It’s time to return to our roots and break up these companies: Scott Galloway on Tech Giants

Scott Galloway, Professor of Marketing at NYU Stern School of Business joins the On the Move panel to discuss the recent tech hearings as well as earnings results from those tech industry giants.

Video Transcript

JULIE HYMAN: Scott, what is your leading thought when it comes to these various tech giants and their earnings reports? Because it really does-- I mean, on the face of it, it seems obvious that they would be performing well right now, and yet those numbers still were pretty impressive even given the increased traffic and such that we have seen from people staying at home.

SCOTT GALLOWAY: Well, I think the first takeaway is it's just fantastic to be an unregulated monopoly in a pandemic. It's-- you know, these companies in the 15 minutes post the close of the market yesterday, post the earnings announcements added the value of AT&T, Twitter, and Pinterest, and yet according to Mark Zuckerberg, there's competitors attacking him from everywhere.

And you see the market, despite the fact these indices are largely or very much driven by the performance of these companies, the indices are down because I think the marketplace is beginning to collectively recognize when all of the spoils are concentrated across an increasingly small number of firms, it makes for an unhealthy ecosystem, an unhealthy economy. So while these shareholders should be celebrating, I think, more broadly, the markets are justifiably very concerned about what was going on here.

ADAM SHAPIRO: Well, it's good to see you, Scott. It's Adam Shapiro. And I am curious. We heard David Cicilline, the representative from Rhode Island, actually say what you just alluded to, unregulated monopolies, and he said they should be broken up. Is it a serious threat they face?

SCOTT GALLOWAY: Well, so I want to be clear. I've made this statement several times, but after watching the hearings, I thought again this is the beginning of the end of big tech as we-- as we know it.

And I think we have to move from a construct of believing that it's some sort of punishment or they've done something wrong. I think America has a proud legacy of antitrust. When any one company gets so powerful that it begins to cut off the oxygen to the sector and the rest of the economy, we go in and we oxygenate the economy by breaking that firm up.

So I think they should be congratulated. I think it's incredible what they've accomplished. But yeah, it is time to-- it is time to return to our roots and break up this company.

And by the way, as an Amazon and an Apple shareholder, I think the value of my shares go up once they announced they're breaking up. I think AWS will be the most valuable company in the world as an independent company in three to four years.

So, A, I do think-- I do think this is the beginning of the end. Even if Trump gets re-elected, I think there's going to be some action. If Biden gets elected, it will just go faster. But it is-- we are well past due here to go in and do what we did to the aluminum companies and AT&T and oxygenate the marketplace.

DAN ROBERTS: Scott, Dan Roberts here. Let's talk about the hearings because, with some exceptions, Amazon took the most antitrust questions, which I guess was to be expected. And then most of the questions directed at Facebook and Alphabet-- and I thought it was surprising this was the topic for Alphabet-- were about political censorship, which, you know, I don't know what kind of relevance that had when it was supposed to be a hearing on antitrust.

But two questions that that prompted for me-- one is it seemed to me to make it even more the case that Apple is removing itself from this group in terms of the antitrust challenges. That is even before the pandemic, it kind of felt like Apple was becoming less of a target, whether rightly or wrongly, from lawmakers concerned about the size of these companies. And then second, because of the politics that came up, I was a little disappointed that Twitter, in the end, was not included in these hearings.

SCOTT GALLOWAY: Yeah, so my sense is about half the panel, mostly the Republicans, showed up to the wrong hearing, that they forgot-- they didn't get the memo that this was an antitrust hearing. And the conservative bias, quite frankly-- 7 of the 10 most trafficked Facebook pages are conservative-leaning content platforms. So there's not only no evidence of a conservative bias, it has nothing to do with antitrust.

I actually disagree, Adam. I don't think Twitter-- Twitter is relevant. I mean, the individual that got the toughest grilling the first two hours of the hearing was Jack Dorsey. Unfortunately, he wasn't in the room.

But as it relates to antitrust, the actual subject matter here, the notion that we're going to break off or force Twitter to divest Kanye's account and list it on the NASDAQ, there's just there's nothing here that makes sense as it relates to antitrust. And Twitter has a $28 billion market cap. These companies average $1 and 1/4 trillion. So if Jack Dorsey was invited to testify and we were trying to figure out a way to demonstrate the scale of these problems, Jack Dorsey would need to show up and be four inches tall and weigh two pounds.

They're just-- Twitter doesn't have nearly the economic influence to kill other competitors. I believe that Facebook and Google have decided to keep Twitter in business and could put them out of business in about seven days if they wanted to because they like to point to them as a competitor. So I don't think they're-- I don't think for the purposes of antitrust Twitter was really relevant to yesterday's hearings.

DAN HOWLEY: Scott, it's Dan Howley. You know, looking at wrapping-- or pulling these companies apart, you know, the idea that we would separate them if they're found to be illegal monopolies. I mean, it seems easy enough with Amazon, right? E-commerce, AWS, you know, cut right down the middle. But it becomes more difficult. How would you do that with something like Apple, for instance? Or that would just be a remedy. How would you do that with Google or a Facebook? Facebook purposely is integrating all of their back end to make that more difficult. So how would you go about that with those two?

SCOTT GALLOWAY: Yeah, Dan one and Dan two, I didn't answer Dan one's question about Apple. So, look, Apple is the least-- is the least-- elegant antitrust is you not only oxygenate the marketplace, you only make the marketplace more competitive, but you unlock shareholder value for the company you're breaking up. The Baby Bells were all worth more than the original parent within 10 years.

So elegant antitrust keeps those green lights-- those green numbers moving. So Apple is probably the least obvious for antitrust because the primary asset of Apple, one could argue, is its brand, and then it becomes a question of which company has domain over the brand. I would argue that Apple is really more a function of regulation, specifically around the App Store, when you have a duopoly that controls the rails and they can tax any company they want 30% in this app economy.

But I would agree with you. Facebook, Instagram, WhatsApp. Google, YouTube, Google Cloud. Amazon, AWS, Amazon fulfillment. All right, so there's nine-- there's nine companies from three. Apple is more about regulation than it is about antitrust.

JULIE HYMAN: Scott, one of the things that I always have trouble wrapping my head around, though, when we talk about these antitrust questions is just how popular these services are. I mean, of course Jeff Bezos talked about that in his opening statement. He kept touting the figures on how positive Amazon is-- how popular Amazon is, but he has a point. I mean, we all throw our money at these companies. We throw our participation at these companies. We use them heavily.

And so unlike sort of the antitrust breakups of the past where there was more of a villain perspective, how do you square that? I mean, don't you need to write antitrust law-- rewrite antitrust law if people feel that they are still benefiting and getting low prices and doing well because of these services?

SCOTT GALLOWAY: Yeah, I think that's a correct question, Julie. Antitrust law as it exists now is kind of from the Bush administration. It's Bork. And the primary test-- and we love to be able to quantify things-- is consumer harm as indicated or reflected by prices. So it's difficult to apply that litmus test to firms that are offering the product for free, and we have an unusual dynamic in the marketplace where investors have decided to replace profits with growth and vision when assessing where the stock price should head.

So as a result, we have these companies that are able to offer products for below price. That was kind of a seminal moment yesterday when Bezos acknowledged that the Amazon Alexa device oftentimes they sell for below price. When the Chinese came and tried to consolidate the market by pricing steel below the cost, we called it dumping. When Amazon does it, we call it innovation.

So even despite the fact that consumers are, quote, unquote, love them and paying a lower cost, I would argue it depends how you define price. I think your and I costs or prices, Julie, as parents have skyrocketed as our kids enter the teen years and they're more prone to self-harm and teen suicide because of unfettered social media that attacks their self-esteem. I think as entrepreneurs trying to start companies, the fact that new business formation has been cut in half at the hands of monopolies that are unregulated with feckless leadership in DC, that entrepreneurs pay a higher price. I think as taxpayers, when the world's most profitable and valuable companies in the world do not pay their fair share of taxes, our prices as citizens have skyrocketed. And finally is people in love with a great experiment called democracy. When our elections are perverted, when the sanctity of our democracy is threatened by a company that really doesn't give a good God damn about the well being of the commonwealth, I think our prices have skyrocketed. So I think it-- I think price is a loaded word.

DAN HOWLEY: Scott, I just want to touch real quickly on the idea of some form of regulation around the data that we provide, right-- not necessarily privacy but providing users some kind of fee structure or perhaps having companies pay users for their data, right? Because isn't that how all of these companies-- Apple and Amazon notwithstanding, certainly Google and Facebook-- but they made their fortunes on our data without us necessarily knowing what it was or what we were giving up. So what are your thoughts on some kind of payment structure that the companies have to provide for the data that you use?

SCOTT GALLOWAY: Dan, I think it sounds interesting in theory, this notion that data is the new oil and we each have domain over our own data and we should be compensated for it. But practically speaking, I don't know how you would construct that. And I just think they're smarter than we are and that they'll figure out a way to get around that. I think that would be very difficult legislation to enforce.

You know, I think you want-- I think you want a fairly simple and elegant means of trying to increase competition, which I believe would reduce a lot of the externalities. The notion of a data co-operative where we all get a check or have domain over it-- you know, younger people, we talk a big game about privacy in the media. The reality is consumers love to have their privacy violated as long as there's a coupon or a cheap phone at the end of it.

But we elect people who are supposed to figure out the long-term health of the economy and the commonwealth, and I just find the most elegant solution here would be antitrust, not some sort of data co-operative. There are few things the government always gets right, and people have a tough time pointing to any antitrust action that 10, 20, 30 years hence we don't look back and go, yeah, at the time, that was absolutely the right thing to do.

So a data co-operative, I think it's really interesting. Practically speaking, I think it would be very hard to implement and manage.

JULIE HYMAN: Scott, it is always good to get time with you. Scott Galloway is professor of marketing at the NYU Stern School of Business. Thank you so much.

SCOTT GALLOWAY: Thanks, Julie.