Hooked to the Big Tech Hearing

The article is organized as follows. The first section contains a summary and some highlights from the Big Tech Hearing in-front of the House Judiciary Sub-Committee on Anti-Trust of the US Congress. Jeff Bezos, Sundar Pichai, Mark Zuckerberg, and Tim Cook were present for this hearing, and the Congress had some choice words for each of them. The second section contains an economic review of what platform markets are and what we know about them. The third section is dedicated to something from the hearing that struck out – I realized that I was not too fond of Sundar Pichai, and his Indian-ness is perhaps harming Google in more ways than one.

A Quick Look At What Transpired

Contrary to common beliefs, all big governments are not "Big Governments." A government can be big without being 'Big,' and a government can be 'Big' without being big. This might sound strange to many, but understanding the difference between big and Big is central to identifying what happened at the Big Tech Hearing in the US Congress.

A government is considered big if it employs a lot of people, that is if it is big in the numerical sense of the term. On the other hand, a government is considered 'Big' if, irrespective of its size, the government wields a lot of power. For example, the Indian government during the License Raj was a Big government, which controlled everything from the raw materials and processes of the industries to export quotas and price caps on products. On the other hand, the US government is merely big  - it employs 22 million people directly (as opposed to the Indian Public sector, which employs just 18 million). Still, it does not use the iron hand of the law to exert excessive control over companies. But this raises an obvious question – why does a not 'Big' government need such a big government?

Well, the answer to this dilemma is easy – in countries where the government pursue a hands-off approach, there is a greater need for bureaucratic and technocratic expertise within the government for PROPER OVERSIGHT. What this means is, that the government employs many more people to ensure that reckless companies, mostly unregulated, don't venture into territories that might hamper consumer interest, or morph into giant monopolies that would reduce productivity and harm innovation. The Big Tech Hearing was a manifestation of this oversight.

Crowded on a massive CISCO-WEBEX LED screen, four prominent CEOs with a net worth of $266 Billion (roughly equal to Pakistan's GDP)  presented themselves to be questioned on whether their companies indulged in "practices that were deemed monopolistic, and could harm future innovation in the tech sector". Every member of the sub-committee was given 15 minutes (in three rounds of 5 minutes each) to question the four CEOs on their company's practices, policies, cultures, mergers, etc. I present a brief (surprisingly bi-partisan) summary of the case made by the US Congress against each company below. For the theatrics and the drama, please watch the almost 7 hour hearing at your time.

Jeff Bezos - The sub-committee cited several critical concerns with the way Amazon functioned. The most prominent concern echoed repeatedly was how Amazon collected data about the sales of third-party sellers on its platforms and used it to create products to compete with these sellers. Once these products were created, the algorithms would rank Amazon's own products and brands over the products of third-party sellers, thereby cutting sales for them. This was a consistent pattern, and prominent example in this category concerned Diapers.com, which was acquired by Amazon as its loyal customers were digging through pages of the search result to buy the specific product despite all efforts by the company. Amazon could not have done this had it not been a monopoly. If competing platforms existed, all third-parties would have migrated over.

A second concern regarding Amazon was associated with its dealing with the COVID-19 pandemic. Lawmakers observed that when the world went into lockdown in March 2020, Amazon declared that it would prioritize the shipping of essential items over others in the resource crunch. In practice, however, this meant that Amazon spent most of its resources on delivering products of its own brand and delayed the deliveries of third parties. This is clearly anti-competitive and an example of the gatekeeping powers of the company.  

Mark Zuckerberg – With Facebook, the concerns raised have been quite similar across time. Most prominently, the Conservative Republicans on the committee are quick to allege that Facebook censors Right-Wing media outlets and exerts control over free speech which is antithetical to First Amendment principles. Many would argue that since Facebook is a private company, it can do whatever it wants, and is not bound by Free Speech obligations But under the US Law, FB is considered a platform which does not exercise any editorial judgement over the content on its app and site. Consequently, it has to abide by Free Speech, lest it would be held accountable for the content on its platform and be challenged in court of law (like newspapers or TV channels).   

Another repeated allegation against Facebook concerns its acquisitions of young startups like Instagram and WhatsApp. The committee highlighted that these acquisitions are monopolistic, as Facebook now dominates the social media domain. Zuck pointed out that at the time when he acquired these companies, nobody could have imagined that Instagram or WhatsApp would grow as big as they did, so it is an ex-post allegation that does not hold water without knowing what happened in the future.

Sundar Pichai – Concerning Google, the lawmakers had several concerns, but I would broadly comment on two of them. First, Google's ad space behaves like an unregulated stock market, in which Google acts as a broker of ads. Since it has a lot of market power, it buys ad spots cheaply from a lot of websites and sells them to advertisers at exorbitant rates. Hence, it acts as a gatekeeper for the websites. They can only get ads through Google so it can buy them at low costs, and sell them over through auctions, which are designed to maximize profits (Read Varian's work on auction design in this regard). This is similar to insider trading and would have a negative consequence on Wall Street. But Google remains unchecked.

The second concern was regarding the violation of IP rights and leveraging data collected on app and website usage by Google to create products that compete against existing sites. This is similar to Amazon's model, so I do not discuss it more.

Tim Cook – Apple's App Store has been under scrutiny for a while. As Apple has over 900 million users, its App Store is effectively a gatekeeper to this user market for all app developers. This means that Apple can extort them in multiple ways. First, it charges a 30% cut on revenues for all apps that provide subscription through Apple's payment gateway. This rule recently led to companies like Airbnb to file cases against Apple in the EU. I would not go into the details, but simply explain it in few lines. Apple used to get a 30% cut of all subscriptions, but did not receive any cut on purchases made on the app. Airbnb, hence had no cuts in the pre-pandemic world as all its users were making purchases. But post COVID, the app started providing its users with paid tours of celebrity homes, paid cooking and gym classes, and other video tutorials. This led Apple to send out notices to Airbnb and demand them to pay a 30% cut from their revenue to Apple. The lawmakers believed that this gatekeeping is a gross violation of anti-trust laws.

Second, Apple, similar to Google and Amazon, would collect data about the usage of third-party apps, and create spin-offs of the popular apps. Again, this practice is clearly anti-competitive.

The Economics of Two-Sided Markets

While I have discussed the problems with the 4 companies in detail, I have refrained from any economic characterization of the market in which these operate. Most economists would refer to these companies as "TWO-SIDED MARKETS". What this means is, that the companies get two different entities on to their platform, and charge them to interact with each other. For example, Facebook gets ad buyers together with people who wish to use the platform for communication, amazon connects third-party sellers to buyers, and so on. Doing so is very costly, and the tech giants spend a lot of money in maintain their platforms. However, the interesting thing is that they provide most of these services for free to at least one of the two sides of their markets. In effect, hence, they basically charge the advertisers, buyers, app-owners, etc. to subsidize the experience and convenience that they offer to customers and social media users. Jean Tirole, a Nobelist, has written about this extensively, and I would direct you to his Nobel Prize lecture for more details.

On Sundar Pichai, and his Indian Ways of Running Google

Finally, I come to discuss the problems that I have with Sundar Pichai's leadership at Google. It is a well-known fact that in 2018, Google withdrew from the $10 billion Pentagon AI contract, as its employees wrote a mass petition against it to the CEO. The employees felt that Google should not be involved in the wars of US military, and have blood of millions of people on its hands. This prompted a question from a member of the committee during the hearing. Matt Gaetz, a Republican crook, used this withdrawal to question Google's commitment to American values. In particular, Matt cited a recent petition by the employees of the company to stop providing surveillance tools to the police due to recent BLM protests in the US.

This is where things get interesting. Matt Gaetz referred to the mentioned petition as "bigoted anti-police" sentiment. Pichai, however, made no attempts to defend his employees and instead went on a several second rant about neutrality and following the law. This is consistent with his behavior within the company.

The New York Times did a fabulous series of reports on the aftermath of the withdrawal from the Pentagon AI project that I have mentioned before. The company's top brass, led by Pichai, realized that giving in to the demands of its employees' political leanings harms the finances of the company. Around that time, Google's internal emails were filled with sign-in petitions against Google's collaboration with Saudi Arabia and other problematic actors. Fearing retaliation, Google changed its internal employee policies to limit discussion of politics on internal emails. Then, it also introduced a new measure that ensured that access to company's dealings can only be known to  employees on a "need-to-know" basis, as opposed to the earlier culture where most information was freely available internally. Finally, the company also did away with weekly "open-to-all" interactions with the CEO, and made them less frequent. When some of the employees protested, they lost their jobs.

This systematic silencing of internal dissent, and the willingness to work with both sides, is an inherently Indian idea. Pichai is perpetuating a NAM – Non Aligned Mindset – in his US workspace, which is traditionally known for the freedoms that it gave to its employees. By forcing politics out of Google's door, the company is bending against everything that Larry and Sergey stood for when they declared "Do No Harm" as the company's motto. And Pichai, the CEO, is dictating the terms of employee engagement to coincide with an Indian commitment to hierarchy and love for authority that can stifle the innovation at the company.

This is different from how (to cite one example) Facebook deals with its employees. As is well known, Facebook is always in the midst of the censorship storm, with both political factions shouting that FB is tipping the scales in the favor of the other side. However, the company has given its employees the freedom to have and express opinion, as long as it does not influence the way they moderate content internally. The platform, for its faults, offers all political ideologies a place to air their views, and that has had both positive and negative outcomes.  Employees can dissent, and the recent campaign against hate speech on their platform is a reflection of the same.

In 2012, Zuckerberg, in an internal mail, had written that FB could "likely buy, just buy any competitive startup, but it'll be a while before we can buy Google." I believe that if Pichai continues down the road that he is chosen, Zuckerberg's dream might come true sooner than he had imagined.