standard Oil, whose offspring still account for most of the world's oil processing and sales.

Even more impressive perhaps were the exploits of Andrew Mellon, whose many interests included Alcoa, Westinghouse Electric, Union Steel and Gulf Oil - as well as the family bank - and who went on to become US Treasury Secretary.

A handful of men and their companies did dominate the American economy at the end of the 19th century, but they could never have envisaged dominating the world. That is what another handful of men and their companies doing at the start of the 21st century and the problem, so far as we can tell, is set to grow rather than diminish.

From Airbnb to Amazon, the new companies have already disrupted economies in a way not seen since the industrial revolution. It sometime seems that more attention is being paid to a threat from artificial intelligence which has yet to materialise than to the one which is already all around us.

Of course, anyone who works for a newspaper has a very large interest to declare in these matters. The industry we knew has vanished, and most of its jobs with it. It is not at all clear what any new industry, if there is one, will look like.

That raises the question as to whether the methods used 150 years ago are relevant today. They consisted mainly in breaking up the great companies on competition grounds. In particular, ownership of networks was separated from ownership of the things that used the networks.

America led the way - a reminder that its present adulation of big business is a relatively new phenomenon. Later, Europe tended to favour nationalising networks and natural monopolies - a question which may yet come up again when it comes to the tech behemoths.

For the moment, the argument seems to be between applying old anti-trust principles or leaving the markets to take care of things because we do not yet fully understand what is happening.

Senator Elizabeth Warren, who is seeking the Democratic nomination for the US presidential election next year, is a champion of the old methods. In a recent article she argued that the companies are guilty of the old abuses and can be dealt with accordingly.

Microsoft's Bill Gates once said that the trouble with tech is that someone is always trying to eat your lunch. Competition came, not from rival products and services, but from the creation of brand new ones. But the big companies are now big enough to buy the restaurant and threatening newcomers are gobbled up.

Monopolistic power is also evident. Amazon can use the data it acquires from its marketplace to identify consumer tastes and then develop and sell its own products in competition with those who had been its clients.

Facebook, usually in the news for alleged content abuses, is musing on yet another revolution; combining its messaging with an array of services, including purchases and payments. Another swathe of existing companies would risk being eaten.

Senator Warren cites the 1913 agreement where another behemoth, the phone monopoly AT&T, agreed to spin off some businesses and accept extra regulation rather than be broken up.

In her view, Amazon Marketplace, Google's ad exchange and Google Search should be defined as platform utilities under new laws. Amazon Marketplace and Basics, and Google Search would have to be sold. Google's ad exchange would have to be separated from businesses on the exchange.

Such divisions might have helped a lot of old businesses, including newspapers, and should certainly help future competitors. Theory says that would speed up the pace of technological change, which is a sobering thought. Regulation may have as short a shelf life as the technology itself and have to be continually adapted.

All very difficult, but there is more. Facebook boss Mark Zuckerberg's ideas are partly based on the success of China's WeChat. The new revolution's global reach means geopolitics will pay a major role.

The trust-busters could break up Standard Oil but the oil was still American. Splitting AT&T did not hand the business to Britain's Cable & Wireless. Any diminution of Big Tech's power, however, may hand an advantage to Alibaba and Huawei. That prospect will give a lot of pause for thought in western capitals.

The European Commission has more direct powers on competition and state aid than any body in the more diffuse democracy of the USA. It has used them too, but any threat to the fortunes of the American giants almost immediately spills over into frosty relations between the EU and the USA. And that before Donald Trump.

The case for doing little or nothing while the revolution rages is made in a recent book, 'Big Business: A Love Letter to an American Anti-Hero', by US economist Tyler Cowen. He makes much use of the anti-trust case brought against the then dominant IBM in 1979. It lasted 13 years and, he says, "arguably made IBM less able to identify the market shift toward personal computers" and contributed to a collapse of its market share and record losses.

Senator Warren prefers to talk about the more recent moves against Microsoft, designed to prevent it using its dominance in operating systems to help achieve the same thing in the new web browsing. Without that, she says, there might be no Google or Facebook, just an almighty Microsoft.

Both IBM and Microsoft recovered, but both are very different than they would have been if left alone. The world might be different too, but whether it would be any better is another question. Prof Tyler argues that the giants buying successful newcomers spurs innovation but business history seems decidedly against him on that one.

But trust-busting was of no help to handloom weavers or the makers of steam engines. If more competition spurred greater innovation - which would be part of the purpose - the winnowing of traditional businesses, along with traditional jobs and benefits, may actually gather pace.

If liberal democracy is to survive, a lot of thought must be given as to how the income which will undoubtedly be generated in these brand new ways is to be distributed in society. That was an issue at the end of the 19th century too, and getting it sorted was a long and painful business.

Now it is all to do again. The first thing is to recognise that it is so, and make a start in what may be a longer more painful process of building a world fit for hi-tech to live in.

Indo Business

Also in Business