Introduction

The last decade has seen the dramatic expansion of the technology sector, a trend that has been accelerated by the pandemic. Governments agencies have struggled to regulate the sector, weighed down by the armies of lobbyists employed by the most powerful and influential companies. In this essay, I will analyse the regulatory nuances of the technology sector, exploring solutions to the increasing concentration of resources among a small pool of market leaders. This essay will focus primarily on US-based companies and regulatory bodies.

The status quo of technology regulation

While dozens of technology regulation bills have been proposed in Congress, mainly centred around the issue of individual privacy laws, not a single one has been passed (New York Times, 22/04/2022, As Europe Approves New Tech Laws, the U.S Falls Further Behind). The European Union, however, has been able to achieve significant breakthroughs in a number of areas including antitrust regulation and consumer rights. This stark contrast can be attributed to the greater amount of influence that the private sector has on elected officials in the United States, with at least three members of the House Judiciary Committee taking money from Google alone (Politico, 16/04/2021, Who’s still taking Big Tech’s money). Last year, Google increased its spending on lobbyists by 28% to $9.6 million. Non-profit organisations are arguing for more stringent regulation to combat the increasingly anti-competitive behaviour that has taken hold as companies including Meta (formerly Facebook) have attempted to maintain their market share by creating a closed ecosystem of services that consumers increasingly rely on.

What advantages do the largest technology companies have over their smaller peers, and do they reduce innovation?

A theoretical free market should ensure that consumers have access to the best possible product without market coercions or intervention. In practice, however, market dominance can often corrupt a system designed to be fair. Agencies including the Federal Trade Commission have had success in preventing negative practices, which include price fixing, in traditional industries that change at a slower pace. The closed ecosystems employed by the largest technology companies to weaken competition exist within an antitrust grey area, without the same clear-cut rules that restrict the practices of Procter and Gamble or Unilever, for example.

Companies that already have a large user base can benefit from a ‘snowball effect’, while newer competitors find it harder to attract new users due to the lack of a large community or content. Advocates for maintaining the status quo would argue that this is simply because they offer a better service. However, for many of these smaller start-ups, their innovative features never see the light of day due to the closed ecosystem mentioned previously. Is this really the optimal outcome for the user? As a result of the built-in advantages that have grown over time, market leaders in social media or search will have less motivation to improve their product.

The increasing scrutiny of social media companies and their privacy policies has altered public opinion, with over 35% of American’s disapproving of Facebook in 2021, a significant increase from 14% in 2017 (Morning Consult, 07/10/2021, The Steady Decline of the Facebook Brand in America). Despite this, there has been no significant decline in daily active users (DAU) due to the lack of alternatives in the market. Recently, the only social media companies that have broken through operate in a previously unexplored niche, with many acquired by a larger company after they have reached a critical mass.

How does public opinion impact legislation on regulation?

2022 has been described as the pivotal year for new technology regulation and legislation. Proposals to update competition law, establish online privacy rights and protect kids from harm on the internet have bipartisan support (CNBC, 31/12/2021, 2022 will be the ‘do or die’ moment for Congress to take action against Big Tech). However, with the midterm elections quickly approaching, antitrust regulation has not been a legislative priority for the Biden administration. Politicians have increasingly highlighted their opposition to ‘big tech’, but they continue to advertise heavily on their platforms. Ads from politicians and campaigns accounted for at least 3% of Facebook’s estimated third-quarter U.S. revenue in 2020 (CNBC, 8/10/2020, Why political campaigns are flooding Facebook with ad dollars).

Senator Michael Bennet (D-Colorado) has introduced a bill which would create a specialist federal watchdog for these companies. If passed, the bill would create a body of commissioners that have the authority to hold hearings, conduct investigations, create rules and impose penalties in order to promote and protect the public’s interest on social media sites and other digital platforms (Colorado Newsline, 12/05/2022, Bennet bill would create new federal commission to oversee Big Tech). There is still a window to act: support for increased government regulation continues to rise, with 45% of U.S. adults having a negative view of these firms. 57% now believe that regulation should be stricter. The support for these measures extends across partisan divides, with support from democrats, republicans, and independents (Gallup, 18/02/2021, Views of Big Tech Worsen; Public Wants More Regulation).

Are the solutions proposed realistic and implementable?

Calls for increased transparency in disclosures of revenue sources have been met with spirited opposition from lobbyists, and it appears unlikely that any major steps are taken before 2025, after the next presidential election, when these issues are publicly debated. Some antitrust advocates have argued that ‘Big Tech’ should be broken up, claiming that the outcome would be more competition, lower prices, and less political influence. Company-specific solutions appear more likely, with Apple’s App Store facing increasing scrutiny. Currently, Apple has a monopoly on digital iOS sales, collecting a 30% commission, leading several major developers to publicly criticise or leave the ecosystem. It facilitated $643 billion in billings and sales during 2020, a 24% year-over-year increase (Apple.com, 2/06/2021, Meeting pandemic challenges, Apple developers grow total billings and sales in the App Store ecosystem by 24 percent to $643 billion in 2020).

Breaking up these companies could be politically costly in practice however, with fragmented services potentially leading to a less intergrated and user-friendly product in the short term, making any large scale-breaking unlikely, if not impossible. The one exception to this rule would be Facebook, which has grown beyond its original services by acquiring competitors including WhatsApp and Instagram. They may be in a uniquely weak position to prevent a breakup, as a result of their low approval rating, consumer trust and, most importantly, separate apps that cater to different needs. Antitrust action of this scale is far from unprecedented: Standard Oil and AT&T suffered a similar fate when their market dominance became a liability rather than an asset for the consumer.

Conclusion

While the path from antitrust bill to law is long and winding, the desire to achieve meaningful progress in the space hasn’t diminished. Only time will tell if the political influence of ‘Big Tech’ is able to grow at the same rate as the desire to act.

Sources

New York Times, Politico, Morning Consult, CNBC, Colorado Newsline, Gallup, Apple