Can anything curb the dominance of the internet's big guns?
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Version 0 of 1. The European anti-trust action against Google uses a silly rubric to get at a serious underlying problem. The nominal issue is that Google preferentially directed comparison shoppers to its own e-commerce sites even when they weren’t the cheapest option. This would be sleazy if true. What’s certainly true is that Google’s shopping site has always sucked, is barely used, and is the least worrisome competition question raised by Google’s online dominance. Busting Google for sleazy e-commerce search results is like taking down Al Capone for tax-evasion. The 21st-century has a competition problem. As we lurch toward the Piketty-complete apocalypse, every industry grows more winner-takes-all, dominated by titans with unthinkable market power, whose transgressions are largely unpunishable, because every one of them ends up being too big to fail. The internet is no exception, though it might be. Other industries have intensive capital needs. Once a firm has globalised and amassed its war-chest of billions, an upstart doesn’t stand a chance. The thing that made the internet such a harbinger of disruption was the relatively small capital demands needed to start a service that competes with those behemoths. When you can start a payment processor, online marketplace or publisher without a fortune in furnished offices, manufacturing apparatus or mass-scale advertising, the fact that the incumbents needed to pay for all these things worked to your advantage. When you could show an ad and take an order from anywhere in the world as cheaply as you could serve a customer next door, the fact that yesterday’s colossuses had gone to the expense of opening offices on five continents give you the superior financial picture. As the internet giants grew, so did states’ interest in their business practices. YouTube was started by three people with a garage, a pile of hard-drives and an unhealthy interest in video. In the years that followed, YouTube has acquiesced to a mounting compliance regime – spending hundreds of millions on its Content ID system for automated copyright enforcement, filling buildings with expensive lawyers and specialists to police obscenity, libel and other potential sources of liability, working out how to comply with the complex legal requirements of different jurisdictions, from the Thai royal family’s insistence on the right to remove videos that criticised the monarchy to the UK government’s insistence on the right to police videos advocating anything it unilaterally characterises as violent Islamism. Starting up as a competitor to YouTube today is a daunting prospect. With more than 128 hours of new video every minute, it’s hard to imagine how you’d amass a competing catalogue. But of course, plenty of people chafe at YouTube’s strictures and its business model, and of course, when YouTube kicked off, it was hard to imagine how it could ever compete with cable TV. One thing is certain: three people in a garage with a pile of hard drives could not disrupt YouTube anymore,. Anything hoping to compete with YouTube would have to find the money to replicate all those compliance systems. Today it takes more than a pile of hard drives. It takes a pile of hard drives, a building full of lawyers, and hundreds of millions worth of Content ID. The capital requirements for starting a competitor to the internet giants, from Facebook to Google to Apple, are so intense that they effectively only compete with each other. I dearly love the privacy-oriented search engine DuckDuckGo, but the only really big competitor to Google’s search product is Microsoft’s Bing: not a spunky startup, but a blue-chip company that was until recently the most profitable in the history of the world. It’s not like Facebook, Apple, Google or the other giants conspired to shut out the spunky startups. They didn’t need to. If David Cameron wanted to use Facebook to spy on people, or wanted to dictate how Google presents search results for movies, the parties who would participate in that negotiation are Google, Facebook, the security services and the entertainment industry. The internet companies bargain hard to ensure that the new rules will not destroy their business, and the regulators and spies meet them there – it’s inconceivable that a regulator would tell Google that it must change its search business so fundamentally that it had to go out of business altogether. Not at the table: spunky startups. A startup, after all, is a series of near-fatal disasters followed by failure (usually) or soaring success (very rarely). To be a spunky startup is to be in a state of perpetual emergency. You can’t hire lawyers to mooch around Number 10 all day trying to make sure that your business model (which might change tomorrow anyway) emerges intact from the negotiations. Also not at the table: tomorrow’s spunky startups. Firms that don’t even exist yet can’t participate in these negotiations (by definition). Google and Amazon and Apple don’t actively negotiate to make it impossible to be a spunky startup. They simply don’t negotiate to make it possible. Google wants to make sure that the YouTube of 2015 is viable. They don’t care about the YouTube of 2005. If today’s rules make that YouTube impossible, that’s not their problem any more. There’s no better example of this than the VATMOSS VAT mess. Amazon, Google, Apple and other e-commerce giants claimed to be headquartered in Luxembourg in order to avoid VAT. This made everything they sold 20% cheaper than the products offered by high-street companies and small startups that couldn’t afford a presence in Luxembourg, which is quite a commercial advantage. To solve this, the EU passed a regulation saying that anyone who sold goods in the EU would have to figure out who they were selling to, collecting two pieces of non-contradictory information about each purchas and retaining them for 10 years (meaning that every small and medium-sized enterprise [SME] has suddenly become a long-lived reservoir of indifferently secured Europeans’ sensitive financial information), and charge the local rate of VAT on those goods. There’s no minimum amount: if you sell a single 50p item in Bulgaria and collect 1p in VAT, you have to prepare and file a return so that Bulgaria gets its penny. Amazon, Apple and the other tech giants were at the table when this was negotiated. It’s a pain in the ass for them, but not unbearable. They have whole buildings full of programmers and accountants who will simply update their tax filings to make sense of it. For SMEs and sole traders, it’s been a disaster. I have a small business selling my own audiobooks through my website. This first VATMOSS quarter, I collected GBP18.76 in VAT from five EU nations. I spent over GBP700 in custom software, accountancy fees, and a new, specialist e-commerce fulfilment service in order to collect and remit this GBP18.76. Everyone I know who sells ebooks or digital audiobooks is in the same position. Indeed, if you’re trying to sell digital goods in the EU today, there’s really only one cost effective way to do it: use Amazon. Because the rules aimed at weakening Amazon’s unfair market dominance were negotiated with Amazon’s business-case in mind, they can be readily borne by Amazon. Because the rest of us weren’t taken into consideration, we must all now pay rent to Amazon forever, or be bankrupted by the red-tape that it (and only it) can handily dispense with. I’m not making the case against regulation here. I’m making the case against bad regulation. If we want to weaken the grip of these internet incumbents through competition, our regulations must target them to the exclusion of SMEs, not without regard to them. |