Sunday, June 25, 2017

"Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms"

The author is an analyst focused on communications with a particular interest in search. He worked at the U.S. Department of State and as a member of the United States Department of State Advisory Committee on International Communications and Information Policy. We've linked a couple times.

From the Precursor blog:
Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms

If one considers the evidence, it is evident that U.S. antitrust enforcers have enabled the current “new normal” of online winner-take-all platforms: Alphabet-Google in e-information, Amazon in e-commerce, Facebook in e-social, Uber in e-transportation services, Airbnb in e-accommodation services, and a “unicorn” queue of online winner-take-all platform wannabes.

Summary of Conclusions
U.S. antitrust officials should be alarmed by the extreme early concentration of a relatively young twenty-year old, U.S. online company marketplace.

Five online winner-take-all platforms -- Google, Amazon, Facebook, Uber and Airbnb -- already command ~80% of U.S. online companies’ revenue share and market capitalization.
And they are collectively capturing 82% of U.S. online companies’ revenue growth share, meaning they are growing more dominant not less.

Adding to the reality that their respective platform dominances are lasting, is the fact that these platforms are also dominating the consumer data collection and analysis that is essential to being able to compete, grow, and succeed going forward in online revenue growth and diversification, and to innovate to compete in artificial intelligence, machine learning, and targeted advertising. 
“If data is the new oil,” these winner-take-all platforms are extracting, organizing, and leveraging the most valuable and specific, potential, mass consumer data sets anywhere.

And as long as the DOJ and FTC continue to not consider privacy/data to be a non-price factor in antitrust enforcement, DOJ unwittingly will be the key enabler and protector of these online platforms’ data-driven, winner-take-all, market power maintenance and extension long-term.

Why U.S. Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms
If “competition is a click away,” how could today’s Internet ecosystem, become as winner-take-all online in the 21st century, as late 19th century America was when monopoly “trusts” in steel, oil, and railroads, precipitated the world’s seminal antitrust laws?

The public Internet obviously happened in 1994 and fundamentally changed how most markets and competition worked. However, U.S. antitrust enforcers obviously have not adapted antitrust enforcement to the new online market contexts, because if they had, we would not have America 1890’s redux.

It will be telling if the new Trump Administration antitrust team comes to acknowledge that all is not well in the U.S. antitrust universe, and that there are accelerating, serial, online winner-take-all, outcomes that are uncharacteristic of offline markets, and that would have been prevented in offline markets via normal antitrust enforcement.

At bottom, Trump Administration antitrust enforcers find themselves at an historic crossroads.
Are all these winner-take-all platforms “innocent” monopolies and winners on their own legal merits?

If yes, does the online marketplace inherently multiply “natural monopolies” that have no need to engage in anti-competitive behavior to foreclose competition or require antitrust enforcement, oversight or utility regulation?

If no, are these online winner-take-all platforms at least partially a result of U.S. antitrust non-enforcement and/or anti-competitive foreclosure behaviors warranting antitrust investigation and potentially antitrust enforcement action?

The evidence U.S. antitrust non-enforcement producing online winner-take-all platforms.
To start, why are these five companies considered online winner-take-all platforms?

Google Amazon, Facebook, and Uber are on this list because they each are roughly ten times bigger by revenues, users and inventory than their nearest competitor; and Airbnb is included also because its value is about eight times is nearest competitor HomeAway and its 2.3m room inventory is already more than the top three hotel chains combined, and separating more.

In addition, these five winner-take-all platforms command 77% of the total revenues, 82% of the total revenue growth, and 80% of the market capitalization, of the overall online market of online-based and founded companies. (These estimates use the Internet Association’s 39 members as the best proxy for this online market and excludes Microsoft here, because it did not originate online and it has no dominant online market positions or online network effects.)

The current “winner-take-all” term to describe these online platforms came from billionaire Sir Richard Branson and was captured in an excellent New Yorker piece by widely respected Silicon Valley blogger and venture capitalist, Om Malik.

What makes these online platforms winner-take-all?

Ironically, Alphabet-Google Chairman Eric Schmidt has provided some of the best explanations for this online winner-take-all platform phenomenon.

In 2011, Dr. Schmidt explained: “The fastest path to wealth is the construction of these digital platforms, in which a company becomes the center of activity and where other people depend on you.”

In 2012 he elaborated: “We believe that modern technology platforms, such as Google, Facebook, Amazon, and Apple are even more powerful than people realize. These platforms constitute a true paradigm shift, and what gives them power is their ability to grow – specifically their speed to scale. Almost nothing, short of a biological virus, can scale as quickly, efficiently or aggressively as these technology platforms, and this makes the people who build, control, and use them powerful too.” [Note: Apple is not an online-based company and hasn’t continued its growth.]
In 2013, Dr. Schmidt further explained: “Platforms are where the aggregated value occurs; the way the industry creates wealth is creating platforms.”

So specifically, what is the “juice” or “special sauce” that Google, Amazon, Facebook, Uber, and Airbnb all share that make them winner-take-all platforms?...