The Corner

Economy & Business

Breaking Up Platforms Has Sickening Implications

Senator Elizabeth Warren (D, Mass.) fields questions from the audience at an “organizing event,” after forming an exploratory committee for the 2020 presidential race, in Council Bluffs, Iowa, January 4, 2019. (Brian Snyder/Reuters)

Hipster antitrust sickens me. Literally. I was under the weather last week. Feeling ill, I spent a good amount of time at local pharmacies, searching for cures. When shopping for a decongestant or a sleep aid, I compared the “brand” name product to the store’s own brand. I bought their own brand every time, saving some money in the process. A new economic plan recently put forth by Senator Elizabeth Warren could make that process illegal.

Warren claims that her plan aims to bolster competition by breaking up “Big Tech” companies through robust antitrust enforcement, an approach now increasingly popular on both the political left and right. It is likely to backfire, and is not even necessary.

Warren’s plan would designate as “platform utilities” all companies with a global revenue of over $25 billion a year that offer an online marketplace, exchange, or platform for third parties. These companies would be forced to divest themselves of any “participant” on that platform. It seems like a simple concept, but the devil is in the details — and the lack of bright lines.

Under Warren’s plan, Apple would have to remove Apple apps from its App Store, and presumably also the App Store from iPhones, unless those became separate enterprises. Netflix would no longer be able to offer its own content alongside content from third parties. Voice devices — a fiercely competitive market at the moment — would have to direct you to a weather service rather than just telling you the weather.

The plan would essentially outlaw most large tech companies’ business models. Search firms, for instance, sell ads based on the data they collect around users’ search habits. Spinning a search engine off into a separate company would break that link, rendering the model impossible. The Internet would look and act much more primitive than the Internet we know today. Rather than what tech guru Tim O’Reilly calls the “magical use experience” that tech companies now offer their customers, virtually every online transaction would involve switching between different providers, each with its own interfaces and quirks. Using the Internet would become laborious again.

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.

Warren claims her plan offers a bright line standard. Yet it offers no compelling distinction between online platforms where people search for bargains and Walmart, the #3 online retailer with its own proprietary brands. Warren’s plan in its execution might actually go far beyond Big Tech to any large company that offers an online marketplace. Almost every large U.S. retailer does so. Retailers who offer their own private brand products could have to spin them off into separate companies were Warren’s plan to be enacted. The price for relief from my illness would have been higher. Furthermore, a platform would be required to treat all products in its marketplace “neutrally,” so goodbye discounts or reward points.

In effect, the Warren plan wants to fundamentally reorganize how a lot of American companies do business. In that sense, it is every bit as ambitious as the Green New Deal. Like the Green New Deal, it is based on a utopian technocratic vision that is oblivious to how people react in the real world. Warren claims that nothing will change with our user experience. The fact that someone in a position of power can make such a claim suggests how far politicians still have to go in learning the limits to shape our world.

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