Monday, August 28, 2017

"The Next Google"

In advance of the filing of reply comments in the FCC’s Restoring Internet Freedom proceeding (a.k.a. the “net neutrality proceeding”), I’ve been thinking about the “next Google.”

You know the one to which I’m referring. I’ve been in countless debates regarding net neutrality regulation over the past decade when a Google representative – arguing in favor of stringent net neutrality regulation – has said: “We’re not concerned about Google because we’re big enough to protect ourself. We’re concerned about the next Google.”

Other pro-net neutrality advocates, mimicking Google, often invoke the “next Google” as justification for their pro-regulatory position. For example, in a blog published on April 29, 2014, then-FCC Chairman Tom Wheeler said he would impose Title II public utility regulation to protect the “next Google.”

Even President Obama adopted the meme in August 2014, declaring: “[T]he position of my administration, as well as a lot of the companies here, is that you don’t want to start getting a differentiation in how accessible the Internet is to different users. You want to leave it open so the next Google and the next Facebook can succeed.”

Worrying about the next Google or the next Facebook got me thinking about an article published in the Wall Street Journal on August 9, 2017, titled, “The New Copycats: How Facebook Squashes Competition from Startups.” Read it yourself if you want a real basis for worrying about the “next Google” or “next Facebook.”

Here are just a couple of excerpts:

“Silicon Valley is dominated by a few titans, a development that’s fundamentally altering the nature of America’s startup culture. While it’s as easy as ever to start a company, it is getting harder to grow fast enough and big enough to avoid getting either acquired or squashed by one of the behemoths.”

“The deep pockets of giants such as Facebook, Alphabet Inc.’s’ Google, Apple Inc. and Amazon make it increasingly difficult for startups to compete and stay independent. The four firms have a combined market capitalization of almost $2.5 trillion, a rough equivalent to the annual gross domestic product of France.”

The article details the strategies and tactics employed by Facebook, Google, and the other Silicon Valley behemoths (to stick with the WSJ’s terminology) to either squash any emerging rivals, or to buy them out. Hence, if you are truly concerned about the “next Google” or the “next Facebook,” what you should worry about – much more than net neutrality – is how Google and Facebook use their undisputed market dominance, along with their “squash or acquire” tactics, to block emerging competitive threats from gaining a real foothold.

Scott Cleland, who closely tracks the financial results and market activities of the Silicon Valley titans, reported in a recent blog that public data show that Google, Amazon, and Facebook have acquired approximately 350 potential competitors to “ensure no innovative ‘garage startup’ has a plausible competitive opportunity to seriously threaten the Internet cartel’s dominance.” And he concluded:

The most recent data from second quarter 2017 earnings show that Google and Facebook have a digital advertising cartel that commands 96% of all digital advertising growth. The analysis shows that it isn’t broadband providers that content providers must fear will engage in anti-competitive or discriminatory behavior, it is the Google-Facebook ad cartel.”

Not surprisingly, there are increasing calls for antitrust or other government authorities to investigate and sanction – or even regulate as public utilities – Google and Facebook, and perhaps other Internet behemoths (to stick with the WSJ’s terminology.) I’m not advocating such action here. In my view, in a dynamic market environment such as that presented by the present Internet ecosystem, caution is warranted before either antitrust or regulatory remedies are imposed. The costs to innovation and investment to “de-FANG-ing” the Internet giants may well outweigh the benefits.

What I am actually advocating is this: The next time you hear the “next Google” invoked as a justification for imposing stringent, inflexible net neutrality regulation (whether by “Title II” or any other name), please take such ritual incantation with a big grain of salt.
Here is what I think that Google, Facebook, Amazon, and the other Silicon Valley giants really may be worried about. That absent rigid net neutrality anti-discrimination mandates, emerging competitors might have an opportunity to strike deals with Internet service providers that give them the opportunity to differentiate themselves with innovative market offerings that appeal to new consumer demands. Or that absent an absolute ban on paid prioritization, new entrants might have an opportunity to strike deals with Internet service providers that allow them more readily to offer innovative new applications. An absolute ban on paid prioritization may prohibit start-ups from giving assurances regarding the speed and reliability of proposed offerings that are necessary to attract investors and consumers.
If you really believe that Google is worried about the “next Google” not emerging, I’ve got a bridge I’d like to sell you at a bargain price. Don’t get me wrong: I’m not saying that Google should be worried about protecting the next Google – only that it’s fanciful to think that it is. When Google claims to be, that’s reason enough to question the validity of whatever proposition it’s peddling.

One final thought: Google – back when it truly was the “next Google” – emerged and grew to achieve market dominance at a time when no heavy-handed net neutrality regulations, much less Title II public utility regulations, were in place governing Internet service providers’ practices.