The last government antitrust breakup was AT&T back in 1984. It followed the model of Standard Oil back in 1911. Business and technology have changed a lot since the Sherman Anti-Trust Act was written and passed 130 years ago, in 1890. It’s time we update what we mean by trust-like behavior and how we remedy those consequences.
Note that the breakups of Standard Oil and AT&T were not about punishment. In fact, in both of those cases the total value of the broken up pieces of the monopolies were far more valuation after the breakup than as part of the monopoly. Both the shareholders and customers benefited from the breakup.
Given how smart Zuckerberg, Bezos, Page, Brin, Nadella, and Cook are supposed to be, I’ve been surprised they’ve not voluntarily broken up their companies already. But maybe they, like every speaker and writer I’ve heard deride “Big Tech” latest has missed the key change to what a breakup could be.
The 1890’s antitrust model separates a company into smaller parts. Standard Oil became 34 companies, separated by geography. AT&T became 9 “Baby Bells” plus assorted other pieces of that empire. Similarly separating Instagram from Facebook.com or Google search from Google ads isn’t going to solve the privacy and power issues underlying Big Tech.
What is being overlooked is that Big Tech is powered by software, and that when you copy a piece of software, there are two identical copies. Or three. Or five.
How does this apply to Google? Simple. Breakup Google into five companies. Each gets a copy of the Google source code. Each gets 20% ownership in a collective of Google patents. None of these new companies owns the google.com page. The search box on google.com randomly sends you to one of those five search results.
Where there was one company controlling 90%+ of all the search in the world, now there are five, each on Day 1 controlling less than 20%. Let the competition begin. Let innovation shine.
The same becomes true for advertising. There are now five companies selling search advertising and content advertising.
Same again for email. Customers using Gmail and G Apps pick which company they want their service from. Competition (with some antitrust enforcement) will ensure transferring from one company to another is seamless. Competition will give us more and better service.
Breakup Facebook into five companies too, each with the whole code base of Facebook and share of Facebook patents. Facebook.com becomes, by decree, a shared and open social graph available to all five of those companies as well as to Snapchat, Twitter, Pinterest, LinkedIn, and every startup social network.
With this change there is no one social network with demographics on every American.
Apple can keep its App Store, but create four more, each with a copy of the App Store code and the full database of App Store clients. Auction off those four copies to the highest bidder. Let the broken up Googles and Amazons bid. Let’s watch Amazon drive down prices for apps by driving down the app tax from 30% toward 0%.
Then on the iPhones and iPads, the next time a customer clicks the App Store icon, they are presented a choice of which store they want to be their default store, and which others stores they’d like installed on their device.
Here we can mix in some of the AT&T breakup structure. Take Amazon Web Services out of the conglomerate, it is profitable and can compete on its own against Azure and the other cloud providers. Then take the warehouses, logistics, and airline out of the e-commerce core company.
Then on the e-commerce site, use the above example and create five online stores, all which can use the warehouses and logistics, if they want, for as long as they want. But let them own and operate their own back-end services if they want.
Maybe Walmart buys up one of those five pieces. Maybe UPS buys another. I predict that after ten years we’ll have a series of competitive online back-end platforms serving dozens of competitive front-end catalogs.
The only short-term casualty in this breakup is Prime. It probably breaks itself up, returning to free shipping for the front-end stores separate from the video and music streaming services, separate from Whole Foods, whose acquisition by Amazon did nothing to benefit consumers.
The U.S. government could have used these ideas back in 1999 when they put Microsoft under a consent decree. Windows is not the monopolistic money making product it once was, nor Office, but I for would love to see an Office suite that is easy to use and which doesn’t crash on a weekly basis.
Ideally we separate Windows from Office, but for simplicity, five Baby Bills is sufficient, each with the code for Windows and Office, each with the ability to compete and innovate on those products.
Innovation and profits
When we broke up AT&T the result was not just better service and lower prices, but also answering machines, fax machines, dial-up internet, broadband, and mobile phones. The innovation drove up profits across the industry. Customers, shareholders, and the whole country benefited.
Zuckerberg, Bezos, Page, Brin, Nadella, and Cook, none of you need the government to act on this. None of you need to argue with Congress again. All of you can instead step up, break up your own company, get ahead of the curve, and at the same time, add to your billions in wealth.
And if you don’t, AOC, this is the answer you’ve been looking for.