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Elizabeth Warren wants to break up Apple, too
‘Either they run the platform or they play in the store’
Mar 9, 2019, 6:19pm EST
Sen. Elizabeth Warren (D-MA) proposed breaking up Amazon, Google, and Facebook yesterday in a post published on Medium. Her plan, which comes as the Democratic presidential primary contest continues to heat up, would classify any company that runs a marketplace and makes more than $25 billion a year in revenue as a “platform utility” and prohibit those companies from using those platforms from selling their own products.
Under Warren’s plan, Amazon would not be able to sell Amazon Basics products on the Amazon retail store, Google would not be able to promote its own products in Google search, and Facebook would have to split apart from Instagram and WhatsApp.
But Warren’s proposal didn’t mention Apple, which clearly matches the same set of criteria: the company makes far more than $25 billion a year in revenue, and it operates the iOS App Store, in which it distributes its own apps.
I spoke to Sen. Warren after she appeared onstage at SXSW in Austin, Texas, today, and she told me explicitly that she thinks Apple should be broken apart, too — specifically, that it should not get to both run the App Store and distribute apps in it. “It’s got to be one or the other,” she said. “Either they run the platform or they play in the store. They don’t get to do both at the same time.”
Warren’s plan to break up the world’s biggest tech companies is by far the boldest overall tech regulation proposed thus far in the 2020 presidential cycle, and it’s going to set off a fierce debate about antitrust policy among both Democrats and Republicans. After all, the push for stronger antitrust enforcement so far has actually come from conservatives.
Below is my interview with Warren, which has been lightly edited for clarity.
So you announced a pretty bold policy proposal yesterday to break up three of the biggest companies in the world. You listed Amazon, Google, and Facebook, and you said you would break them up because they make over $25 billion a year in global revenue, and they run markets in which they also participate.
There was one company that fits that description that you did not mention.
Apple. They’re in.
You want to break up Apple as well.
You were very specific about how you’d break up Google and the rest. How would you break up Apple?
Apple, you’ve got to break it apart from their App Store. It’s got to be one or the other. Either they run the platform or they play in the store. They don’t get to do both at the same time. So it’s the same notion.
Pulling that apart, the App Store is the method by which Apple keeps the iPhone secure. It’s integrated into the platform. How would you propose that Apple and Google distribute apps if they don’t run the store?
Well, are they in competition with others who are developing the products? That’s the problem all the way through this, and it’s what you have to keep looking for.
If you run a platform where others come to sell, then you don’t get to sell your own items on the platform because you have two comparative advantages. One, you’ve sucked up information about every buyer and every seller before you’ve made a decision about what you’re going to sell. And second, you have the capacity — because you run the platform — to prefer your product over anyone else’s product. It gives an enormous comparative advantage to the platform.
“This would not be the first time in US history that this kind of arrangement had to be broken up.”
This would not be the first time in US history that this kind of arrangement had to be broken up. Back when the railroads were dominant, and you had to get steel or wheat onto the railroad, there was a period of time when the railroads figured out that they could make money not only by selling tickets on the railroad, but also by buying the steel company and then cutting the price of transporting steel for their own company and raising the price of transporting steel for any competitors. And that’s how the giant grows.
The problem is that’s not competition. That’s just using market dominance, not because they had a better product or because they were somehow more customer-friendly or in a better place. It’s just using market dominance. So my principle is exactly the same: what was applied to railroad companies more than a hundred years ago, we need to now look at those tech platforms the same way.
Why not mention Apple in your letter yesterday?
No special reason.
The comparison to railroads is really interesting because it was a very popular comparison during the net neutrality fight. The ISP runs the pipes, and you don’t want them to interfere with what happens on them. Would you also break up NBCUniversal and Comcast?
Yes. In fact, I’m already on record. I’ve actually already weighed in on that. I’ve sent letters, asked for hearings. I think I’ve done questions for the record in hearings. I’m already there. I’m clearly on record on it.
Obviously, the DOJ just lost with AT&T / Time Warner. You don’t look very happy about that. How would you unwind that one?
There’s two different questions. How well do I think the Justice Department and the FTC are doing? Not well at all, and not well for a long time now.
But the other half — how you break these things apart? — again, back in the days when we enforced antitrust laws, we did this for a long time. You peel the two pieces off. The easy one, obviously, is something like Amazon. It’s not very hard to see. You just say, “Okay, there’s an Amazon that runs the platform, that runs the store and people get shares of stock in that, and then all the little businesses, you get shares of stock in those, and they are now separated from each other.”
“The algorithm, at least in theory, goes back to being a neutral algorithm.”
Then the platform has no reason to prefer what had been an Amazon-based seller of toasters or pet pillows or whatever it turns out to be, and we’ve got a robust marketplace with people competing once again. [The platform] also would have no interest in moving [search results] up to page one rather than page six. The algorithm, at least in theory, goes back to being a neutral algorithm.
So with railroads and ISPs, there’s a natural monopoly element. It’s hard to build a railroad. It’s hard to lay fiber. Is there an equivalent natural monopoly that you see with the giant platforms that leads to a regulatory move?
You know, the natural monopoly argument is actually… not everyone accepts it. And there’s some back-and-forth about whether that’s the phenomenon we’re dealing with here or not. My view is: I don’t care. [Laughs] I’m sorry. What I do care about is I can see the advantages the platform gets, and because of that I say, “Stop. You cannot use that information, the data you’re able to collect.” Because, literally play this game out a million times, right? There will be no competition.
There shouldn’t be only six companies.
That’s right. There should not be only six companies.
At $25 billion [in annual revenue to trigger a breakup], you’re not anticipating that the local supermarket is going to stop having to do house brands.
Exactly. And no one’s looking for that. You’re getting into the nuance that actually this is a two-level regulation. The one that’s caught all of the headlines is that, for everybody above $25 billion, you got to break off the platform for many of the ancillary or affiliated businesses.
But between $90 million and $25 billion [in annual global revenue], the answer is to say if you run a platform, you have an obligation of neutrality, so you can’t engage in discriminatory pricing. Obviously, it’s like the net neutrality rule: you can’t speed up some folks and slow down other folks, which is another way of pricing. So there’s an obligation of neutrality.
The advantage to breaking them up at the top [tier] rather than just simply saying, “Gosh, girl, why didn’t you just go for obligation of neutrality all the way through?” is that it actually makes regulation far easier. When you’ve just got a bright-line rule, you don’t need the regulators. At that point, the market will discipline itself. If Amazon the platform has no economic interest in any of the formerly-known-as-Amazon businesses, you’re done. It takes care of itself.
You don’t think Jeff Bezos is going to manage himself to $24.99 billion a year in revenue?
If he did, he would have a neutrality obligation, and he’d have regulators crawling all over him. He might decide he’d rather be at $25 billion and split it all up.
You know, everybody should keep in mind that when they split Standard Oil into all the components like Standard of Ohio and Standard of New Jersey and Standard of California and so on, they actually ended up turning a bigger profit for everybody who’s been shareholders and executives because the broken apart [companies] let people get in and trade more. And there was more competition. They weren’t getting the monopoly profits —that’s the downside — but some of them got a whole lot more competitive. And that’s a good thing. If those spinoff Amazon businesses are really damn good, have at it, baby.
That’s what this is all about. What I object to is when they’re getting their profits because they’re sucking out specialty secret information that nobody else gets, or they’re getting prime placement in terms of when they show up on a search.
So you’re articulating a bright-line rule. A lot of conversations I’ve had with antitrust people like the Tim Wus and Lina Khans of the world, they’re saying we need to change the standard. We need to go from the consumer welfare antitrust standard to a European-style competition standard. Are you advocating that we change the antitrust standard?
I just think it’s a lot harder to enforce that against a giant that has huge political power.
So you’re in favor of leaving the consumer welfare standard alone?
Look, would I love to have [that changed] as well? Sure. I have no problem with that.
My problem is in the other direction: there are times when hard, bright-line rules are the easiest to enforce, and therefore you’re sure you’ll get the result you want.
Let me give you an example of that: I’ve been arguing for a long time now for reinstatement of [the] Glass-Steagall [Act]. And my argument is basically, don’t tell me that the Fed and the Office of the Comptroller of the Currency can crawl through Citibank and JPMorgan Chase and figure out whether or not they’re taking on too much risk and whether they’ve integrated and cross-subsidized businesses. Just break off the boring banking part — the checking accounts, the savings accounts, what you and I would call commercial banking — from investment banking, where you go take a high flyer on this stock or that new business.
When you break those two apart, you actually need fewer regulators and less intrusion on the business.
“It’s not only economic power that we need to worry about from the Amazons of the world — we have to worry about their political power as well.”
You also get more assurance it really happened. We live in an America where it’s not only economic power that we need to worry about from the Amazons and Facebooks and Googles and Apples of the world. We have to worry about their political power as well. There’s a reason that the Department of Justice and the Federal Trade Commission are not more aggressive. There was a time, long ago, when they were more aggressive, a golden age of antitrust enforcement.
These big companies exert enormous influence in the economy and in Washington, DC. We break them apart, that backs up the influence a little bit, and it makes absolutely sure that they’re not engaged in these unfair practices that stomp out every little business that’s trying to get a start, every startup that’s trying to get in there.