Episode 296 - Government vs Google and Amazon Anti-Trust
Todays guest is Adam Kovacevich of Chamber of Progress who brings us the latest in the suits that federal government agencies are bringing against Google and Amazon. Who is behind this, what is being alleged, why now, and what might be the consequences?
Adam Kovacevich
Adam Kovacevich (Kuh-VACK-uh-VITCH) is the Founder and CEO of Chamber of Progress, a center-left tech industry policy coalition promoting technology’s progressive future. Chamber of Progress — which the New York Times called “one of the most powerful tech lobby groups” — works to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.
Adam is a veteran Democratic tech industry leader who has had a front row seat for more than 20 years in the tech industry’s political maturation. He is an expert in helping lead technology companies through today’s challenging political environment.
Links
Adam Kovacevich - Website | Linkedin | Twitter
NPR - United States takes on Google in biggest tech monopoly trial of 21st century
Wikipedia - United States v. Microsoft Corp.
Transcript
Max Sklar: You're listening to the Local Maximum episode 296.
Narration: Time to expand your perspective. Welcome to the Local Maximum. Now here's your host, Max Sklar.
Max: Welcome everyone, welcome! You have reached another Local Maximum.
Well, I know I've been light on the interviews lately. I've had to do a bunch of solo shows. I've had Aaron on a lot. Thank you, Aaron, for doing that. But I feel like these interviews are a big part of the show and I fell behind. But now, no longer. I have tons of great interviews in the can, some of them really interesting, some of them really different, really in the expand your perspective camp, which is what we do here on Local Maximum. So I'm looking forward to playing those for you in the next few weeks.
I'm definitely in a few big transitions right now. I might make some changes to the show. Maybe we'll get a new host. New host? No, not a new host, you're gonna keep with me. I mean, a new hosting service. I'm on SoundCloud now. I feel like I've kept SoundCloud for so long and I keep saying I'm going to move to a new host, and there's never really a good reason to do so but maybe I should just go ahead and pull the trigger. I don't know. There's nothing so great about SoundCloud but we'll see. It's just there's kind of a pain because the website’s on SoundCloud. Oh, wait, I'm rambling.
Alright, let's have episodes maybe come at a different time each week. Maybe a new segment. We've kind of reached the end of probability distribution of the week. Time to review my process! So I'll have Aaron on at some point and we'll hammer it out live anyway.
Today, we're going to look at some current events. Big tech, so called big tech, is in the news again. This time, it's our federal government agencies coming after Google and Amazon. I had a really great discussion with today's guests to learn more about what's going on there. Today's returning guest is a veteran democratic tech industry leader who has had a front row seat for more than 20 years in the tech industry's political maturation. He is the founder and CEO of the Chamber of Progress. Adam Kovacevich, you've reached the Local Maximum. Welcome to the show!
Adam Kovacevich: Great to be here.
Max: All right, we have several developments from the federal government and actions against large tech companies in the news recently. I don't know if it started this week, or several weeks ago, or several months ago but we can focus on Amazon and Google for today. Maybe you could start by giving us the story. Let's first summarize what these are about. Starting with the… Let's start with Amazon, I guess. It's my understanding there's an FTC lawsuit there?
Adam: There's a potential FTC lawsuit. Lina Khan, who's the Chair of the FTC has kind of had Amazon in her sights for a long time. She actually first rose to prominence as a law student with a paper about antitrust issues surrounding Amazon, as she saw them, and argued for a creative, sort of novel, interpretations of antitrust law to deal with what she saw as issues related to Amazon. That was in 2017, I believe.
Flash forward six years later, she's the chair of the FTC and last year, she directed the FTC attorneys to really increase their investigations of Amazon. It's been reported now, sort of for several months really, that the FTC is on the verge of launching a case against Amazon. We've seen some reports about what that's likely to include. So now, that's expected to happen, to be launched later this month.
Max: And what exactly are they alleging there? What is the issue?
Adam: Well, there's really three issues. I think this is primarily about Amazon Prime. Which when you tell people that, it's funny because Amazon Prime is used by half of all Americans. It's extremely popular. Our organization, Chamber of Progress, actually did a survey of Prime members this year and found something like 80% plus were very satisfied with it.
So what has been reported is there's really three issues. One is she's likely to try to break apart the Amazon Prime bundle. When you subscribe to Amazon Prime, you get, of course, free shipping and deals but you also get Amazon Prime Video and Amazon /music and Amazon Books and all these kinds of things. There's likely to be an allegation that the bundle is unfair to competing retailers like WalMart and Target.
The second argument really has to do with how Prime interacts with what they call Fulfillment by Amazon, which is really their back end system for making sure that a product that's labeled Prime gets to you within two days. The way that they do that, generally speaking, is merchants use what’s called Fulfillment by Amazon, which is that the Amazon warehouse stores and ships that product and ensures that it gets there within the two days. Not all the sellers like that they have to pay Amazon fees for that service. So there's likely to be an allegation that Amazon shouldn't be linking the two things together, Amazon Prime and Fulfillment by Amazon.
And then the third issue really has to do with what's called the buy box. Whenever you go into an Amazon product page, over on the right hand side you see something that says “Buy this now.” And that's really buying it now with a particular merchant and only one merchant can kind of be the buy box merchant. So Amazon uses a formula to try to show the best deal. There's an allegation that's been several years running now that their policies for doing that actually cause prices to rise on other online services. And so that's kind of what that issue is about. So really, it's primarily about Amazon Prime.
Max: Interesting. Now, you talked about the commissioner of the FTC, Lina Khan, and this is my first of hearing about her, but it sounds like she was a law student just a few years ago and is now commissioner of the FTC. That sounds like a fascinating story, in and of itself, how that happens. But you said she wrote about this as a law student?
Adam: She wrote about this as a law student, and she had a paper called Amazon's Antitrust Paradox, which kind of acknowledged that under traditional applications of antitrust law, Amazon's practices are not problematic because they generally have a pro-consumer justification. They're good for consumers. But historically, in antitrust law that's been a defense. That if you're Amazon, you don't have to help Walmart and Costco so long as you're benefiting your customers.
I think Lina Khan. as chair of the FTC, is part of a new wave of what's called a Neo-Brandeisian Movement, to try to expand the application of antitrust beyond just whether something's good or bad for consumers. They're looking at whether it's good for suppliers, for example. They're looking at whether it's good for workers or not. Those are beyond the traditional scope of antitrust law. But that's been a very explicit goal of hers to try to expand its scope.
Max: Yeah, yeah. That's fascinating.
Now, I also want to talk about Google. And then I had a bunch of questions that kind of apply to both of them so I hope it kind of makes sense to put them together.
Adam: Sure, of course.
Max: Let's next establish what is happening with Google now. My very simple understanding is that they're facing a trial. This one's from the DOJ, also related to antitrust. Is that correct? And what exactly is going on?
Adam: That's correct. Google just began a 10 week trial earlier this week where the Department of Justice, the federal government is suing Google.
This case actually began under the Trump administration. Bill Barr, who was the attorney general, filed this case against Google just before the 2020 election. I think because he was trying to show Trump that he was going after those liberal big tech companies. Bill Barr was kind of a little bit on the outs with Trump because of the election. I think that Barr wanted to bring some suit against Google. They've looked at a couple different issues and they ended up with this one.
The heart of the case is really about Google's agreements with Apple, with Mozilla, with phone manufacturers, for its search engine to be the default search. That is really the heart of, that is really what the case is about. Whether those deals to be the default search providers are anti-competitive because they make it impossible for rival search engines to compete.
And so that's really what we’re started to see in court this week is the Department of Justice laying out those arguments. And the Department of Justice goes first, several states are party to the case. And then Google will actually start mounting its defense in a few weeks.
Max: Yeah, so what is the argument for why Google Search is a monopoly when switching search engines is so easy? I can go to bing.com or anything else. Arguably easier than, later on, I want to compare these to the Microsoft case but in terms of switching browser, it’s arguably easier. What arguments are they trying to use there?
Adam: The DOJ has to prove two things here. The first is that Google has a monopoly in, what they call general search and search advertising. So this is not really what their case is about but it's required. It's a precondition of the rest of their case, they have to establish that Google has monopoly in general search.
Their argument is that Google primarily competes only against Bing, DuckDuckGo in general search. Google's argument to that will be that for certain types of searches, say for example, shopping queries, it actually competes against Amazon and Wayfair and other services like that. Or for, say, hotel queries, you could go to Google but you could also go to TripAdvisor or Expedia. For local queries, you could go to Google but you could also go to Yelp.
So their argument in court will be that they actually compete, not just against general search engines like Bing, but also these specialty search engines. They'll also argue on the advertising side that they're competing for ad dollars against other forms of advertising.
The really important thing to say about this issue is that Google can lose on this point and still win the case. Because this is a requirement for the FTC for the DOJ to prove the rest of their case but it's not a requirement for Google to win. The heart of the case is that if DOJ establishes that Google has market power, is a monopoly in search and search advertising, then their argument is that Google has unfairly maintained that monopoly through these search default deals with Apple and with Mozilla and with browsers. I think that their argument is that these deals sort of give Google an unbeatable scale, an unbeatable position.
Google's arguments are that these deals are not exclusive, generally speaking. That it’s very easy for consumers to switch to a new search engine on all of those different formats, desktop or mobile. That there is no lock in for the consumer. And that the extent that they have these positions is because Apple and Mozilla and Samsung have decided that Google has the best search results. And so that it's sort of fairly won.
I sort of compare this to the deals that grocery stores do for shelf space. Oreo buys up a lot of shelf space, that doesn't mean that you can't buy Hydrox. Hydrox also gets shelf space that might not be the premium space. But it doesn't mean that Oreo, if people find Hydrox to be much better than Oreo, Hydrox will beat Oreo in the marketplace. So these deals are not sort of the be all, end all for explaining Google’s success.
Max: So what happens if Google loses this? Is it just a matter of okay, they have to stop these exclusive deals? It seems like it hurts their business, but it doesn't seem like some major breakup or anything like that.
Adam: It's not. You're absolutely right, it's not. I've seen some hyperbole around this. “This is gonna cause break up or really hurt Google's business.” I don't think that it will. It was a strange case. I don't think it was a well-considered case. I think it was like we got to bring a case against Google, and the Trump administration. I literally think that's how they arrived at it. But you're right.
One of the things that's interesting about this is that the case is not… You're not allowed to kind of consider remedies unless Google is found guilty and that would then be a second phase. There's already been a little bit of discussion about it, but it's not really formally part of the trial.
What some people… so I think there's two main potential remedies and both of them have interesting problems with them. So one is the court could say, “Google, you're not allowed to bid on these deals anymore.” Now interestingly, they can't tell Apple and Mozilla not to do default deals anymore. Samsung, right? They're not party to the case. It's Google as the bidder who has been the party. It would be sort of strange to say that you can't bid on this deal.
So if Google can't bid who's really left as a bidder? It's primarily Bing. Bing would be the biggest, and Microsoft would be the biggest beneficiary of that because essentially, they could go and become the default. To the extent right now, Apple has, when their Safari deal, let’s say, is up for renegotiation, Google and Amazon or Google and Microsoft are negotiating against each other right? If there's only one bidder, you don't have a negotiation against each other. And the bidder, in this case the sole bidder, in this case would be Microsoft has no reason to pay very much.
Now, nobody cares if Apple loses this money. But Mozilla, the operator of Firefox, this is how they make most of their money. 95% plus their money.
Max: It’s their deals with Google. Getting Google on their…
Adam: Google is their main source of funding, this search default deal. Okay, Google is disqualified as a bidder. That leaves them one bidder, which is Bing. And Bing has no incentive to pay Mozilla anything more than the bare minimum, right?
Max: They just have to beat out the third place, whatever that is.
Adam: DuckDuckGo or whoever. Yeah, that's exactly right. So Mozilla, actually, will probably lose the most of anybody.
And a lot of people are still going to choose Google. So the other idea that some Google critics have proposed is what they call a ballot screen. This has been tried in Europe, this has been tried in Russia of all places. And what it essentially says is, when you start up the device, or the browser, in this case, that you have to offer a ballot screen.
Now Google is required to do this through Android in Europe because it operates Android. That certainly is possible. I don't know how the court could require Apple or Mozilla to do a ballot screen since they're not party to a case so that would be sort of strange to me.
Max: What do you mean by a ballot screen?
Adam: So a ballot screen would say, when you first start up your Android device let's say, it would say, “Here are six search engines. Which one do you want to use as your default search engine?”
Now, one challenge with this, by the way, is that there are actually more than six search engines. So who are the six to get listed? I don't know. In Europe, they actually did an auction around this but you could do it by usage, that might be one way, popularity, that might be one way to do it.
But the interesting thing about this is that a lot of people are still going to pick Google. Google might be fine with that. And obviously, they'd much rather prefer to be in the default position so if a default is being offered, they prefer to be the default. But if it's not being offered, they're gonna get picked, probably most of the time.
The other thing we've seen around this, when there's these ballot screens is there's a tension right between, okay, why are we doing this ballot screen? Are we doing it to give consumers a choice? Or are we doing it to raise the market share of the second third place player?
What happened in Europe is that even after they implemented the ballot screens, the market shares of the search engines didn't change very much. And so DuckDuckGo viewed it as a… described the ballot screen as a failure. But that's part of sort of putting the cart before the horse. What do you want? Do you want the consumer choice or do you want to force a market share change even if consumers preferences for quality are telling you something different? So that's why I find it an odd case because the remedies don't necessarily make anything better.
Max: Right, right. So the other question I have, and again, I'm sorry, if this is a very different answer for Google than for Amazon. But why do you think these cases are coming up now? I know you mentioned some political reasons. Anything else with that story?
Adam: I think it's a couple of reasons. One, these are big, powerful companies. And it makes sense to me. They should be investigated. In some cases, they shouldn't be sued. But I do think if the government finds anything. I think the tension though, is that what I see happening in too many cases, is regulators and legislators starting with their target and then trying to find the case. Rather than seeing a behavior that troubles them, they start with, “We need a Google case” or “We need an Amazon case.”
I think Lina Khan started from the perspective of “we need an Amazon case. I'm going to put more investigators on this. Go figure out what are good arguments against Amazon.” That's not really a great way to do this. It's a much better approach to say we've had people come to us and identify this problem, and we agree this is a problem so we're going to pursue a case against it.
Max: Yeah, I wrote down a little note here, which may or may not be relevant, but maybe you want to comment. My reaction is, it seems like we might possibly, maybe not, but we might be on the verge of a revolution with how we access information given all the excitement around large language models and generative AI. I know I go to chat GPT for a lot of my information now and people are changing how they use search.
I find the timing interesting because unlike five years ago, we’re at a time where I could see in a few years, we may want to be less reliant on Google, maybe not so much Amazon. But I feel like Google's dominance might be at its end. They're coming in right at the end of this.
Adam: Well, in fact, I think this is a point that's going to come up in court, particularly in Google's defense. Which is to say that if you look at the way that chat GPT kind of captured the imagination in December and January of this year. It came out of nowhere and it is doing something really revolutionary. It’s a leapfrog innovation from, say, general search engines as we've known it. And by the way, it doesn't have any default search deals. It's not anyone's default search engine. So it was just building something better in some ways. I know it has limitations but it's leapfrog innovation. And so it's really a kind of the best example.
There will be cases… Next week in the trial, for example. In the Google trial, I expect that search engines, including DuckDuckGo and there was a smaller one called Neeva that tried and failed, will argue that they failed because Google's distribution agreements prevented them from getting traction. I think that chat GPT success just disproves that because they built something novel. Neeva and DuckDuckGo did not.
If you're going to view search holistically. Like, it's going to go into this realm of kind of competing for these kinds of generative AI answers, then it's great that we have this kind of competition. And by the way, Chat GPT giving Google a run for its money, Google responds, they build in Bard into search results. That's awesome. That's what we want to see happen. You want to see that kind of competition happen.
Max: Yeah. Although, as a consumer, I kind of find it-. I mean, this is not relevant but I find it kind of annoying, Bard, because I go to Google when I don't want to use Chat GPT and I want to use the 10 blue links interface. I find that a little weird.
This is probably frustrating for Google because they invented a lot of this generative technology, the transformer, they did most of the research on the MLMs and now they are having trouble integrating it. But yes, you're right, they'll have to respond. And we do have a ballgame, at least, for a piece of search. We don't know how big it's going to be.
All right. So I wanted to bring this back to the case against Microsoft. Because some of us who are older remember this case which was with Internet Explorer, back in the late 90s, early 2000s. What lessons or analogies can we draw from that case, which can illuminate what's going on here?
Adam: Well, I think it's sort of tempting to analogize the Microsoft case but I also think that it was a really different time. Microsoft was sort of uniquely dominant at that time. Particularly when you remember the internet, we did internet over dial up in 1998, not over broadband. And so one of the arguments, for example, in that trial was it was quite difficult to switch from Internet Explorer to Mozilla because you had to download it over a dial up line and that was difficult.
If you compare it, say, for example, to Amazon competing against Walmart or Costco, it's literally one web browser, one app versus another. When you're comparing it to Google, it's literally like you install another search app on your Android device or you change your default search. So the switching costs analysis is very, very different from the Microsoft case. And that is a really relevant point because the switching costs were deemed to be very high in the Microsoft case.
I think the other thing about it is we now have kind of a model, particularly in big tech, but also in things like retail, where you have frankly, a couple of big players competing with each other. I always chuckle when I hear people talk about the monopolies, the tech monopolies like plural. They're actually competing with each other. And they're all kind of paranoid in getting into each other's spaces in a good way. That paranoia kind of drives them to offer new products.
I think that's very different from the competitive environment you had in 1998, where Microsoft really was the big gorilla. To say now that Apple and Amazon and Microsoft and Google and Meta are all the big gorillas. Well yeah but, there's no one necessarily that's kind of making it hard for the others.
Max: Yeah. So what do you think is going to be the effect of these developments on tech and the software sector going forward both for large companies and for startups?
Adam: Well, I think that on things like the Amazon case, I think that, frankly, based on the issues in that case. It sounds to me like the FTC is really interested in helping sellers. And I think they overlook that the tension in a lot of these platform businesses is that the seller’s interests are sometimes at odds with the consumer’s interests.
Which is to say, every seller would like to get picked for the Amazon Buy Box, right? Or every seller would like Amazon to have lower fees for using Fulfillment by Amazon. But at the end of the day, why do consumers keep coming back to Amazon? It's because Amazon has incredible value proposition for them. And so to the extent that Amazon is going to create rules like ensuring that your prime product gets in there in two days, that's essential to keep people keep coming to Amazon even if sellers don't like that rule.
I don't know that policymakers have kind of grappled with the tension. I think as a policymaker, you sometimes have people come to complain to you that something's unfair. And I think there can be a temptation to sort of buy into that complaint before you really grapple with who's benefiting from the behavior that might be being complained about.
Max: Right. So any last-. And what about for the effects of the Google suit?
Adam: I think the Google case… To be honest, the biggest beneficiary of a Department of Justice win in the Google search case would be Microsoft. The biggest likely loser would be Mozilla. And I think Google might be fine no matter what. That's what makes it an odd case, to be perfectly honest.
Max: Rise and fall by their own.
Adam: I think at the end of the day, defaults are valuable for services but quality carries the day. Does a customer benefit from having the lesser? How does the customer feel about having a lesser quality option as the default? They might not like that very much.
Max: They might give it a try
Adam: I worry about, in these cases, that what you see here is you see governments wanting to help Microsoft in the Google case. Or wanting to help suppliers or Walmart in the Amazon case and kind of forgetting about the customer. I think that's really potentially dangerous.
Max: That's an interesting way to put it. I think a lot of us tried DuckDuckGo. I understand the ideological reasons why someone would try to use DuckDuckGo but it just wasn't good enough over the long term to sustain. Once you have to start researching or switching to Google, if you don't get the results you like, then you just stop using it after a while.
Adam: Yeah. And I think that there's an argument, for example, in the Google trial that DuckDuckGo is a more privacy protective argument and that would benefit consumers to be in front of people more.
But I also think that there's a gap here between sort of what people say their preferences are and what their revealed preferences are. Which is to say that, at the end of the day, people always say in surveys that they really care about privacy. But I think what they see and what you see through their behavior and search is that they care about quality much more.
Max: Yeah. Believe me, I would love to see a world where privacy is front and center with a lot of these services. But I also see that unfortunately, sometimes the more convenient ones or the ones that solve our problems right now are not privacy based. Which is yet another problem to solve but I don't know if we could solve it today.
Adam: Not on this podcast anyway.
Max: Actually, I am talking to some people who are thinking about it so stay tuned to the Local Maximum to hear more about that.
Adam: Oh, that’s good teaser for future episodes,
Max: So, Adam, any last thoughts on this stuff? And where can people go to find out more from you and your organization?
Adam: No, I think my big picture view on this is that a lot of these big tech policy debates and lawsuits are kind of still stuck in the phase of “This company is really powerful, we got to do something about them. Anything, we should do anything about them.” As opposed to really more narrowly crafting a solution to a problem.
When we regulate airlines, or healthcare, we tend to have more sane conversations about what's the problem we're trying to solve and how are we gonna try to solve it. I think tech policy still is in a little bit of an immature stage. Tech had a long honeymoon, politically and now we need a divorce. No, actually. What we probably need is relationship counseling and just good rules of the road.
I'm optimistic that we get there but I think the cases that don't seem very well thought out, again, like the Amazon Prime case, that unfortunately, we may see it may get worse before it gets better.
Max: All right. And where can people go to find out more?
Adam: Oh, sure. Well, my organization, Chamber of Progress, is online at progresschamber.org and I'm on Twitter at adamkovac.
Max: All right. So all of that will be linked to our show notes page. Adam Kovacevich thank you so much for coming on the show today.
Adam: Thank you.
Max: All right. I learned a lot from that episode. I hope that you did too. We're going to start stretching in the next few episodes. We had a discussion about patents and copyright. Do we need it? Are those laws really harmful to society?
Also I had a really interesting conversation in the ancient archaeology space, Not aliens, I promise, but still a guest that puts forth some very unconventional theories. I'll leave it there so look out for all of that. Have a great week, everyone.
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