Three basic facts Congress must understand about Big Tech

Wednesday, July 29, is an important day for the future of the Internet. At noon local time in Washington, DC, the CEOs of Apple, Amazon, Facebook, and Google will appear virtually before US lawmakers who are investigating their companies for illegal anticompetitive practices.

But there is a big risk that legislators will once again miss the point about what’s really at stake. The conversation has typically centered around exorbitant app store fees and political bias. While these are important issues, they unfortunately miss the core points which the Big Tech monopolies should really be challenged on. 

The tech companies and their high-powered lobbyists are hoping the hearing will be a relatively painless exercise — a way to show concern but otherwise continue their exploitative and monopolistic practices. Mark Zuckerberg’s testimony before the US Senate in 2018 shows how badly such a hearing could go, with confused senators asking questions like, How does Facebook make money? (“Senator, we sell ads,” Zuckerberg replied.)

Latest: Four misleading claims Big Tech CEOs told Congress

In recent years, the European Commission has taken a leading role in challenging abusive and anticompetitive behavior from Big Tech companies, and Congress can and should take a page from the European Commission’s playbook. As the world’s largest encrypted email service, we champion a new way of doing business online which is directly in competition with many of the tech giants. Our model puts user privacy first, returns control over online data to the user, and puts people ahead of advertisers. As such, we have been ordered to provide information for the European Commission investigation and asked to submit a briefing to the US House Committee on the Judiciary, which is conducting Wednesday’s hearing. We are very familiar with how Big Tech attempts to distract, detract, and entrap those seeking to investigate their anticompetitive practices.

While Wednesday’s congressional testimony is sure to feature plenty of gaslighting, denials, and outright attempts to obfuscate the issue, there are three inescapable facts about Big Tech antitrust that must be highlighted.

1. Antitrust is really about privacy

Some of Wednesday’s testimony will likely focus on the 30% tax that Apple and Google skim off the top of every in-app transaction on the mobile platforms they control. We have already written about this issue in detail. It is essentially a form of extortion that companies must pay if they want to stay in business, and this exploitative practice is also currently the subject of a European Commission investigation, thanks in part to a complaint filed by Spotify.

But the 30% fee is actually a tax on privacy, which is much worse than most people realize and has far-reaching implications for the Internet. 

Today, there are two primary business models online:

  • One is the advertising-based business model of companies such as Google and Facebook. In this model, services are provided for free, but in exchange, these companies abuse user privacy and exploit personal data in order to make money, either through advertising or by selling access to users to third parties. This model is exploitative, invades user privacy, and puts the fundamental interest of users behind the interest of advertisers and other exploiters of private data. This model has also given rise to harmful data scandals, Cambridge Analytica being the most prominent example.
  • An alternative model is the freemium subscription model utilized by services like ProtonMail. In this model, basic services are also provided for free, but premium features require a paid subscription, and the revenue from paid subscriptions is used to subsidize the free product. This model encourages companies to protect privacy because the revenues do not come from packaging and reselling user data and access to the highest bidder. In other words, companies are incentivized to put people first

What Apple and Google’s 30% fee on subscriptions does is discriminate between these two types of companies on their mobile platforms. Privacy-protecting, subscription-based companies are hit with a 30% fee, while companies using the invasive, ad-based business model are not similarly penalized.

This is a massive handicap for companies that protect users’ personal data. When Google forces subscription services to pay a 30% fee, they are harming competitors to their own ad-based business model, thereby reinforcing their own market dominance.

App stores are not the only playing field that Big Tech has tilted in their favor. Their monopolies have infiltrated every corner of the Internet, from the search engines we use to the whole mobile ecosystem of Android and iOS, which dominate hardware sales and require phones to be shipped with their own apps pre-installed. 

The end result is that by intentionally creating an ecosystem which favors the ad-based business model, online privacy is being systematically dismantled, to the detriment of Internet users. 

2. The issue is not price, but choice

Many opponents of antitrust actions say the government should not be able to tell private companies what they can charge for services. The argument is that government regulation of pricing will undermine the market economy. 

However, the problem with Apple and Google’s app stores is not actually the 30% fees (despite the fact that they are exploitative and unjustified). The problem is really the lack of choice — in this case, choice in payment method. 

Apple and Google force developers to conduct all mobile transactions through their own in-app payment system (subject to 30% fees) or the app gets banned (i.e., put out of business). By enforcing a monopoly over mobile payments within their app stores, they can effectively charge whatever they want.

If there were other options permitted for iOS and Android in-app payments, real competition would be allowed to occur, and very likely, payment fees would drop to a much lower level.

In other words, the “price” would be set by supply and demand, based on market dynamics. So, far from undermining the market economy, antitrust action to permit competition actually serves to safeguard the market economy and ensure that it functions properly.

The principle similarly extends beyond mobile in-app payments. Today, iOS and Android drive users toward favored web browsers, search engines, and mail apps through defaults and steering. For instance, on iOS, Safari is the default browser and it is impossible to change it, and on Android a full suite of Google services come bundled. If consumers truly had an opportunity to select which services they want instead of just getting the bundled defaults, it is highly likely that many would pick options which are better for privacy.

The Big Tech companies understand this, and they are seeking to focus the debate on price as opposed to choice. For example, on July 22, Apple released a “study” attempting to demonstrate that its 30% fees are not excessive. 

These arguments are distractions designed to keep the narrative focused on the size of the commission rather than the larger question of whether policies and rules preventing consumer choice constitute illegal antitrust violations. Congress would do well not to fall into this well-laid trap. 

3. Tech monopolies cause real damage 

Consumers suffer the greatest harm from the Big Tech monopolies. The most obvious damage is the cost of the exorbitant fees, which are inevitably passed on to consumers. Unless companies have an uncommonly large 30% profit margin, some costs must be passed on to consumers, and there are numerous examples of this, such as Tinder and ProtonMail, which charge higher prices on mobile in order to compensate for these fees.  

The true cost, however, goes beyond the monetary. By forcing virtually all subscription services to hand over 30% of revenue, the entire mobile developer ecosystem is deprived of funds which otherwise could be invested in innovation, leading ultimately to worse products for users.

But perhaps worst of all, by constructing ecosystems which strongly favor privacy-invading services at the expense of services which put user privacy first, consumers are ultimately hurt by having far less privacy online. There are many powerful reasons why privacy matters, including to preserve freedom of expression and to stop oppression from authoritarian governments. 

One reason for the importance of privacy that even members of Congress should appreciate is that better data protections would reduce the cost of data breaches and would streamline regulations, which in the US are currently a mess and expensive for businesses to comply with.

How Congress can act

It is essential to restore competition and choice to the technology marketplace. While Big Tech has led many innovations, it has equally smothered pioneering new companies, particularly in the realm of privacy.

This may be Congress’s big chance to take antitrust actions that safeguard the market economy in the interest of the people they represent. On Wednesday, they must not only ask tough questions — they must ask the correct questions based on a genuine understanding of the stakes. They must do their research and not waste time with softball questions, as their Senate colleagues have done in the past. 

We also strongly encourage the US to follow Europe’s lead and work on legislative solutions to regulate technology gatekeepers in ways that promote widespread prosperity. It is necessary to update existing antitrust legislation, which dates back to the 1890s, for the digital age to address new challenges of the 21st century (the Electronic Frontier Foundation has explained some of the considerations in this regard).

Big Tech is holding back the Internet. But by opening the door for new ideas to break through and thrive, we can build a digital space that protects the rights and freedom of all people.

Best Regards,
The Proton Team

UPDATE July 27, 2020: This article was updated to after the congressional hearing with the CEOs of Apple, Amazon, Facebook, and Google was rescheduled for noon, Wednesday, July 29. The hearing was delayed to allow members of Congress to pay their respects to Rep. John Lewis, who passed away on July 17.

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About the Author

Andy Yen

Andy is the Founder and CEO of ProtonMail. Originally from Taiwan, he is a long time advocate of privacy rights and has spoken at TED, SXSW, and the Asian Investigative Journalism Conference about online privacy issues. Previously, Andy was a research scientist at CERN and received his PhD in Particle Physics from Harvard University. You can watch his TED talk online to learn more about ProtonMail's mission.

 

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2 comments on “Three basic facts Congress must understand about Big Tech

  • To Andy Yen:
    Presumably, you have provided this guidance to the appropriate committees in the U.S. Congress… Right? I hope so, because they’re woefully ignorant of technological issues, especially when it comes to privacy abuses.

    Reply
  • Privacy-protecting, subscription-based companies are hit with a 30% fee, while companies using the invasive, ad-based business model are not similarly penalized.

    That is not true. Publishers get less than 50% of what advertiser pays to the ad network.

    Reply