Two days ago the Investigation of Competition in Digital Markets report was released by the Committee on the Judiciary. It is available as pdf: https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf It looks into the large enterprises of Google, Facebook, Amazon and Apple.
I’m currently in the process of reading it. I encourage you to do so as well, it is worth a read. The content is quite dense and to-the-point, so it won’t waste your time, even though it is 450 pages.
What I got from it so far:
- These are certainly monopolies, and they use their position to keep their position and hinder competition.
- They control marketplaces on which they too operate. They use market intelligence and market control to their advantage by offering preferential treatment to their own services or products.
- The companies grow ever more as acquisition of startups has become the norm. Either to kill a competitor, or to expand in new areas. Startup investors have started to prefer an acquisition as an exit strategy, as it is less risky and easier than developing the market. So startup capital won’t contribute to building a serious competitor.
- It is nearly impossible to compete with a similar product or service, so startup capital is mostly invested in new markets.
- Digital services work by economies of scale. So each company has to put in about as much work to build a service, but the revenue is determined by the market share. This benefits larger companies.
- Most services are ‘free’. This implies that the income gained from invading user privacy is greater than the cost of offering the service. Revenue is increased by gaining more users, more user attention, and lowering user privacy. There is a negative trend going on regarding user privacy.
- Smaller companies are afraid to speak out against these companies, as they operate on their marketplaces and risk sanctions.
- Although Facebook owns different social media platforms (Facebook, Instagram, WhatsApp), they prevent these companies from competing with each other by dividing the market.
- These companies greatly benefit from network effects. Either directly (your friends are on it, so you should to in order to communicate) or indirectly (a service gains wide adoption and becomes a de facto standard).
- News sites rely on complex paywalls to convert users into members. Google AMP doesn’t offer such features, and discourages their own adds. News sites are therefore faced with a lose-lose decision: either don’t adopt AMP and see your page rank drop, or adopt AMP and lose revenue.
- News sites have seen drops of 30 to 50 percent in visitors by algorithmic changes by Facebook and Google, influencing the discoverability of their news.
- Depending on these companies can be dangerous. One remark on Amazon Web Services (AWS) was of a smaller company depending on their hosting services for their business. At the moment they don’t compete with Amazon, but that could be the case if Amazon would enter their market. In that case they would depend on their competitor for hosting. Similar as Netflix is now (runs on AWS, even though Amazon itself is offering movie streaming).
- Amazon can gain market intelligence by offering hosting. Most encryption is done by AWS and so could be decrypted to look into the data. But even without decrypting, bandwidth and compute metrics tell a story on how well a company is doing. If Netflix launches a new series, AWS should be able to tell from their usage.
- AWS can analyze the market on popular software and create a competing product. It has created multiple ‘knock-off’ products of Open Source solutions. As these knock-off products differ slightly, they have a lock-in with the AWS infrastructure.
- To put an end to the AWS strategy of creating knock-off services of existing Open Source software, companies have adopted different licensing models. This has reduced innovation, as open collaboration has reduced.
I’ve only read until page 75 and skimmed the cloud related pages. So I have yet to discover more revelations.
My main take-way: the US has lost control of these companies and will struggle to put the genie back in the bottle. If the US has lost control, the EU certainly has.
I’m interested to hear your conclusions of this report.