What They Are Saying: Experts Continue To Voice Concerns Over Senator Warren’s Tech Breakup Proposal
Last week, Senator Elizabeth Warren (D-MA) unveiled a proposal to “break up Big Tech.” Her proposal has been met with swift criticism from startup investors, experts, academics, and tech industry influencers saying that the proposal would:
—Do more harm than good;
—Stifle competition and set arbitrary thresholds;
—Lead to increased prices;
—And not solve the issues it hopes to address.
Additional commentary from antitrust experts and industry leaders can be found here and here
Startup investors and experts say Warren’s proposal would do more harm than good
Bill McAleer, Managing Director at venture capital firm Voyager Capital, said Sen. Warren’s proposal is “naive, misguided, and irrelevant.”‘I think her position is naive, misguided and irrelevant,’ McAleer said of Warren’s proposal. ‘Her concerns don’t seem to be an issue with customers or the industry. Competition and innovation in the industry is driven by technology paradigm shifts and not by regulatory actions.'” (Taylor Soper, “Startup Investors Sound Off On Sen. Warren’s Plan To Break Up And Regulate Tech Giants,” Geekwire, 3/12/19)
Mike Masnick, Editor at Techdirt, explained that competition from new technologies, not government intervention, leads to more innovation. “Most agree that increasing competition and allowing incumbents to be disrupted leads to more innovation, as Techdirt editor Mike Masnick explained in this post. ‘But I also believe that this is rarely done by government intervention, and usually comes from new technologies and new innovations in the marketplace,’ Masnick wrote.” (Taylor Soper, “Startup Investors Sound Off On Sen. Warren’s Plan To Break Up And Regulate Tech Giants,” Geekwire, 3/12/19)
Chris DeVore, Managing Partner at seed-stage venture fund Founders Co-op is not convinced Sen. Warren’s plan is “viable.” “Warren’s proposal is ‘brilliant politics.’ ‘But I’m not as convinced it’s viable policy legislatively or judicially.'” (Taylor Soper, “Startup Investors Sound Off On Sen. Warren’s Plan To Break Up And Regulate Tech Giants,” Geekwire, 3/12/19)
Kevin Systrom, Cofounder of Instagram, said that Sen. Warren’s proposal is “not nuanced enough.” “He added that if the objective was to fix economic issues or Russian interference, there were other ways of doing that. But he said that companies shouldn’t be penalized merely for their size, and that Warren’s solution was ‘not nuanced enough’ and shows ‘that the understanding of the problem isn’t there.'” (Tanya Dua, “Instagram’s Co-Founders Slam Elizabeth Warren’s Proposal to Break Up Tech Giants At SXSW, Saying It Is Not ‘Nuanced,’ Business Insider, 3/12/19)
Steven Sinofsky, Board Partner at venture capital firm Andreessen Horowitz, warned that regulation can stifle innovation. “I’ve worked before, during, after regulation. I’ve seen improper actions corrected and punished around the world. But I also believe that regulation can stifle other’s innovation when done too soon and cripple companies when punishment was the goal.” (Steven Sinofsky, Twitter, 3/12/19)
Ben Thompson, Founder of Stratechery, highlighted that spinning off “search” would be detrimental to small businesses. “Things are even more convoluted when it comes to Google: at least Senator Warren is explicit about demanding the core of a company — in this case, Search — be spun out. How, though, is Google Search Inc. supposed to monetize? Apparently it has to simply slap up some banners from old Google? The truth is that search and search ads are not so easily separable: the reason why search ads are so effective is that users are explicitly stating what they are in the market for. This has tremendous benefits for the small businesses that Senator Warren claims she wishes to protect, businesses which could have never afforded to advertise previously.” (Ben Thompson, “Where Warren’s Wrong Follow-Up, Amazon’s Price Parity Provision, The Amazon Marketplace Question,” Stratechery, 3/13/19)
Sen. Warren’s proposal would stifle competition and set arbitrary thresholds
Iain Murray, Vice President for Strategy and Senior Fellow at the Competitive Enterprise Institute, warned that Sen. Warren’s proposal stifles innovation and reduces access to venture capital for entrepreneurs. “Warren’s plan would also forbid mergers and buyouts that ‘reduce competition.’ Yet, buyouts by large tech firms offer a way for innovators to realize a return on their initial investment that is often part of their business plan. That’s because financial regulation, of which Senator Warren is a leading champion in Congress, has made it extremely difficult for a firm to raise capital by going public via IPO, as entrepreneurs did in years past. Without the potential of a lucrative buyout, entrepreneurs will find it harder to attract venture capital; some innovations simply will not happen.” (Iain Murray, “Breaking Up Platforms Has Sickening Implications,” National Review, 3/12/19)
The Seattle Times editorial board said Sen. Warren’s proposal established an “arbitrary threshold” on revenues for tech companies, which could lead to higher prices and less innovation. “Warren, a consumer advocate and former law professor, is well qualified to start this conversation. But she may be squandering the opportunity. Her antitrust treatise, posted last week, seems designed to stoke resentment of big companies as much as protect consumers. It sets an arbitrary threshold on revenues of big tech companies, above which they are prohibited from selling products that use their platform. This could raise prices and stifle innovation, because services help cover the cost of investing in cloud services.” (The Seattle Times Editorial Board, “Sen. Warren Misses Mark With Antitrust Screed,” Seattle Times, 3/11/19)
Michael R. Strain, Director of Economic Policy Studies and Resident Scholar at the American Enterprise Institute, highlighted that tech companies are not stifling competition and are, in fact, “innovation powerhouses.” “And are these companies actually stifling competition, as Cicilline and others think they may be? Not by the traditional, and correct, standard used to evaluate competition. Google and Facebook are not reducing the welfare of consumers by increasing the prices they have to pay, or decreasing the quality of products and services they enjoy, or reducing the choices available to users. These companies are innovation powerhouses, changing the way we live, work and interact with each other.” (Michael R. Strain, “The Worst Idea (So Far) In Democrats’ War On Big Tech,” Bloomberg, 3/11/19)
Sen. Warren’s proposal would lead to price increases and does not consider tech’s benefit to consumers.
Herbert Hovenkamp, an antitrust expert at the University of Pennsylvania, warned that Sen. Warren’s proposal will cause “massive price increases” and be painful to the working-class. “Breaking these companies up is likely to cause massive price increases or losses in quality, said Herbert Hovenkamp, an antitrust expert at the University of Pennsylvania. This would be particularly painful for Warren’s Democratic working-class constituents who earn less and are more sensitive to price increases, he noted.” (The Seattle Times Editorial Board, “Sen. Warren Misses Mark With Antitrust Screed,” Seattle Times, 3/11/19)
James Pethokoukis, Senior Fellow at the American Enterprise Institute, said that Warren’s proposal doesn’t consider how tech firms benefit consumers. “What explains the misguided nature of Warren’s proposal? First, she concedes she doesn’t care about economic arguments, such as how network effects help create dominant tech firms and how these firms generate huge consumer welfare.” (James Pethokoukis, “Elizabeth Warren’s Wrong-Headed Plan To Break Up Big Tech,” American Enterprise Institute, 3/11/19)
Tim Worstall, Senior Fellow at the Adam Smith Institute, highlighted that Sen. Warren’s proposal fails to focus on “consumer benefit.” “What we’re really after is consumer benefit. Competition is often the way to gain those benefits to consumers of lower prices, faster delivery, more general loveliness in the things on offer to us. But competition is a way of gaining the desired effect, not the thing or effect itself. Warren’s therefore reifying (making concrete the abstraction) competition, and that’s an error. For the very point about those network effects is that when they’re present, at least often enough, the consumer benefits by allowing the monopoly. That’s just one of the technical things about network effect markets.” (Tim Worstall, “Elizabeth Warren Seeks To Regulate That Which She Does Not Understand,” Washington Examiner, 3/12/19)
Experts warn that Sen. Warren’s proposal would not solve the issues it hopes to address
David Balto, former Policy Director of the Federal Trade Commission, said Sen. Warren’s proposal is “misguided and premature.” “Warren’s policies are misguided and premature. Undeniably, the big tech platforms have resulted in innovations enabling the launch of new products and services resulting in many benefits to consumers. That is due to the nature of a free market economy which provides incentives of firms to innovate and grow. When the rewards of that innovation are removed, and firms are restricted in growth, the economy can suffer through less innovation and aggressive competition.” (David Balto, “Elizabeth Warren’s BigTech Breakup Is A Solution In Search Of A Problem,” Washington Examiner, 3/12/19)
Ben Thompson, Founder of Stratechery, explained that Sen. Warren’s proposal would create new problems while not solving the problem it seeks to address. “Unfortunately, Senator Warren’s proposal helps highlight why I have not gone further with my own: hers would create massive new problems, have significant unintended consequences, and worst of all, not even address the issues Senator Warren is concerned about.” (Ben Thompson, “Where Warren’s Wrong,” Stratechery, 3/12/19)
Benedict Evans, partner at venture capital firm Andreessen Horowitz, said that ideas to break up tech lead quickly into “nailing-fog-to-the-wall territory.” “Again, there’s a specific and a general point here. ‘Break up tech’ sounds good, but when you ask what it actually means you very quickly get into nailing-fog-to-the-wall territory – maybe there is no there there. But the general point: regulation of ‘tech’, however it’s done, is now firmly part of the political agenda in most developed countries and will be as much a part of the next few years of the industry as machine learning or blockchain.” (Benedict Evans, “News,” Benedict’s Newsletter, 3/12/19)
Matt Schruers, Vice President for Law & Policy at the Computer & Communications Industry Association (CCIA) highlighted that Sen. Warren’s proposal incorrectly categorized everything from Walmart.com to the Xbox Live Marketplace as a “utility.” “Sen. Warren’s proposal nevertheless appears to categorize everything from Walmart.com to the Microsoft store on its consoles, the Xbox Live Marketplace, as a ‘utility.’ These firms would be ‘barred from owning both the platform utility and any participants on that platform.’ Apple, for example, would be compelled to sell off its Apple App Store. ‘Either they run the platform or they play in the store. They don’t get to do both at the same time,’ Sen. Warren confirmed to the Verge.” (Matt Schruers, “When Did Walmart Become a Public Utility?” Disruptive Competition Project, 3/12/19)
Leonid Bershidsky, Europe Columnist for Bloomberg Opinion, highlighted that breaking up tech companies gives them “fewer opportunities to fund innovation.” “They’ll have fewer opportunities to fund innovation, Chinese companies will get an edge in international competition, the stock market will react unfavorably — the string of ugly consequences for the U.S. is easy to predict. Would even President Warren set it off? I find it highly unlikely, if only because Europeans back down even before a weaker threat.” (Leonid Bershidsky, “Breaking Up Big Tech Is Too Scary for Europe,” Bloomberg, 3/13/19)