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Commentary: It’s Time for Washington to Take on the Tech Monopolies

April 2, 2018, 4:01 PM UTC

The giant U.S. technology monopolies dangerously threaten new and small business creation—not just in Silicon Valley, but on every Main Street in America.

Antitrust has become a popular topic of conversation, especially now that Amazon (AMZN) seems to have driven Toys ‘R’ Us to close all of its 735 U.S. stores, booting 30,000 employees out of work. Amazon, Apple (AAPL), Facebook (FB), and Google (GOOG) have certainly turned into monopolies in their markets. Statistics vary depending on the source, but Google owns about 81% of online searches and 85% of search ad revenue. Facebook utterly dominates social networking, with more than 2 billion users worldwide and 77% of mobile social traffic. Apple rakes in 91% of global smartphone profits. Amazon handles at least half of the entire amount of money consumers spend online.

For comparison, when the U.S. government used the Sherman Antitrust Act to break up Standard Oil in 1911, the company accounted for 87% of refined oil sales. When AT&T (T) was forced to break up in 1982, it handled 93% of U.S. phone traffic.

Yet applying antitrust laws in the usual ways is already a bit confounding when dealing with tech companies. The Sherman Antitrust Act is supposed to protect consumers from monopolies that corner a market and raise prices, yet the tech giants give consumers outstanding products for free (Google Maps and Facebook Messenger, for instance), or force prices down, as Amazon has done by under-pricing traditional retailers. The Sherman Antitrust Act forgives “innocent monopolies” that win just be being great at what they do. Admirably, our tech giants seem to have won their monopolies by playing by existing rules better than anyone, and that’s not a crime. In fact, it’s what our capitalist rules say they’re supposed to do.

However, the arguments about innocent monopolies and consumer benefits ignore a mushrooming danger to small businesses—and U.S. job growth. Tech startups, corner shops, new restaurants—these are significant engines of the U.S. economy. Small firms accounted for 64% of all new jobs generated from 1993 to 2011, according to the Small Business Administration.

But by every measure, business creation is falling. The rate of Americans deciding to become entrepreneurs has been steadily decreasing, according to the Kauffman Foundation. Since 2008, The Brookings Institution found, firm creation rates have been below business death rates—the first time that’s happened since the data began being collected in the 1970s.

If business creation is falling, and small businesses drive job growth, the likely outcome is that jobs will dwindle away. If tech startups get suppressed, the U.S. economy sees less innovation come to market, which could leave us falling behind other nations in critical areas like artificial intelligence and health care technology.

The big problem is that these tech giants don’t just sell products—they are platforms that other businesses rely on. Amazon is an enormous retailer, but it’s also a retail platform for thousands of small sellers. So Amazon is competing against small sellers and has an unfair advantage: It can see all their partners’ online activity and learn how to beat them on price or product offerings. Amazon also owns Amazon Web Services (AWS), the dominant cloud-computing platform. Amazon can spot threats or opportunities early on AWS, giving it the power to either buy or crush a potentially successful newcomer before that startup gets much traction.

Google and Facebook have similar outsized advantages. The enormous amount of data that flows through their systems allow them to spot threats early and either buy or copy them. Their everyday use by billions of people means that anything they offer immediately reaches a huge audience, potentially swamping any similar product from smaller, independent companies. I watched Facebook go after Snap, a company I invested in. When Facebook couldn’t buy Snap in 2013, it began to clone its most popular features for Facebook users.

The giants are only going to grow in power, especially in the age of artificial intelligence. They get more data than anyone, and more data makes their AI software smarter than any other AI, increasing the giants’ lead and dominance.

I believe policymakers and regulators must focus on protecting small business from unfair competition. That may mean changing antitrust laws so they take into account damage to small companies, and then forcing the giants to divest some of their businesses to reduce their overall power. Amazon the retailer, for instance, should probably separate from AWS, the cloud-hosting service.

During Senate hearings to confirm nominees for the Federal Trade Commission, most of the nominees (now confirmed) said the FTC should take a new look at whether the tech giants are engaging in anticompetitive behavior. This kind of scrutiny, long abhorred by the tech industry, should now be welcomed by our society.

A publishing group, the News Media Alliance, asked Congress in February to set aside antitrust rules and let news outlets collectively negotiate with the likes of Facebook and Google. Again, this would’ve been anathema to tech a year ago, but now, allowing industry groups to band together to deal with monopoly giants seems reasonable. Earlier this month, Rep. David Cicilline (R-R.I.) introduced a bill—the Journalism Competition and Preservation Act—that would do just that.

Finally, I’m a believer in algorithmic accountability. The algorithms that manage internal operations for the tech giants strongly favor doing whatever is the most expedient, efficient, and effective, even if that means harming competitors or amplifying societal biases. The giants should proactively build algorithmic accountability into their systems, creating a level of automated transparency that would let consumers, the press, the technology community, or public officials look in and see what’s going on inside their black boxes. If the companies can’t faithfully and transparently act as their own watchdogs, the government likely will, and that likely would be a worse outcome for the companies than regulating themselves.

As a technology investor, I want to avoid regulatory solutions as much as anyone. Over-reaching regulations in the early 20th century killed innovation in electricity and telecommunications by creating highly regulated monopoly utilities that left little room for competitors or newcomers in those sectors. Yet, clearly, if we don’t address the dangers of tech monopolies, we’re going to wind up with that same dynamic—squashing innovation and growth in critical new industries.

Hemant Taneja is a managing director at General Catalyst, a VC firm and author of UNSCALED: How AI and a New Generation of Upstarts are Creating the Economy of the Future.