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Ahead of Big Tech’s antitrust hearing, tech experts predict Facebook’s and Amazon’s fates

July 29, 2020, 12:00 PM UTC
amazon and facebook logos in a photo illustration
Ahead of big tech's congressional hearing, tech experts predict Facebook's and Amazon's fates.
Photo-Illustration by Fortune

On July 29, the CEOs of four of the most powerful tech companies in the world—Apple, Facebook, Google, and Amazon—will appear before a congressional committee eager to grill them about their outsize influence on the economy and their alleged anticompetitive practices. 

The all-day event, which the New York Times’s Kara Swisher is calling “Techpalooza,” will be led by Rep. David Cicilline, a Democrat from Rhode Island who has become one of the biggest critics of Big Tech’s enormous clout. The remote appearance of Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, Google’s Sundar Pichai, and Apple’s Tim Cook will cap a yearlong congressional antitrust investigation, which has included eight roundtable discussions, 93 requests for information, 43 expert testimonies, and five hearings.

These hearings are just one part of an all-out attack on Big Tech. Politicians and regulators are contemplating new laws on privacy and competition, the repeal of a law that gives platforms broad immunity for content on their sites, and, perhaps most drastically, breaking them up.

The two of us—David Kirkpatrick, founder and editor-in-chief of Techonomy, a conference and media company now focusing on virtual events, and author of The Facebook Effect, and Brian Dumaine, author of the recently published Bezonomics: How Amazon Is Changing Our Lives and What the World’s Best Companies Are Learning From It—discussed what the future looks like for Amazon and Facebook. This discussion has been edited.

Brian Dumaine: David, Facebook has been too slow in addressing hate speech, voter suppression, and other problematic content on its platform. The company lets Trump and other politicians lie or even attempt to incite violence on its platform. A Facebook internal investigation that was released this month concluded that “Facebook’s approach to civil rights remains too reactive and piecemeal.” You’ve written a book on Facebook, follow the company closely, and know Zuckerberg. Is he going to cave to pressure from Congress and change his ways? 

David Kirkpatrick: Hardly. His style is to be unyielding even when confronted with compelling critiques of him and his company. In June more than 30 early Facebook employees who no longer work at the company wrote a letter to Zuckerberg, and it was devastating. They made the basic point that it is inaccurate to say you’re not an arbiter of truth; you’re already an arbiter of truth in 1,000 ways. You just choose not to be an arbiter of truth when it comes to politicians because that’s convenient. They pointed out that what Zuckerberg is doing now is an inversion of Facebook’s original raison d’être, which was to be a tool for the empowerment of ordinary people. 

And now what the company does is prevent ordinary people from distributing untruths, but it will let politicians distribute untruths. So rather than preferring the hoi polloi, Facebook gives preference to the people who already have power and are catering and toadying to them.

Dumaine: Right, but that means Facebook is curating, and once you curate you should be responsible for the content. Social media platforms like Facebook use Section 230 of the Communications Decency Act—which lets them off the hook for liability—as an excuse for not fact-checking or editing material. But the real reason they don’t edit or fact-check is that it costs a lot of money.

So here’s a question, David. If Bezos was running Facebook, would he do it differently?

Kirkpatrick: He owns the Washington Post so I would say yes, with this major caveat, and that is Wall Street. Tom Friedman said recently that Zuckerberg is the Rupert Murdoch of his generation and all he cares about is money. That’s not a good thing for the company. 

But the reality is if you were to really treat Facebook the way the Washington Post is treated, it would not grow at the rate it’s growing. And its earnings would not rise at the rates they are rising, and its P/E [price/earnings ratio] would not accelerate at the rate it is accelerating. Its Wall Street approval would decline precipitously, and that causes a whole set of other related, implosive consequences, including undermining the company’s ability to attract good engineers and to use options-based compensation. Zuckerberg could not really afford to treat Facebook like the Washington Post.

Dumaine: Well, what if Bezos was running Facebook and thought that its reputation has gotten so bad that the company is in danger of being regulated by Washington? Bezos thinks long term. I could see him pivoting, figuring out how to solve the problems that Facebook is being accused of: How do you stop it from being a sewer for bad content? How do you stop it from being politically manipulated? 

So Bezos, I believe, would institute stronger standards and would hire more people. Yes Facebook’s margins are going to suffer and its growth is going to slow, but Bezos would argue that if he didn’t do this, then Facebook in the long run would be even worse off after the Washington bureaucrats get through with it.

Kirkpatrick: That would be a reasonable response, but the caveat here is that it depends on who is running the government.

Dumaine: If Biden gets elected, Facebook is going to be worse off.

Kirkpatrick: Zuckerberg appears to have made the calculation that he has to placate Donald Trump in order to keep Facebook from being hit by onerous regulations, and my firm belief is that that explains a lot of his indulgence toward Trump and right-wing speech that is manifested in numerous ways. Now, you’re right, that could prove to be a very faulty calculation if Biden is elected.

Another interesting thing to keep in mind is the diametrical contrast between their relationships with Donald Trump. Zuckerberg has now met in person with Trump twice and spoke to him after the President posted: “When the looting starts, the shooting starts.” (Trump had also tweeted it, and Twitter had removed it.) By contrast, Bezos sued the government because he believes that Trump pulled the rug out from under AWS [Amazon Web Services] on the contract to provide cloud computing services to the Pentagon and claimed that the bidding process was not fair. He also owns the Washington Post and lets it go hog wild on Trump, at least in the President’s view. He doesn’t seem to have the slightest problem with Trump detesting him, while Zuckerberg appears terrified that if Trump gets annoyed with him, his company may not be able to grow.

Dumaine: He’s betting that Trump’s going to get reelected. If he thought Trump wasn’t going to win a second term, he wouldn’t be so afraid of him, because there’s really not much Trump can do to harm Facebook between now and the election.

Kirkpatrick: Zuckerberg is probably making an incorrect assumption about Trump, or he’s maybe still living with the consequences of a gamble he made earlier that Trump would get reelected and now doesn’t see a way to pivot towards Biden’s likely win. It is very important to remember that tech billionaire Peter Thiel is Zuckerberg’s longest-serving board member and the one whose advice he probably listens to more than any other member. He’s a libertarian and a big Trump supporter who spoke on behalf of Trump at the Republican National Convention. 

This is really important to understand about Zuckerberg. Thiel’s fingerprints are all over Facebook’s behavior. Also, over the past 18 months Zuckerberg has cycled out every single member of his board except for Sheryl Sandberg and Peter Thiel and Marc Andreessen, because a number of his directors were openly challenging him on a number of his managerial decisions, including the policy of letting politicians lie in ads.

Dumaine: Zuckerberg’s PR is horrible—all those photos of him with Trump have to hurt if you’re trying to hire the best and the brightest of the millennials and Gen Zers. But I think the real issue is that he doesn’t want to pay to build what would essentially be a journalistic organization, and he’d do anything to avoid that.

David, some government officials want to break up Facebook. Does that make any sense?

Kirkpatrick: That’s what Zuckerberg is most afraid of. And one of the reasons he’s afraid of regulation is that there’s not a logical way to break up Facebook. Over the past decade, both these stocks have done extremely well, but I would argue that the future risks facing Zuckerberg are vastly greater than those facing Bezos. I believe Amazon is a much better bet long term than Facebook, because if Amazon were threatened with a breakup, you could think of a way to logically break it up, including spinning off AWS where the profits would continue, where shareholders would have a piece of both successor entities and would cry all the way to the bank.

Dumaine: An Amazon breakup could be similar to when Teddy Roosevelt broke up Standard Oil into many small oil companies, and J.D. Rockefeller ended up many times richer than he had been originally. That was because each of the resulting smaller companies grew into big companies. Exxon, Mobile, Amoco, and Chevron all grew out of the breakup. That’s what could happen with Amazon.

There are risks, however. Amazon’s structure provides—and I use this word cautiously—synergies. There’s a big advantage in speed and efficiency from having Amazon’s e-commerce platform tied to its retail business and distribution network. Separate those two and Amazon’s platform basically becomes eBay. And there’s the great advantage of Amazon’s retail, media, and advertising businesses having ready access to all of AWS’s smart computing capabilities. I worry that if you break up Amazon, the essence of what makes Amazon such a growth machine will be diminished, at least in the short term.

Kirkpatrick: The thing that’s so interesting about Amazon that I take away from your book Bezonomics is the omnivorous nature of the company. Your cautionary advice to every other business is: “Don’t assume they won’t come after you. There’s no limit to what they can aspire to.”

Bezonomics book

Dumaine: Yes they are omnivorous. They are moving into advertising, finance, shipping, and health care, among other industries. But most of the antitrust focus on Amazon is in e-commerce, and in the U.S. they do command an impressive 38% of the market—they are eight times bigger than Walmart in that segment. What those attacking Amazon miss is that bricks and mortar still account for 90% of all retail in the U.S. That means Amazon has less than a 5% share of all retail in the U.S. and only 1% of the market globally. That’s hardly the kind of market dominance that warrants a breakup.

On top of that, the current antitrust laws ask whether a business is hurting customers. It’s hard to argue that Bezos is hurting his customers with lower prices and faster deliveries. So if the politicians break up Amazon it will be on the basis that it has become too big and too scary. That’s what happened when Teddy Roosevelt broke up the trusts—he felt that they had become more powerful than the federal government and couldn’t be regulated. 

No matter what the antitrust laws say, at some point Amazon’s just going to seem too scary, and we’re not even going to know why. These black box algorithms are doing stuff that even people at Amazon can’t understand at the end of the day. It takes on a life of its own, and we don’t know what direction it’s going to lead us in.

Kirkpatrick: There is something fundamentally disturbing about the scale of both of these entities that scares me and is intrinsically wrong. It is societally wrong, and it is ultimately societally unsustainable unless we want to move to a different system of government which is like corporatocracy. We cannot really cede the management of societal systems to large Internet-centric private companies, yet both of these companies operate as if that’s the direction we’re heading as a global society.

The kind of regulation that Zuckerberg fears, and which I think you and I would both agree is actually likely, will slow the company’s growth and will increase the company’s costs, and will depress the company’s stock price. I am continually amazed that investors don’t seem to factor that into their investment in Facebook. And the reason they don’t is that the profits keep growing so phenomenally, and the per revenue dollar profitability of Facebook is so vast—vastly greater than Amazon, by the way. I mean it’s probably 15 or 20 times more profitable per dollar of revenue than Amazon. Facebook for most of its history has been literally the most profitable large public company in human history in terms of its net margins.

Dumaine: I think the reason investors are still bullish on Facebook has more to do with the antitrust case against Microsoft in the 1990s and early 2000s. It was 10 years of a lot of noise and a lot of legal fees and nothing really changed at the end. Often the antitrust regulators are behind the curve when it comes to technology companies. Tech moves so fast, the regulators end up fighting the last war, and maybe that’s why investors are betting on Facebook’s future and maybe Zuckerberg too.

Kirkpatrick: Another advantage Amazon has is that Bezos is an older person than Zuckerberg with more managerial experience. Amazon is a longer-standing company than Facebook, and it’s been public for a lot longer, and he has seen the behavior of his investors and understood them, whereas Zuckerberg only went public in 2012, and he is still a very immature leader. He’s only 36 years old, and Bezos is 56. Zuckerberg does not really care what other people think, so that is a big difference. It seems like one of the most salient qualities about Bezos inside the company is that he listens. I think we’re seeing it proven how much Zuckerberg does not listen.

Dumaine: What Facebook needs is a little more maturity.

Kirkpatrick: Maybe Bezos should run Facebook.

Dumaine: Great idea—in theory.