STRS: The Economist Disregards Innovative Tech Industry
Recent pieces from The Economist on competition and the tech industry all but ignore competition, the expansive definition of the consumer welfare standard, and the importance of the U.S. due process system. In particular, in rating the level of competition among larger firms, The Economist gives Apple a “green light” and Google and Facebook a “red light” based on the level of competition from new entrants that each company faces… but ignores key facts about markets, competition, and the sector as a whole.
1. The Economist’s ‘red light, green light’ definitions skip the first step in antitrust analysis: defining the market in which these companies compete. Many would actually argue all three of these companies compete against each other and new entrants in a variety of ways.
Tech leaders compete across at least 27 different products and features and face competition from disruptive innovation. “Online platforms face dynamic competition as a result of: disruptive innovation that provides opportunities for entry; competition from online platforms that have secured a toehold in one area but compete across multiple areas; the fragility of category leadership resulting from the fact that network effects are reversible and entry costs are low; and the prevalence of ad-supported models, which result in seemingly disparate firms competing for consumer attention and advertiser dollars.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights But Not Sleepy Monopolies,” SSRN, 8/3/17)
2. If The Economist is trying to pair Facebook and Google together on the advertising side, then there is actually plenty of competition from new entrants. (And yes, all three of these companies face competition from China — not just Apple.)
eMarketer noted the rise of competitors eating into Google and Facebook’s share of the digital ad space. “In its latest forecast, research company eMarketer predicts the combined U.S. digital ad market share of Alphabet Inc.’s Google and Facebook will fall for the first time this year, shrinking to 56.8% from 58.5% last year. At the same time, overall digital ad spending in the country is likely to grow nearly 19% to $107 billion in 2018. To be sure, Google and Facebook are still increasing their total ad revenue significantly, and no other competitor even cracks 5% market share. But those smaller rivals are growing more quickly than expected and are seeking a larger share of the pie.” (Alexandra Bruell, “Rivals Chip Away at Google’s And Facebook’s U.S. Digital Ad Dominance, Data Show,” The Wall Street Journal, 3/19/18)
3. In fact, Apple is also in the digital advertising space along with Google, Facebook, Snap, and television advertisers, including AT&T-Time Warner.
Tech leaders face competition from other large players in the converging global advertising space, including TV. “Apple has met with a number of companies, including Snap, to participate in an Apple network that would distribute ads across their collective apps. Viacom Inc., 21st Century Fox , and Comcast Corp.’s NBCUniversal are developing OpenAP, a similar industry initiative to AT&T’s effort. Oracle launched the largest business-to-business audience data marketplace in 2016, noting its ability to provide “access to more than $3 trillion in consumer transaction data, two billion global consumer profiles, and 1,500+ data partners.” (“Greenlighting Of AT&T-Time Warner Predicated On Highly Competitive Tech Space,” Springboard, 6/18)
Competition in advertising is fierce, as CCIA’s Matt Schruers notes for the Disruptive Competition Project. “This competition is fierce, as advertisers continually shift budgets among platforms to maximize the return on their ad spend. What was once a quarterly or monthly re-evaluation of advertising programs has become a weekly and even a daily recalibration of how and where advertisers are reaching their audiences. Economic research confirms that online and offline advertisements substitute for one another. This is consistent with what one would expect to find.” (Matt Schruers, “Infographic: How Ad Dollars Are Spent,” Disruptive Competition Project, 1/16/18)
4. The Economist continues to ignore the nature of these markets — low switching costs, no barriers to entry, and lots of innovation.
Voice search is a competitor in the search space — but ignored by The Economist when describing entrants in the market. “Analysts believe voice interfaces will have far reaching consequences for brands who risk being disintermediated by AI-enabled devices. Forrester predicts 10 percent of all purchase decisions will influenced by intelligent agents in 2018.” (Tess Bennett, “Ok Google: eBay Launches Voice Search Technology,” WHICH-50, 11/29/17)
Economist David Evans highlights disruptive innovation and the voice revolution challenging incumbents. “Now, less than ten years after the start of the smartphone revolution, voice-activated artificial intelligence platforms are taking off, and promising alternatives to current ways of doing things. The winners of this new round of competition will challenge the winners of previous ones.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
5. The Economist claims that consumers “pay” in data, but the AAG for Antitrust Makan Delrahim disagrees.
Consumers don’t pay with data, notes Assistant Attorney General for Antitrust Makan Delrahim. “Because many online services are free for users, there has been a temptation to use ‘data’ as a proxy for price when determining the anticompetitive effects of a merger or conduct. Consumers, however, have different preferences with respect to sharing their data. As a result, there is no uniform value yet assigned to ‘data.’ It’s not necessarily the case that the more data a platform extracts, the higher the ‘price’ on consumers. In some cases, more data can be better for consumers.” (Makan Delrahim, “‘Start Me Up’: Start-Up Nations, Innovation, And Antitrust Policy,” Remarks at the University of Haifa, 10/17/18)
6. The Economist takes issue with how “technical” the consumer welfare standard is, claiming it leads to “a lack of clarity” about “what competition, or its absence, looks like.” But that’s not a full view of the standard.
Experts have pointed out that the consumer welfare standard is far more expansive than tech critics let on. “Some Neo-Brandeisians seem to think that the consumer welfare standard is narrowly focused on price effects and hence fails to take into account other important values such as quality, variety, and innovation. That is a misunderstanding. As the 2010 Horizontal Merger Guidelines make clear, generic principles of antitrust analysis are often expressed in price terms ‘[f]or simplicity of exposition,’ but all other factors affecting consumer welfare including ‘product quality, reduced product variety, reduced service, or diminished innovation’ should also be taken into effect. If current antitrust analysis is too focused on static efficiency, there is nothing within the frame of the consumer welfare standard that prevents pushing it in the direction of dynamic efficiency or some other aspect of consumer value.” (Daniel Crane, “Four Questions For The Neo-Brandeisians,” Antitrust Chronicle, 4/18)
7. The Economist is hostile to due process, lamenting American courts that have the power to review government-issued decrees: “Compounding all of this are the courts in America. In Europe the commission has the benefit of the doubt: it makes decisions and then firms can appeal. In America the courts must decide, giving them enormous clout.” But due process protects citizens from politicization of decision-making and is a cornerstone of the U.S. judicial system (nevermind checks and balances).
ITIF’s Joe Kennedy notes that tech critics’ attacks on bigness “would launch government on an ill-defined mission to shape markets to its liking.” “A number of experts argue for stronger enforcement, especially against mergers. But even they agree that consumer welfare, broadly defined, should remain the focus of debate. In contrast, the neo-Brandeisian attack against bigness in all its forms would launch government on an ill-defined mission to shape markets to its liking. The result would be a greater shift in antitrust enforcement whenever a new administration assumes power. This would invite more uncertainty and greater partisanship at a time when the nation clearly needs less of each.” (Joe Kennedy, “Why The Consumer Welfare Standard Should Remain The Bedrock Of Antitrust Policy,” ITIF, 10/18)
8. Big Picture: The Economist ignores the abundance of innovation, venture capital, and startups in tech.
Assistant Attorney General for Antitrust Makan Delrahim believes Silicon Valley and the venture capital world are “alive and well,” with new companies often popping up. “It seems like Silicon Valley and the venture capital world, in this country, particularly, is alive and well. You’re having new companies pop up every now and then. But that’s what we do. Antitrust laws need to be there to make sure that they do not prevent the next competitor to come in. That was exactly what the Justice Department did in Microsoft 20 years ago, and a lot of people were worried about the power Microsoft had, and particularly when they were trying to suffocate the internet browser because it was challenging their monopoly power in the operating system.” (Makan Delrahim, “Department Of Justice’s Antitrust Chief On Regulating Big Tech,” CNBC, 11/13/18)
Deal value in the tech sector is at historically high levels. “The global venture-investing market has seen broadly uninterrupted growth in total deal value since the dot-com crisis. The market is at record levels, with about $150 billion of venture investment in 2017, compared to about $55 billion prior to the dot-com crisis. Growth has come from both technology and other sectors, with technology experiencing marginally higher growth in recent years.” (“Assessing The Impact Of Big Tech On Venture Investment,” Oliver Wyman, 7/11/18)