Dan Goure
It seems that one of the few things on which Democrats and Republics in Congress can agree is they want to put constraints on the U.S. technology sector. Members of both the House and Senate have put forth at least five bills directed at limiting how large technology companies operate. The most notable of these efforts is the American Innovation and Choice Online (AICO) Act.
Rather than seeking to create a more open and competitive environment in online business, this bill targets a small number of large tech companies, threatening them with draconian penalties for vague and hard-to-prove violations of arbitrary standards of competitiveness. These are precisely the firms that have led the way in creating the modern IT economy. Their products and services are used by most Americans and millions of large and small businesses. This misguided effort to shackle some of our best-performing companies will threaten U.S. economic recovery and national security.
After nearly two years of antitrust hearings on so-called Big Tech companies, both the House and Senate have put forward multiple bills seeking to prevent what members feel is monopolistic behavior by these companies. Some of these proposed laws are draconian, others downright silly. For example, one such bill would require large tech companies to prove their acquisitions were lawful, a reversal of the traditional notion of innocent until proven guilty.
The bill for the AICO Act, drafted by Senator Amy Klobuchar with bipartisan support, is one of the worst. AICO would penalize certain IT companies if they use their control over online platforms to unfairly advantage their products and services or force users to behave in a way contrary to their interests.
But rather than proposing measures to ensure fairness across all online platforms, (meaning websites, operating systems, online applications, and the like), the bill applies only to companies that provide popular online services, which all have at least fifty million monthly users and are operated by companies with a market capitalization exceeding $550 billion. In essence, this means only the “big five” of the online economy, Microsoft, Apple, Alphabet (Google), Meta (Facebook), and Amazon – are subject to the bill’s provisions.
Why is AICO bad? First, the market cap standard makes no sense. Berkshire Hathaway, a $650 billion company, would fall under the bill’s provisions if it bought a major provider of online services. On the other hand, Walmart, at $413 billion, could create or acquire an online platform and be free from the bill’s constraints.
Smaller IT companies that play a role as platforms for both individuals and businesses, such as Oracle at only $256 billion and PayPal with a market cap of $240 billion, are exempt. Although smaller in market cap terms than the “big five” targeted by Congress, it is difficult to argue that they are not powerful influencers of the IT marketplace. The same goes for Snapchat and TikTok.
The five companies targeted are at the pinnacle of the U.S. economy, with a collective market cap of approximately $11 trillion. This amounts to 20 percent of the total for all publicly traded companies. Much of this value comes from the power of their technologies and platforms to enable other companies and even individuals to conduct business and make money. Thousands of new businesses have been empowered by the services offered by the Big Five firms.
These five have done well because they have done good. They provide products and services that Americans and the entire world want. More importantly, their success was based on creating entirely innovative approaches to the way businesses and individuals participate in commerce, communicate, use data, and create relationships.
Amazon’s search for ways to improve its product delivery and enhance customer satisfaction is what drove the company’s efforts to develop previously unavailable IT systems, and particularly its move to the cloud. The result has been an explosion of online business. The role of Amazon during the pandemic cannot be underestimated. Tens of millions of people depended on Amazon for everyday needs as well as pandemic-related items.
Because of the financial support of parent company Amazon, AWS was able to invest in research to develop new IT systems and software. As a result, AWS became one of the leading innovators in cloud platforms and related software and services. But companies such as Microsoft, Google, and Oracle followed suit, creating a robust market for large-scale cloud offerings. All these companies compete ferociously against each other.
The impact of big tech on national security has been almost incalculable. AWS pioneered secure clouds that can hold classified information and was the first company to provide this capability to the Intelligence Community. Recently, the IC signed a contract with Microsoft for a second classified cloud capability.
AWS and Microsoft are the leading candidates to provide secure, global enterprise clouds for the Pentagon under the Joint Warfighting Cloud Capability (JWCC). Only companies with the technical depth, broad commercial and defense experience, and financial resources could provide the U.S. military with the robust cloud capabilities it needs to conduct 21st-century information-intensive operations.
It is important to think about how the proposed legislation will impact the ability of our national security establishment to maintain access to the cutting-edge capabilities provided by its cloud providers. In theory, a company with a product that creates problems for the JWCC cloud would be able to sue AWS or Microsoft if they preferred an internally developed application that worked better on their clouds.
It is not clear why we need new antitrust laws, especially the AICO Act. There are multiple investigations underway of these same companies by the Federal Trade Commission and Department of Justice. Why not let them play out before imposing new laws?
Perhaps the biggest flaw in AICO is the idea that by imposing constraints on the Big Five more competition can be created. This fails to recognize the impact the Big Five has had on many IT functions. Data search and manipulation, for example, is improved by the amount of information the platform can access. The idea of multiple small companies providing search results of the quality available from Google is farfetched, at best. And Amazon is attractive to its users precisely because it offers so many options and choices in both products and delivery.
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