No one ever taught their kids that Monopoly was illegal. Should Developers fear a world without Amazon, Apple, Facebook, Google, and Microsoft?
No one can argue that five internet companies hold at least one monopoly in the EU and US: they monopolize the attention of policymakers who clearly could benefit from spending more time on other priorities. This obsession with big internet companies, however, is understandable. These companies play a significant role in our economies. They are household names that seem to always sit at the center of each new controversy. People love them, hate them, take them for granted, and wish them away. For developers, however, their roles are woven into the fabric of the digital economy. Remove one or two threads and things begin to unravel for everyone. That means lost jobs, failed markets, and developers out of work. No one wants that.
This month marked two milestones in the debate over Amazon, Apple, Facebook, Google and Microsoft – companies that the EU likes to label as “gatekeepers.” First, a leaked document purported to come from the European Commission laid out a number of “blacklisted” gatekeeper behaviors that are being contemplated in upcoming regulations around the Digital Services Act. Second, the U.S. Congress released its long awaited “Investigation of Competition in Digital Markets” (note that Microsoft avoids scrutiny this round, possibly due to having paid its U.S. antitrust dues in 1998). The Congressional report has its own list of remedies and prohibitions to reign in tech company behavior. In both cases the rules being debated would have a profound impact on the named companies. These rules would also have a disastrous impact on anyone else – including developers – that relies on the digital economy for their livelihood. More on that below.
Defending the ecosystem that developers rely on is a part of our charter, but only so far as it benefits the developer community. While we try not to take sides in individual disputes (other than bringing the two sides together), our members strongly believe that big internet companies could, and should, treat them better. But when policymakers and litigants rationalize their actions as being in service to small developers, we immediately become wary. Our experience has been that the best outcomes are created within the ecosystem, when all stakeholders come together. Regulators and policy makers, focused on the political aspects of big tech, seldom have developers’ best interests in mind.
The European Commission and the DMA
Imagine if the local council decided that a few big kids were monopolizing the corner playground, so chose to chase them away. The council makes up some rules: you can only play with someone for 5 minutes at a time; you can sit on the swings, but can’t actually swing; if you play tag everyone must be “it” at the same time, and if it turns out you’re good at tag then you can’t play at all; football must be played with enough balls for everyone; and we’re assigning an adult to watch each one of you and smack you if you mess up. The big kids stop coming, and the council cheers – until they notice that the playground is empty. What went wrong?
The European Commission has embarked on a bold project to regulate the digital economy. Their goal is a fair and contestable market that promotes EU technology companies, eliminates the practices that make existing internet companies rich, and re-orients the digital economy to drive positive social change for Europe. The thought is that the existing internet companies will reform, accept the new burdens, and share their success with emerging players. Unfortunately, the rules being proposed are more likely to drive foreign companies out of the EU and effectively salt the earth for any company that might be naive enough to fill the gap.
The EU’s digital economy is a vibrant and dynamic ecosystem. It is anchored by some international names, but includes more than 2 million software developers building and exporting apps, thousands of small businesses using cloud services to reach global markets, and millions of consumer smartphones, connected devices, ecommerce users, students, and government employees exchanging ideas and accessing information from around the globe. The regulations that manage all this interchange are wide-ranging and complex, having evolved alongside the internet itself. Thus, the reports last week of strawman rules that define a blacklist of behaviors to superimpose on existing rules seems like an extreme step. Sweeping changes that target the foundation of Europe’s digital economy may feel bold, but they could spell disaster if the Commission inadvertently destabilizes a system we all currently rely on.
There are still many things that make the digital economy unique. For one, many digital services exhibit efficiencies and network effects that lead to a natural tipping point where a single successful player wins most of the market. There is nothing unfair in this – some services simply get cheaper and cheaper, and more and more valuable, as more and more consumers join the network. For another, the democratization of content creation has launched an entirely new form of entertainment – video, blogs, and posts created by users without commercial incentive. And like radio, television and newspapers before them, the networks that host this material capitalize on its popularity by advertising to those that consume it. Incredible efficiencies, free content, and frictionless transactions are generating tremendous economic rewards for those that serve their audience the best and have the audacity to take chances.
Rules which punish success, remove commercial incentives, force the seeding of unnatural competition, and promote anarchy in digital markets will not encourage European champions to emerge or drive innovation. Successful companies, when faced with the option of increasing their costs, subsidizing their competitors, and giving strategic control to bureaucrats may not choose to play along. The risk for European consumers is an internet dark age; a slip backwards into the era of regulated infrastructure, negotiated rates, and inadequate investment that prevented the EU from leading at the dawn of the digital age. We’ve lived through this, and watched as international competitors sprinted ahead on their own. And like a dark age, it will be the citizens that suffer the most – developer jobs lost, reduced access to export markets, and economic and social stagnation.
The shadowy ideas reported to be emerging from the Commission last week would be disastrous for Europeans. By putting in place rules that punish success and remove incentives to participate, they are creating insurmountable barriers for any future European company to play on their own playground. But it’s not too late to change course. The Commission has a once-in-a-lifetime chance to shift the incentives that guide the internet’s growth. The clear path forward is through gentle, ongoing adjustments that encourage beneficial behaviors, rather than uprooting a vibrant and beneficial ecosystem in the vain hope that another, better one will take its place. On behalf of the millions of Europeans who depend on the digital economy every day, for services, information, and our livelihoods, we’d be delighted to help the Commission in this critical task.
The U.S. Congress and Competition in Digital Markets
Is anyone surprised that a congressional committee with “antitrust” in its name tends to see monopolies wherever they look? Reading the 449 page report, you’d be forgiven if you thought this was a comprehensive assessment of the monopoly debate. What’s missing, however, are the contrary opinions and rebuttals from the many experts on the other side of the argument; those that see innovative companies delighting customers and reaping the rewards of success in the digital age. If the question is how best to influence the future behavior of a handful of companies, then this report is too one-sided to be of use. Worse still, by focusing only on the named firms, the report ignores the very real costs of government intervention in an intricately interconnected ecosystem involving millions of participants. Further,the U.S. report referring repeatedly to the EU experience does little to elevate its conclusions.
Unlike the EU Commission’s blacklist, the US Congressional report identifies a suite of tools to be selectively applied to each of the named companies, extracting principles along the way, and grouping intervention into three broad categories. Two of these focus on reforming antitrust law itself, implicitly acknowledging that the companies may not have stepped outside existing law at all. This seems reasonable as the debate has raged for several years over how digital, multi-sided markets fit into the existing competition law framework. As stakeholders in these markets, developers deserve a voice in any proposed reforms, and we plan to be very active as the debate evolves. Our experience over the last few years in the EU (where we are now pressing our position before the European Court of Justice) has taught us that regulators give only passing attention to the developer community’s views in all this, despite the fact that radical changes to our ecosystem will hurt us the most.
The structural remedies that the report contemplates are more vexing. While we generally don’t see the defense of capitalism as our mandate, government management of competitive markets does not have a long track record of success. What is required is a careful assessment of how the behaviors that the government questions impact the rest of the ecosystem. For instance, are they of net benefit to the ecosystem overall, or could they benefit specific third parties (like developers) despite their apparent competitive effects? Many developers have come to rely on advertising for monetization, for example, and serial entrepreneurs count on hire-in or buy-out as a scaling or exit strategy. The goals and impact on the acquired company should certainly be weighed in assessing whether mergers writ large are good or bad for the ecosystem overall.
Transparency, on the other hand, is always welcome. Many in the developer community work inside small shops and have little leverage with their larger partners. The information imbalance, in particular, can make dialog impossible. Likewise, there is a fine line between ecosystem oversight and self-dealing, and incentives that would encourage altruism in this area are worth exploring. In all respects however, gradual change and limited disruption are required to avoid catastrophic outcomes that invariably impact smaller players the hardest.
Conclusion
Both the U.S. and EU are working too hard to force competition law to do the political work they desire. Their focus on a handful of big companies doesn’t call for a major rewrite of the law. A better approach would be to engage stakeholders and work towards more incremental reform by creating incentives for the beneficial behaviors policymakers want. Beyond that, the draconian measures being debated threaten to destabilize the digital ecosystem that developers rely upon for their livelihood, and that consumers rely on for transformational services.
