Warrented break-up?
As Facebook pledges to "go the mat," Elizabeth Warren doubles down on her plan to break up big tech.
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Earlier this week, The Verge obtained leaked audio of Q&A sessions Mark Zuckerberg held with Facebook employees in July. In the revealing tapes, he discussed a range of topics, including Libra’s poor reception, competing with TikTok, protecting content moderators, and what employees should say to friends who have a negative impression of Facebook.
One topic, however, has received most of the attention. When asked whether he was worried about regulators breaking up Facebook given its FTC settlement, multiple investigations, and “the rise of politicians like Senator Warren,” Zuckerberg predicted Warren would likely try to break the company up if elected, but that he would “go to the mat” to fight any such legal challenge.
Warren quickly responded in a series of tweets (click to read full thread):
Since efforts to crack down on the tech industry are ramping up, and Warren is the only 2020 candidate with a formal proposal to break up companies, let’s break down her plan in this week’s issue.
But first, some news:

WARREN WANTS CONGRESSIONAL TECH EXPERTS
What happened: this week, Warren also proposed reinstating the Office of Technology Assessment, originally established in 1972 to help Congress understand and legislate science and technology issues but dissolved in 1995 thanks largely to efforts by Newt Gingrich.
Why it matters: Warren argued that Congress has been getting pushed around by big tech’s well-heeled lobbyists and lawyers because it lacks the resources and in-house expertise to understand the issues. Warren hopes a revamped OTA will help Congress regulate big tech more effectively, like the Consumer Financial Protection Bureau — her brainchild — did for oversight of the financial industry.
Learn more: Makena Kelly / The Verge
COURT OKAYS FCC NET NEUTRALITY ROLLBACK
What happened: a federal court ruled that the Federal Communication Commission’s rollback of Obama-era net neutrality rules was legitimate, though it said the FCC couldn’t block states from passing their own rules and must review how changes would impact low-income internet users.
Why it matters: the Obama-era rules, which prevented internet service providers from “throttling” content or creating pay-to-play “fast-lanes,” were reversed under FCC Chairman Ajit Pai — a former Verizon lawyer — prompting a contentious lawsuit that could eventually make its way to the Supreme Court.
Learn more: David Shepardson / Reuters
INTEL CHIEF: CYBER IS TOP THREAT
What happened: while testifying about the whistleblower complaint at the heart of the Democrats’ impeachment inquiry, Acting Director of National Intelligence Joseph Maguire told Congress that the intelligence community is most concerned with defending the U.S. against cyber warfare and efforts to undermine the integrity of its elections.
Why it matters: Maguire’s testimony is yet another warning from intelligence officials about U.S. adversaries’ growing cyber capabilities, despite President Trump’s reluctance to acknowledge the threat as a serious one, as I discussed last week.
Learn more: Maggie Miller / The Hill

2020 DEMOCRATS SOLICIT TECH MONEY
What happened: Kamala Harris, Pete Buttigieg, Amy Klobuchar, Cory Booker and Joe Biden collectively have 16 fundraising events scheduled in Silicon Valley before the fundraising quarter ends next Monday, marking one of the most active periods so far.
Why it matters: despite criticizing the tech industry publicly, many Democratic candidates are deeply dependent on Silicon Valley donors. Elizabeth Warren and Bernie Sanders have not explicitly sought support from the tech industry, raising the possibility that they may attempt to draw a distinction between themselves and other Democrats who have taken tech money.
Learn more: Theodore Schleifer / Recode
CHILD PORNOGRAPHY EPIDEMIC
What happened: a New York Times investigation found that tech companies reported a record 45 million photos and videos of child sex abuse on their platforms last year — more than double the previous year — reflecting a massive crisis that neither law enforcement nor tech platforms seem equipped to tackle.
Why it matters: criminals are increasingly using encryption, the dark web and other technologies to obtain, distribute and hide illegal content, while inadequate reporting by tech companies, vastly under-resourced law enforcement agencies, and the federal government’s failure to fund them have all exacerbated the problem.
Learn more: Michael Keller + Gabriel Dance / New York Times
FACEBOOK, YOUTUBE LET POLITICIANS SPEAK FREELY
What happened: Facebook and YouTube said this week that they exempt politicians from many policies governing speech because they consider those tweets “newsworthy.” While not significant changes, these acknowledgments help explain cases where politicians’ posts have stayed up despite appearing to violate established policies.
Why it matters: platforms have received criticism for not doing enough to combat problematic speech, but some conservatives allege (without evidence) that political bias is at play, leaving platforms wary of intervening. With these statements, Facebook and YouTube join Twitter in taking a more cautious approach toward censoring political content.
Learn more: Steven Overly / Politico

INVESTORS QUESTION TECH IPO VALUATIONS
What happened: of the tech companies that went public this year with multibillion-dollar valuations from private investors, many — including Uber, Lyft, Slack, Spotify and, most recently, Peloton — have performed poorly with public investors (while WeWork pulled its IPO entirely).
Why it matters: “tech” companies have often earned valuations 10x their revenues, but public investors are rethinking who deserves that coveted label. They’ve turned away from “disruptive” companies with well-known brands (e.g. Uber and WeWork) and toward pure software companies with high gross margins and proven business models (e.g. Cloudflare and Zoom).
Learn more: Fred Wilson / AVC

SPACEX LOOKS TO BUY OUT TEXAS RESIDENTS
What happened: SpaceX has offered to buy out residents of Boca Chica Village, Texas, where the company built its experimental spaceport, as its operations increasingly cause disruptions. However, many residents say they plan to decline the offer.
Why it matters: Cameron County, where Boca Chica sits, set up a nonprofit to disburse funds to SpaceX that it promised the company as tax incentives. While SpaceX can’t force anyone out itself, the nonprofit does have that authority and is “willing to explore” using it, leaving residents concerned that SpaceX could strong arm them into relocating.
Learn more: Dave Mosher / Business Insider

POLITICAL DISINFORMATION IN 70+ COUNTRIES
What happened: researchers at Oxford University found that governments or political parties in at least 70 countries have used technology to wage political disinformation campaigns this year, up from just 28 in 2017.
Why it matters: the researchers note that authoritarian governments are increasingly using digital tools to “suppress fundamental human rights, discredit political opponents, and drown out dissenting opinions” and that, while propaganda isn’t new, algorithms, automation, and big data have augmented the “scale, scope, and precision of how information is transmitted.”
Learn more: Davey Alba and Adam Satariano / New York Times
US CYBER ATTACK ON ISIS MEDIA OPERATIONS
What happened: NPR detailed how U.S. Cyber Command and the National Security Agency teamed up to launch a complicated, prolonged and preemptive cyber attack against ISIS’ media operations.
Why it matters: the detailed account offers a window into a new U.S. cyber strategy that involves increased interagency coordination, public acknowledgment of its capabilities in order to deter counterattacks, and offensive — in addition to defensive — operations.
Learn more: Dina Temple-Raston / NPR
VENEZUELA TURNS TO CRYPTOCURRENCY
What happened: Venezuela’s state-run oil company has asked the country’s central bank whether it can use cryptocurrencies to facilitate payments to entities the company owes.
Why it matters: as U.S. sanctions against Venezuela continue to isolate the country from the global financial system and prolong its severe economic crisis, it has been forced to turn to alternative institutions to move money around.
Learn more: Alex Vasquez + Patricia Laya / Bloomberg
Warrented break-up?

Back in March, Democratic senator and presidential hopeful Elizabeth Warren unveiled a plan to break up big tech companies. Now, with regulators’ investigations heating up, Warren gaining ground in primary polls, and Facebook’s newly revealed concern about a Warren presidency, it’s a good time to explore the “why” and “how” of her plan.
It’s not me, it’s you
Warren begins her case for trust busting by discussing Microsoft’s monopoly power over the personal computer market in the 1990s, which it used in a variety of ways to prevent competitors from reaching consumers. The government sued Microsoft, eventually leading to a settlement where Microsoft agreed to make it easier for third parties to develop software on Windows.
That settlement has been widely credited with paving the way for products like Google’s search engine and its Chrome internet browser, which otherwise may not have gained such popularity, and which have greatly benefited consumers. As Warren puts it:
“Aren’t we all glad that now we have the option of using Google instead of being stuck with Bing?”
But in the decades since, tech companies have come to dominate their respective markets. Warren points to Amazon’s nearly 50% share of online retail (eBay is a distant second at under 7%) as well as Google and Facebook’s combined 70% share of all internet traffic.
Specifically, Warren cites two key ways in which she believes tech companies have fueled their growth unfairly:
Merger polygamy
Warren accuses tech giants of using their size to snatch up or undercut any potential competitors before they can pose a real threat — and regulators of letting it happen. She argues that Facebook’s acquisitions of Instagram and WhatsApp, Google’s buyouts of Waze and DoubleClick, and Amazon’s price war against competitor Diapers.com are all instances where regulators should have intervened to prevent “negative long-term effects on consumers and innovation.”
As evidence, Warren notes that venture capitalists now talk about “kill zones” around major tech companies where they’re wary of investing out of fear the companies will simply copy the product or buy out the founders early. She links to an Axios analysis of Census Bureau data that reveals a steep drop in the number of U.S. startups since 2004:

Data: Census Bureau / Chart: Axios
Eligible matchmaker
Warren also singles out companies that operate online marketplaces in which they also sell their own products. Brick-and-mortar retailers have been doing this for years — think of grocery stores selling their own brand at a lower price.
But Warren makes the case that these digital players have gone a step further by using their technological advantage to unfairly undermine competitors. Her examples include: Amazon using sales data to copy its sellers’ most popular products and Google allegedly demoting competitors in its search results (since Warren unveiled her plan, reports have also alleged that Apple similarly favored its own products in the App Store).
So, what would Warren do if she were judge in tech’s divorce proceedings?
Platform postnuptial
Warren’s plan would first designate major tech companies as “platform utilities.” Included in that group are companies that:
Earn more than $25 billion in annual global revenue, AND
Operate an online marketplace, exchange, or platform that is public and connects third parties.
Those companies would be “prohibited from owning both the platform utility and any participants on that platform” and “required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users.” In other words: referees can’t also be players and must also call the game fairly.
The result? Amazon would have to spin off either its marketplace or the 80+ private-label brands it owns. Alphabet (Google’s parent company) couldn’t own business that advertise on its massive ad exchange, nor could it keep its search business under the same roof. And Apple would be barred from owning any apps sold on the App Store.
Acquisition annulments
As a second step, Warren plans to appoint regulators who will use existing enforcement tools to revisit anticompetitive mergers. Companies on the short list include:
Amazon: Whole Foods and Zappos
Facebook: WhatsApp and Instagram
Google: Waze, Nest and DoubleClick
The takeaway
Warren ends by claiming that, while not a panacea for the various issues people may have with the tech industry, her reforms will:
“allow existing big tech companies to keep offering customer-friendly services, while promoting competition, stimulating innovation in the tech sector, and ensuring that America continues to lead the world in producing cutting-edge tech companies.”
In addition to designating platform utilities and undoing past mergers, Warren says she wants to give people more control over their data, help content creators (such as newspapers and artists) keep more revenue, and prevent foreign adversaries like Russia from using social media to manipulate U.S. elections.
Unsurprisingly, her plan is not without critics.
Trusty will be off next week, but in the next issue, I’ll talk about where the other Democratic candidates stand and some of the key arguments against breaking up big tech.
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