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AUSTIN — South by Southwest can be a kingmaker for the buzziest new apps -- Twitter and Foursquare first took off in previous festivals here. But this year, the talk of the town is whether it's time to break up the technology giants.
Sen. Elizabeth Warren’s (D-Mass.) bold proposal to take on Google, Amazon and Facebook barreled through the conference like an electric scooter on a crowded sidewalk.
Onstage at one event, journalist Kara Swisher said Warren’s plan has the tech industry “vomiting on their Allbirds.” But at one tech podcast’s live recording session on Sunday, chants of “Break them Up” broke out.
Warren’s plan to break up Big Tech may be a long shot, but it appears it will make regulating the technology industry a key point of the 2020 debate. Other presidential hopefuls who attended South by Southwest, such as Sen. Amy Klobuchar (D-Minn.), said it’s time to look at carefully at any future tech mergers -- and “supercharge” the agencies to crack down on monopolies.
The Technology 202 on Saturday interviewed Warren backstage at the Moody Theater, in a dressing room where photos of rock legends lined the walls. Here’s our conversation, edited for clarity and brevity:
Technology 202: Google and Amazon are very popular businesses. Why do you think this proposal to break up Big Tech will be a winning strategy with voters?
Warren: "This is about keeping markets competitive. My proposal will still let any consumer go to Amazon and order a coffee maker for delivery within 48 hours, go to Google and look up the capital of North Dakota and go to Facebook and check out what their old college friends are up to. I propose to separate that platform that consumers use from the ancillary business products that Amazon and Google are able to unfairly promote and that has the consequence of stamping out little businesses, medium-size businesses, start-up businesses. I want to protect competition. The giants can’t use the advantage of the platform to wipe out all the competition for what gets sold on the platform.
"It’s like in baseball. You can be the umpire; that’s like the platform. Or you can own the team; that’s one of the businesses. But you don’t get to be the umpire and own the team in the league." (Note: Amazon CEO Jeffrey P. Bezos also owns The Post.)
Tech 202: Let's take Amazon first. How would you propose to break Amazon up?
Warren: It's not even hard. Right now 49 percent of all [online] retail sales come to Amazon. For comparison, about 9 percent of physical retail sales go to Walmart. Any small business that wants to do online retail pretty much has to be on Amazon. They go to Amazon right now, and they're on the platform and Amazon sucks up information about every buyer and every seller. When it spots a profitable business, it has the option of moving in on that profitable business's space, undercutting them — maybe only temporarily — on price, moving where they appear on the platform back to page 9, and killing off the competitor business and sucking up the business for themselves.
My proposal simply says, you can operate the platform. But platform does not own the auxiliary businesses. They have to be spun into their own businesses. It's actually not that hard to break them apart.
Tech 202: But for consumers, if Amazon is offering a lower price . . .
Warren: Are you sure it's a lower price, did you check page 6?
Tech 202: You just said that they can undercut on price.
Warren: Temporarily. That's what they did with Diapers.com. This is another feature of the problem.
(Note from Tech 202: Though Warren's focus has been on small businesses who sell via Amazon's website, she used an example of Diapers.com, a would-be e-commerce competitor, to show how Amazon cuts prices to compete.)
Warren: It's not on the Amazon website, so this is a little bit of a different example of what goes on. It lowers its price to below cost. There's no way Diapers.com can survive it.
The business strategy [from Amazon] is to lower our price enough that Diapers.com just can't make it. After they make this announcement, they offer to buy Diapers.com. Diapers.com agrees because they have two choices, get sold or die. They let themselves get sold, they make some money on the sale, and Amazon no longer has a competitor. The price of diapers goes back up.
Tech 202: Do you expect to introduce legislation in the Senate on this?
Warren: Yes. I've been working on antitrust issues for years. This is part of an extension of other legislation that I've introduced, other speeches that I've given, other policy papers I've put out. It's part of a much larger piece about protecting competition and not permitting industry giants to snuff out competition.
Tech 202: When can we expect you to introduce legislation?
Warren: I don’t know.
Tech 202: You called out Facebook, Google and Amazon. Why not Apple?
Warren: They should be on the list. There’s no special reason. These were the three where it was easiest to make the example. Apple it's true as well. Apple can run the platform or they can sell the apps. But they can't compete with other individuals on selling the apps at the same time that they're running the platform and sucking all the information off the platform and making decisions about whose apps are going to be at the top of the platform and who's going to be way in the back where you never find them.
Tech 202: What about the telecom providers?
Warren: Yup, I'm already on record on that. These are all related to each other.
Tech 202: How does this impact your position in Silicon Valley? Do you still plan to raise money and have campaign events there?
Warren: I'm not in Washington to work for the billionaires. I'm in Washington to try to make government work for everyone else.
Tech 202: But they've played a crucial part in funding Democratic candidates so how does that impact your path forward?
Warren: You know I'm not doing closed door fundraisers with millionaires, but I already announced that policy.
Tech 202: In your post, you raised a lot of the privacy concerns that come up with Facebook. As you think about that, how does that affect how your campaign uses social media and tools like Facebook?
Warren: We use the same tools as everyone else, and we worry about those tools the same way as everyone else.
Facebook is an example of the problem we've got.
Facebook looked over and saw that people were migrating off Facebook over to WhatsApp. They had two choices, they could get better, which is what happens in a competitive market. Or they could use their enormous size to buy WhatsApp and then suck all of the data out of WhatsApp. They chose the second path. I propose that merger be unwound. That would give consumers an option.
Venture capital right now refers to the area around Facebook, Amazon and Google as the 'kill zone' because small businesses and start-ups that get too close and look like they might compete with those giants for business get killed. Investment is going down.
Tech 202: There is some concern that these ecosystems are very intertwined. The companies invest in start-ups, they're also acquiring start-ups which puts more money back into the venture capital system. How do you avoid unintended consequences on innovation if you break the companies up?
Warren: I think what we have right now is the unintended consequence. The giants are destroying competition in one area after another. It's the job of law to enforce the rules to stop them. That's how competition will flourish in this marketplace. The country had to do this 120 years ago. We need to do it again.
Warren's proposal to break up Big Tech sparked heated debate on social media, where many technologists criticized her proposal.
From Andreessen Horowitz's Benedict Evans:
Wondering if the vagueness of Warren’s ‘breakup tech’ idea, and its failure to consider the most basic questions it raises (eg: are you banning all retailers’ private labels?) reflects the nature of the whole ‘break them up!’ argument. There’s no there there.— Benedict Evans (@benedictevans) March 10, 2019
Several venture capitalists circulated a criticism of the proposal from the blog Truth on the Market. From Andreessen's Steven Sinofsky:
Warren wants to Turn the Internet into a Literal Sewer (Service) – Truth on the Market // this good! https://t.co/Um8LyBh9on— Steven 🖇 (@stevesi) March 10, 2019
Mathew Ingram, of the Columbia Journalism Review, is skeptical whether this is an issue most Americans care about:
I'm not saying this isn't the right thing to do, but I don't think it's an issue that the vast majority of people care about or probably even think about https://t.co/Ra2X2Uw1GJ— Mathew Ingram (@mathewi) March 8, 2019
But others in Silicon Valley came to Warren's defense. Kim-Mai Cutler, of Initialized Capital, said:
She’s not dumb; she’s a student of history. I suspect she writes the simplistic messaging to get the headline across and differentiate from other candidates but is well aware that most recent cases have resulted in other kinds of settlements pending more investigation.— Kim-Mai Cutler (@kimmaicutler) March 10, 2019
BITS: As 2020 candidates like Warren take aim at Facebook, Google and other tech giants, it's opening up a new rift between the Democratic party and the industry it's been courting for much of the last decade, my colleagues Tony Romm and Brian Fung report.
"The senator’s threat sent shock waves through Silicon Valley, where for years, tech companies enjoyed close ties to national Democrats who wanted to burnish their digital credentials and benefit from tech executives’ deep pockets," my colleagues wrote.
Warren's proposal and other 2020 candidates' criticisms of the industry highlight how these companies have fallen from grace in recent years. In the early days of President Obama's 2008 campaign, he famously appeared at Google. Whether or not any current Democratic primary candidates make similar pilgrimages will be telling.
NIBBLES: President Trump told Republican donors it was “fake news” that he called the chief executive of Apple “Tim Apple” at a White House event last week, according to Jonathan Swan of Axios. Two donors told Swan they didn't understand why he would make such a claim, especially because the incident was captured on video. "Republican donors in attendance called it one of Trump's weirdest lies ever," Swan reports.
“Trump told the donors that he actually said 'Tim Cook Apple' really fast, and the 'Cook' part of the sentence was soft,” Swan reported. “But all you heard from the 'fake news,' he said, was 'Tim Apple.'”
BYTES: Facebook sued two Ukrainian developers for stealing users' data and injecting advertising into their News Feeds with quiz app plug-ins, the Verge's Adi Robertson reports. The lawsuit filed on Friday accuses Gleb Sluchevsky and Andrey Gorbachov of running the hacking scheme over several years.
“Between 2017 and 2018, they enticed users to install malicious browser plugins promising horoscopes or 'character and popularity' tests, apparently infecting around 63,000 Facebook users’ browsers,” the Verge reports. “Sluchevsky and Gorbachov allegedly operated four web apps including 'Supertest 'and 'FQuiz,' mostly targeting Russian and Ukrainian users.”
The apps offered people quizzes such as “Who are you of modern vampires?” with photos from the “Twilight” series, as well as “Do you have royal blood?” Facebook said in the lawsuit that the hackers scraped nonpublic information, like friend's lists, from users who installed the quiz apps, and they showed them ads that were not approved by Facebook.
Facebook is making the case that users who installed browser extensions to use the apps “effectively compromised their own browsers” so it is different from the Cambridge Analytica scandal, in which Facebook is being accused of giving third-party developers broad data access.
— After launching at South by Southwest a decade ago, Foursquare rolled out a new app called Hypertrending, which shows a real-time heat map of where users are in Austin, writes Wired's Paris Martineau. The company isn't sure whether people would think the technology is creepy or cool, so it's testing only in Austin at the festival. It will “self-destruct” at South by Southwest's conclusion.
You might think that you no longer use Foursquare, but the company is a location-gathering giant — its vast data sets rivaled only by Facebook and Google.
“Foursquare’s technology powers the geofilters in Snapchat, tagged tweets on Twitter; it’s in Uber, Apple Maps, Airbnb, WeChat, and Samsung phones, to name a few,” Martineau reports.
- South by Southwest continues in Austin through Sunday, March 17. On today's agenda, Instagram co-founders Kevin Systrom and Mike Krieger will speak at 2 p.m. CT about what they hope their legacies at the company will be.
- The House Committee on Energy and Commerce hosts a legislative hearing on restoring net neutrality protections at 11 a.m.
- The Senate Committee on Commerce, Science and Transportation hosts a hearing on broadband investments in rural America at 2:30 p.m.