Is Big Tech Too Big?

Apple, Google, Facebook, Amazon, and Microsoft are some of the biggest tech companies in the world. However, their size, market dominance, manipulative power, and monopolistic behaviors are now once again coming into scrutiny over issues like in-app purchases, monopolistic practices that drive out competition, and prices. Let’s take a look at whether or not big tech really is too big in this post.

Back in the early 1900s, Standard Oil, led by John Rockefeller, was by far the largest and richest company: it controlled 90% of America’s oil refineries and had virtually no competition. This was achieved by buying up all other smaller refineries and merging them all together. In 1906, the Department of Justice, under President Roosevelt, began an antitrust investigation into Standard Oil. A verdict was reached after five years and Standard Oil was found guilty of violating the Sherman Antitrust Act and broken up into tens of separate companies.

This set a precedent for antitrust investigations which continued well into the 1970s: many companies, even those that weren’t particularly large, were broken up in order to encourage competition. This only changed in the 1980s when President Reagan brought about sweeping new changes to antitrust law. Rather than basing antitrust investigations on whether a company was too big, it would now be based on whether breaking up the big companies would benefit the consumer, a process known as consumer welfare. This new policy is what allows the current big players in tech to continue to thrive and make hundreds of millions of dollars in profits per year.

The most important aspect is durable market power. Having a large market share does not mean a company is driving out competition, it could simply mean a company is the best at what they’re doing. For example, although Google controls more than 90% of the search engine market, it isn’t by any means durable. If they started charging per search, people would simply switch to Bing or Yahoo instead.

Similar cases can be made for the other companies mentioned. Facebook, for example, though it controls a large percentage of the social media market, lacks real durable market power. But their competition is alive and well—people could just as easily switch to platforms such as Twitter. Amazon can also easily argue that suppliers, which often complain of Amazon participating in unfair methods that harm suppliers, can simply use another distribution market share instead.

However, lawsuits have been made against Amazon by participating in illegal price-gouging, for example, by increasing prices during COVID-19.

Apple has also been subject to particular scrutiny recently (and to some extent, Google too with its Google Play policies). You may have been aware that some time ago, Spotify sued Apple for being anticompetitive by giving its own apps (in this case, Apple Music) priority over third-party apps, the inability to set third-party apps as default, and for Apple taking a 30% cut on all in-app purchases.

Epic Games, the developer of Fortnite, has also started a lawsuit against Apple (and Google too) last week over this exact same matter—Fortnite was removed from both app marketplaces after Epic tried to implement their own payment policy, circumventing Apple and Google’s by not allowing them to take a cut. Epic claims that by forcing developers to use Apple’s App Store, Apple is participating in anticompetitive behavior because they all have to give Apple (and also Google) a 30% cut (this is despite a large percentage of Fortnite and Spotify’s users coming from iOS devices). Companies have also claimed that 30% is too large a cut for Apple.

However, since antitrust mainly focuses on consumers, it is unclear what benefits opening up iOS to third parties would bring. For one, it could affect user privacy and open the gates to more malware. In addition, even if Apple (and Google) reduced their cut, people could still argue that it was too much (for reference, YouTube takes 45% of ad revenue). Also, no such lawsuits have been made against console marketplaces, such as Wii, Xbox, and Nintendo, even though they force everyone to use their own marketplace.

The question now, therefore, becomes: are Apple and Google really hurting competition by forcing everyone to use their own app stores, or is it just developers being greedy and not wanting to pay Apple (iPhones account for 39% of U.S. devices, more than any company, and research has shown iPhone users are way more likely than Android users to spend money on apps). Are companies like Epic and Spotify biting the hand that feeds them? It will be interesting to see how these play out in the courts.

Disclaimer: this post is not a defense for large tech companies.