The House’s battle to end big tech monopolies

'The Hype Machine' author/David Austin Professor of Management at the MIT Sloan School of Management/MIT Initiative on Digital Economy, Sinan Aral, joins Yahoo Finance to discuss The House’s plans to pass bills to break up major tech companies such as Facebook and Amazon to counteract their growing monopolies.

Video transcript

JULIE HYMAN: On Friday, the House of Representatives saw the introduction of a host of new bills aimed at reining in large tech companies, and they did that in a number of different ways, including try to propose divestment of certain assets. Sinan Aral is joining us now. He has paid a lot of attention to these issues. He's the author of "The Hype Machine," about social media companies, and he's also the David Austin Professor of Management at the MIT Sloan School of Management.

It's good to see you, Sinan. So we've had this conversation a number of times about Congress's attempts to rein in big tech. And so far, their inability to do so. Do any of these bills go closer, get closer to being better targeted at all of these big questions?

SINAN ARAL: Well, I mean, I think these are important steps forward. We'll see whether these are passed and made into legislation. Obviously, they are, they have bipartisan support. There are some Republican signatories to these bills. Five different bills, one of them is about not being able to favor your own products and services if you run the platform or the market that sells them.

Another one raises the bar to prove that a merger isn't anti-competitive. Another one increases fees for mergers to fund enforcement. These are all important steps forward. And hopefully, will open the door to creating more competition and innovation in the social economy and in the digital economy.

BRIAN SOZZI: Sinan, under what is being proposed, does big tech have to spin off or sell off any key assets?

SINAN ARAL: No, not yet. So there is a bill that makes it easier to break up a company if there's what is called a conflict of interest. But I don't think that this is necessary and I don't even think that this is going to sort of result in major divestitures of these assets. I think that what we actually need to create competition innovation is structural reform of these economies. And that's really what these bills are aimed at.

However, I think there's a glaring lack of a focus on interoperability legislation, which is a big miss. I think if we had that, it would be probably the number one best alternative to create innovation and competition, especially in the social media economy for Facebook and the others. But these are important steps forward. It signals a change from what used to be a very pro-business stance on competition and anti-monopoly over the last 30 years in the Chicago School, and I think that it's important to create competition innovation.

MYLES UDLAND: Sinan, I think I could guess at what exactly that interoperability kind of dynamic you're talking about is, but I'd love it if you could just outline for us a little bit of what that means for users, normal people as they think about their use of these platforms and what that would look like if some of these kind of came through.

SINAN ARAL: Yeah, interoperability just means that I can use one service with the other. So I can, imagine if you couldn't send a text message from Verizon to Sprint. You would think that's ridiculous. But right now, we can't send messages from Facebook to Twitter or from Instagram to Snapchat. And that creates more ability for monopolies to retain their power.

If there was interoperability, it would create competition. When we had the AOL-Time Warner merger, AOL Instant Messenger was forced to become interoperable with Yahoo Messenger and MSN. It went from 59% market share the year the legislation was enacted to 55%, and then it ceded the entire market to new entrants three years later.

What would this look like? Well, right now, all of the platforms have very similar messaging protocols. You have Fleets and Stories, you have text-based messaging, you have video-based messaging. It would just mean that you could send messages from one platform to another. And the critical thing that that enables is choice. I can then choose which platform I want to be on to send messages to any other platform. That's where the competition comes from.

JULIE HYMAN: And Sinan, I'm guessing you would also be in favor of sort of opening up the App Store, which has been something that, of course, has been in focus for Apple in various quarters, that they should maybe not make it as onerous as critics have said it is to put stuff on the App Store, to not advantage certain things, et cetera.

SINAN ARAL: In this digital age, things like the App Store are a massive part of commerce. And I like what Elizabeth Warren said about this. You can't be the umpire and a team in the same game. I shouldn't be able to set the rules of competition and then compete by providing my own products and services while giving preferential treatment say to Amazon basic products or to Apple apps in the App Store.

And I think it should be a little bit easier and less financially onerous to be part of the competitive landscape on a digital marketplace like the App Store or on Amazon. That would create opportunities for small and medium sized businesses to compete that would generate competition, it would generate innovation. All of that would be good for the entire economy.

JULIE HYMAN: And finally, Sinan, I do want to ask you about another story that came out in the past week that I wonder if you have a view on. It has to do with the release of subpoenaed information from the US government. In this case, Apple releasing some personal information that was subpoenaed. And it turns out it was for members of Congress and other folks that were high profile. So this is sort of, it's a tricky situation for these tech companies. How do you think that that kind of situation should be approached?

SINAN ARAL: These subpoenas should never have been issued, is my opinion on that. I think that there was a tremendous amount of government overreach in trying to investigate and infiltrate Don McGahn and other types of lawyers for the White House and other political officials, and so on. This is not something that you expect to see in the United States. This is something that you might cringe at if you saw it in another country. And I think that my basic position is that these subpoenas shouldn't have been issued in the first place.

JULIE HYMAN: Fair enough. All right, Sinan, great to see you as always. We'll talk to you soon. Sinan Aral, author of "The Hype Machine" and a professor, the David Austin Professor of Management at the MIT School of Management.

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