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Big Tech Under Attack: Key Allegations in House Antitrust Report

Mark Gurman, Matt Day, Sarah Frier and Gerrit De Vynck
·7 mins read

(Bloomberg) -- A House panel released a report proposing reforms to curb the power of the four largest U.S. internet companies. Here are the main allegations:

Apple

The iPhone maker is a monopolist that uses its dominance to harm rivals and consumers, according to the report. The subcommittee argued that Apple’s cut of App Store purchases, typically 30%, is “exorbitantly high,” and that it gives its apps priority in the App Store.

Apple works to create high switching costs for users, producing a lock-in effect that lets it exert monopoly power over app developers who are unlikely to ditch the mobile platform, the subcommittee argued. It also alleged the App Store rules threaten developers that compete with new Apple apps and that the company changes the rules to benefit itself, rather than developers.

The report cited Phillip Shoemaker, a former head of App Store review, who said Apple executives would arbitrarily create reasons to remove apps that competed with Apple’s own software and services. Shoemaker added that an app for synchronizing Mac computers and iPhones was rejected from the App Store despite not violating any specific rule and that Apple later released its own similar tool.

The subcommittee also said Apple seeks out popular apps in the App Store to later copy and quoted Apple co-founder Steve Jobs saying “we have always been shameless about stealing great ideas.”

The report noted that Apple has become increasingly focused on pushing developers to adopt in-app-purchases, another revenue source for the company. This year, Apple’s services segment, which credits the App Store as one of its largest drivers, topped $50 billion in annual revenue for the first time.

“Our company does not have a dominant market share in any category where we do business,” Apple said in a statement. “Apple’s commission rates are firmly in the mainstream of those charged by other app stores.”

Amazon

The House subcommittee alleged Amazon has monopoly power over small online sellers in the U.S. The report documented instances where the company treats third-party merchants as if they were disposable, banking that lost products from one seller leaving the online store would quickly be replaced by another.

“Amazon functions as a gatekeeper for e-commerce,” the report said. Many sellers interviewed by the subcommittee complained that they can’t turn to alternative marketplaces -- regardless of the cost of doing business on Amazon or how they are treated -- because the company has such a large share of online shopping in the U.S.

The subcommittee cited reports that Amazon likely accounts for more than half of online sales in key product categories. The company’s heft “enables it to self-preference and disadvantage competitors in ways that undermine free and fair competition,” the report said.

As Covid-19 pushes more American shoppers online, Amazon’s market power has grown. The subcommittee alleged that the company is willing to use this to exert pressure on suppliers and favor its own products over those sold by third-party sellers.

Amazon initially responded to the pandemic-fueled surge in sales by refusing to accept or deliver non-essential supplies from third-party sellers. However, the company continued to ship its own non-essential products while restricting third-party sellers’ ability to use alternative distribution channels to continue selling through its platform.

The company criticized what it called uninformed “regulatory spit-balling on antitrust” in a blog post. Amazon also compared itself to the broader retail market, rather than the e-commerce sector in the U.S. -- a common tactic companies use to defend themselves against monopoly allegations.

Google

The internet giant recognized the threat of “vertical search engines” early on and moved to neutralize them, according to the report. Vertical search engines focus on a specific niche, such as TripAdvisor Inc. for travel reviews, Monster for job postings and Yelp Inc. for local businesses.

Google has added its own search tools for many of these categories over the years, but argued they only serve to help web surfers find the services they want faster. However, the subcommittee alleged Google pushed into these markets to stop competitors from growing at its expense.

“Vertical search is of tremendous strategic importance to Google,” the company said in an internal message cited in the report. “Otherwise the risk is that Google is the go-to place for finding information only in the cases where there is sufficiently low monetization potential that no niche vertical search competitor has filled the space with a better alternative.”

The report also quoted Google documents showing executives discussing using Google search results to promote the company’s other products.

“Google adjusted its search algorithm to automatically elevate the ranking of some of Google’s services above those offered by rivals,” the subcommittee said in its report. “These perks are generally not available to competing verticals.”

The House report also revealed how Google used contracts with Android handset manufacturers to box out rival search, email and payment services, as well as competing operating systems.

Google offers Android for free in exchange for requirements to pre-install apps like Gmail and Maps. From 2009 to 2014, Google more than doubled the number of required apps to 30, according to the report. Internal emails and documents the subcommittee produced showed how Google rebuffed efforts from manufacturers to remove Google apps or re-negotiate agreements. In a 2016 email, Google employees discussed plans to place their payment app on Android handsets more prominently than a competing version from a phone maker.

The primary use of these Android deals was to solidify Google’s lead in search. Google began the Android licenses to ward off search offerings from Microsoft Corp. and Yahoo, according to the report. That directive came from the top. One email the report cited came from a director on the Android team who summarized a meeting with Sundar Pichai, now CEO of Google. “His main feedback was...Search is sacred, must be front and center,” the email said.

“We compete fairly in a fast-moving and highly competitive industry,” Alphabet Inc.’s Google said in a statement. “We disagree with today’s reports, which feature outdated and inaccurate allegations from commercial rivals about Search and other services.”

Facebook

The subcommittee argued that Facebook is a monopoly because the company considers services it already owns, including Instagram and WhatsApp, to be fiercer competition for the social network than outside apps like Twitter and Snapchat. Facebook has not allowed Instagram to grow to its full potential despite owning it, restricting headcount and other resources, while using Instagram to direct traffic to the main Facebook social network.

“It was collusion, but within an internal monopoly,” a former executive source was quoted as saying in the report. “If you own two social media utilities, they should not be allowed to shore each other up. It’s unclear to me why this should not be illegal. You can collude by acquiring a company.”

Facebook has also restrained smaller competitors by monitoring their growth and coming up with strategies to buy or crush them, sometimes using bullying tactics, according to the report. Absent real outside competition, “Facebook’s quality has deteriorated over time, resulting in worse privacy protections for its users and a dramatic rise in misinformation on its platform,” the subcommittee concluded.

Facebook has argued that Instagram would never have been as successful if it remained independent. But the committee obtained documents showing projections for the app prior to its acquisition. The numbers suggest Instagram had the resources and access to the infrastructure it needed to grow independently without Facebook.

“Facebook’s support of Instagram’s growth after acquiring it is overstated,” the subcommittee argued.

The company said Instagram and WhatsApp “have reached new heights of success because Facebook has invested billions in those businesses. Regulators thoroughly reviewed each deal and rightly did not see any reason to stop them at the time.”

(Updates with Android allegations in 19th paragraph.)

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