Google, Facebook, Amazon, and the rest of Silicon Valley are on top of the world. They’ve never enjoyed more success or influence. Yet, at the peak of their power, they are stepping on the political accelerator in a way that could backfire spectacularly.
Political activists are planning a “Day of Action” on Wednesday to support the Obama-era Federal Communications Commission (FCC) regulations that turned the internet into a public utility. The activist groups oppose the new FCC’s proposal to reapply the light-touch and highly successful rules that governed the internet for the past three decades. Although much of Silicon Valley opposed the FCC’s surprise effort in early 2015 to invoke the heavy-handed “Title II” rules, they are now supporting the partisan Day of Action.
The tech firms’ support for highly partisan and ideological activism comes at a crucial time. Silicon Valley’s gigantism is making lots of people nervous. Many economists are worried about overconcentration and the possible need to constrain or even break up the largest tech firms. At the very time one might think technology firms would be resisting micromanagement from Washington, however, they are instead inviting politicians to get more involved in the technology business. Is this a wildly clever play we don’t yet understand, or a massive blunder?
The five largest tech titans now boast a combined market value of $2.84 trillion. Google and Facebook account for 70 percent of the $73 billion spent on online advertising and generate some 80 percent of online referral traffic. Apple still rules the mobile world, and Amazon, Google, and Microsoft dominate the rapidly growing business of cloud computing.
As large as these firms are, however, they are preparing to grow much bigger. Google is a major player in autonomous vehicles. Apple is getting into health care. And Amazon is making huge plays in food, pharmacy, and, well, everything else.
These firms may bring important efficiencies and innovations to the rest of the economy. I would argue the rest of the economy needs Silicon Valley’s creativity and know-how. There is a growing debate, however, over how big is too big.
Neutrality for thee, but not for me
In this context, Silicon Valley’s continued obsession with “net neutrality” seems odd. In several decades of internet experience, less than a handful of exceedingly minor neutrality violations ever emerged, and they were quickly resolved. Why press for Title II, a policy that goes far beyond net neutrality, when more important policy issues are just around the corner? Why, when Title II could interfere with the expansion of bandwidth you need to roll out new content and services? And why, especially when your insistence on “neutral” behavior may tend to implicate your own business practices?
Critics, for example, point to a growing array of tech titan behaviors, which seem to violate the values of neutrality that the firms claim to cherish.
- Anticompetitive behavior: In the most high-profile example, the EU in late June fined (0) Google’s parent Alphabet $2.7 billion for a lack of neutrality in its search results. The EU concluded (1) that Google favored its own shopping links and demoted competitive shopping links, which boosted consumer prices and put some of its rivals out of business.
- Anticompetitive behavior: The Federal Trade Commission (FTC) in the US had previously issued a staff report (2) in 2012 that recommended suing Google for three anticompetitive practices. The report found (3) that Google illegally restricted advertisers from doing business with rival search engines; copied, or “scraped,” proprietary information from competitors, such as Yelp, TripAdvisor, and Amazon, and used or displayed it as if it were its own information; and blocked websites that displayed Google results from also working with rival search engines, such as Microsoft’s Bing.
- Throttling: In June of 2016, Netflix admitted to throttling video speeds (4) on AT&T and Verizon networks, in secret (5), for more than five years.
- Blocking: Verizon now owns AOL and Yahoo!, and thus Flickr and Tumblr. In late June, when Yahoo! announced that AT&T email addresses would stop working on Flickr and Tumblr, many users objected. “A clear violation of net neutrality,” they howled. Except that’s not the case. The Title II Order of 2015 applies only to broadband internet access services (or BIAS) — the connections to homes and mobile devices. The regulations do not apply to websites, apps, content, or cloud services. So, under the Title II rules, it is perfectly acceptable for Tumblr to block AT&T email holders from accessing its site, or for any web, cloud, software, or device company to block or throttle users or other sites, apps, and participants in the ecosystem.
- Blocking: Critics claim that over the past few years, when Twitter suspended user accounts for offensive or abusive behavior, the company seemed to apply different standards according to the account holders’ political views. Conservatives charged that conservative or Republican accounts were suspended for relatively minor offenses, while huge numbers of “liberal” accounts suffered no such scrutiny despite behavior that was as bad or much worse. Regardless of the truth of these charges, conservatives and Republicans have begun to view many Silicon Valley firms as explicitly partisan entities.
Smart people of good will can debate the facts of these practices, their welfare effects on consumers, and whether the law should have anything to say about them. I often disagree with Silicon Valley’s critics and their quick appeals to regulation and antitrust. Yet three ironies are apparent.
First, the largest “gatekeepers” in our data-driven world are not the broadband firms but Silicon Valley’s cloud, web, software, and device firms. Second, despite the vague alarmism over possible future net neutrality violations by broadband firms that never materialize, there is a large and growing list of real non-neutral behavior by Silicon Valley firms. Third, the Title II rules that the Day of Action protestors claim are so important only apply to the parts of the internet that have been most free, open, and neutral. The rules don’t apply to most of the internet ecosystem — the parts where Silicon Valley reigns — and do nothing to protect consumers from their demonstrable, real-world, and non-neutral practices.
Non-neutral business behaviors aren’t necessarily bad — they often enhance consumer welfare. But a lack of neutrality in the law is a problem. Non-neutral statutes and rules have the discriminatory effect of favoring some firms and disfavoring others.
The tech firms’ aggressive advocacy efforts risks leaving them no leg to stand on when the politicians come for them next. As history’s wealthiest firms, they have a lot to lose (and Washington much to gain) by submitting to the kind of political management that has slowed innovation in so many other industries. The biggest losers, however, would be the rest of us — consumers, employees, investors — who rely on the unconstrained creativity of Silicon Valley as a central driver of human welfare. If Silicon Valley still wants to build the future without interference from Washington, it may want to consider supporting free enterprise for others, too.
This blog is abridged from Swanson’s note “Silicon Valley’s Dangerous Political Game.” (6)