Tech Under Attack: Why This Time Might Be Different

Shah Gilani|January 3, 2021

Big technology companies are under attack, again. After fighting off frontal assaults for years, giants like Google, Facebook, Amazon, Microsoft, and Apple are about to be hit from all sides.

The European Union is nearing completion of aggressive legislation to curb big tech’s ever-widening reach and range while the U.S. Department of Justice, the Federal Trade Commission, and dozens of states plow ahead with investigations of their own.

Here’s what’s at stake for the titans of tech…

The Firing Squad

On December 15, the European Commission (the European Union’s executive arm) published drafts of not one, but two legislative bills, aimed at reining in big technology platforms.

The Digital Services Act (DSA) and Digital Markets Act (DMA) together aim to completely overhaul existing European policy towards the internet and the giant firms that rule over it.

The Digital Services Act covers services and content, abuse of platforms, advertising, transparency into how recommendation algorithms work, and illegal goods.

The Digital Markets Act creates and defines a new category of “gatekeeper” platforms. A company is a gatekeeper if it controls a “core platform service” with a reach of 45 million users and a market capitalization of at least $80 billion.

The Commission believes that, because of their size and reach, gatekeepers have been able to squash competitors, promote their own products over third-party sellers, and force platform users into pre-installed software.

Google’s parent company Alphabet Inc. (NasdaqGS:GOOG), Amazon.com Inc. (NasdaqGS:AMZN), Apple Inc. (NasdaqGS:AAPL), Facebook Inc. (NasdaqGS:FB), and Microsoft Corp. (NasdaqGS:MSFT) all qualify as gatekeepers.

Violating the DMA carries penalties of up to 10% of a company’s annual global revenues, and if firms are tagged as serial offenders, the European Commission could sue to break them up.

Breaking DSA rules could result in a fine of up to 6% of a company’s annual global revenue.

According to Thierry Breton, commissioner for the internal market, who said, “We are organizing our digital space for the next decades,” the newly proposed laws aren’t designed to encourage lawsuits against offenders, their intent is stop big tech companies from doing what they’re accused of doing, period.

While the digital services draft bill essentially qualifies, quantifies, and formally legislates rules already in place, the digital markets bill reshapes the Internet marketplace.

According to tech lobbyists, the DMA unfairly singles out large companies, prevents companies from promoting their own products, which they say is common practice in other industries, and unfairly forces large firms to share data with competitors.

While the two draft bills are more draconian than expected, according to U.S. tech firm representatives, tech lobbyists hope to water them down during the legislative process, which can take up to four years.

Back in the U.S. in October, the Department of Justice launched a lawsuit against Google over alleged abuses of its monopoly in search advertising, which eerily echoes many of the claims Google was sued by the European Commission for, which I’ve already written about here.

Then in early December, the Federal Trade Commission and 46 states sued Facebook over what they claim are anticompetitive practices across the company’s social-networking properties.

Individual states are going after Google and Facebook too. 10 states, filing jointly in the U.S. District Court in Texas, allege, according to the Wall Street Journal, that “Facebook emerged in 2017 as a powerful new rival to Google, challenging the Alphabet Inc. unit’s established dominance in online advertising. Google responded by initiating an agreement in which Facebook would curtail its competitive moves, in return for guaranteed special treatment in Google-run ad auctions, the lawsuit claims.”

Allegedly, as Facebook emerged as a threat, “Google made overtures to Facebook,” the lawsuit says, and the two competitors entered into a deal they code-named the Jedi Blue deal, a Star Wars reference, where Facebook would stand down in return for Google giving Facebook “information, speed and other advantages in the auctions that Google runs” for mobile advertising.

The European Commission’s newly drafted bills, along with past victories over multiple lawsuits the European Union has won against America’s tech giants, which are being appealed, and the changes they imposed on them, which they are now attempting to legislate broadly, are a roadmap for U.S. investigations being conducted by the DOJ, the FTC, and an increasing number of U.S. states.

What matters is how many and what draconian changes to these tech giant’s business models and platforms will result from the multilateral attacks they’re facing, and what could happen to their stock prices.

That’s where we’re going next.

Sincerely,

Shah

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