Google, Fitbit, Banking: Big Tech's Bust Out?

Hi,

Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today’s issue will be short, and it’s on why we’re seeing merger activity and expansion by big tech in spite of antitrust scrutiny. I also have a short review of Rana Foroohar’s new book on big tech.

A Book in a Paragraph: Don’t Be Evil

One of my favorite journalists is Rana Foroohar of the Financial Times. Her writing on, of all things, Citibank’s financing of ships in the 1950s helped me when I put together Goliath. She’s really in the details of commerce, as well as the big picture. Foroohar has a new book out I’m reading called Don't Be Evil: How Big Tech Betrayed Its Founding Principles -- and All of Us.

Her book is a mix of reporting, analysis, and prescription on the threat that large technology platforms present to democracy and commerce. It’s full of detailed tidbits, like Foroohar confronting the Google co-founders at Davos in 2008 sitting in fancy ice cube shaped chairs. She asked them about their impact on democracy. “If newspapers and magazines are all driven out of business by Google or companies like it,” she asked, “how are people going to find out what’s going on?”

Larry Page responded, “Oh, yes. We’ve got a lot of people thinking about that.” I suppose she should have followed up by asking whether those people were thinking about the pro or con side of democracy.

I posed Foroohar one question about Don’t be Evil. What's the most surprising or weird thing you learned while researching this book? Here’s her answer.

I don’t know if it’s weird but the most surprising thing I leaned while researching the book was that the founders of Google, Sergei and Larry, had basically predicted the key problems with surveillance capitalism and where they would lead us back in their original paper on search, written while they were Stanford grad students. At the very end, in the appendix, there’s a paragraph where they admit that the targeted advertising business model could be misused by companies or other entities in ways that would hurt users. This is kind of a bombshell revelation given that search engines say everything they do is for users. The fact that this paper hasn’t gotten more attention makes me think people aren’t reading....which is itself part of the problem of attention capture I describe in the book.

Foroohar has the skepticism of a financial reporter but the analytical framework to understand tech. If that sounds interesting you can find the book here. I’ll be mentioning the book in future newsletters.

And now…

Big Tech’s Bust Out

There’s a scene in the classic mafia movie Goodfellas, where the mobsters pledge to protect the owner of a restaurant at which they hang out. In return for protection they get a regular payment. Whether business is good or bad, it doesn’t matter, their line to the owner is, “Fuck you, pay me.”

At first they get paid out of profits, but sometimes the restaurant doesn’t do well.

Fuck you, pay me.

Tax problems? Rent problems? Doesn’t matter.

Fuck you, pay me.

And so forth. As the owner begins bleeding cash, the mobsters begin working with the owner to liquidate what they can. They run down the restaurant’s credit by buying liquor and selling it half off. Finally they burn down the restaurant for the insurance money. This is called a ‘Bust Out,’ which is the final attempt to steal everything in sight before the game is up.

I’m reminded of this dynamic as I watch merger activity and expansion by big tech firms under scrutiny. A lot of people wonder why Google is, say, buying Fitbit, or going into banking, or collecting health data. Or why Facebook is launching payments, a new and obvious monopoly leveraging play. The DOJ and FTC are snooping around, Congress’s Antitrust Subcommittee is doing a thorough investigation, state AGs may sue, not to mention that global regulators at the EU level, France, Germany, Japan, and Australia are beginning to take action. In this context, the aggressiveness seems… odd, almost as if they are intentionally provoking a political reaction.

I have a theory that what we are seeing right now is the final attempt by big tech to capture as much territory as they can before political leaders clamp down on them. This is, in other words, their ‘Bust Out’ moment. In September, here’s what David Faber on CNBC said:

“By the way, I hear it too, and it’s another reason why companies are being implored to do things now if you want to get done—M&A or anything—think about doing it soon because come early to mid-2020, if Elizabeth Warren is rolling along, everyone is going to be like ‘that’s it.’”

Faber’s point is more general, but it applies to big tech more than anywhere else, because these are the companies in the crosshairs.

This theory is just that, a theory. Maybe Google would have bought Fitbit anyway, and Zuckerberg’s desire to conquer the world is well known. But perhaps there’s a bit of a deadline looming, which is 2021. If a new President gets in office, the game for them might be over. There’s a paradox here. Scrutiny now makes it more likely that the next President goes after big tech, which makes the period right now before the next President takes office far more important for mergers and strategic expansion. In other words, the scrutiny may not be slowing them down, but speeding them up.

In Disney CEO Bob Iger’s book, Iger mentions a surprising reason George Lucas sold Lucasfilm. Tax law. As Iger and Lucas negotiated the merger, George Bush’s tax cuts were set to expire. Congress and the President arranged a deal to raise capital gains rates, which meant that Lucas would forego a lot of money if he waited to sell the business. So he sold quickly, and pocketed an extra $500 million that would have gone to the taxman. It’s easy to act like corporate behavior is some apolitical phenomenon driven by technology and the leadership of heroic CEOs, but the reality is politics determine business strategy.

I’m not persuaded that the ‘big tech bust out’ is 100% accurate, but I suspect in executive office suites in California, there’s a lot of planning going on to address the rapidly changing political environment. There are likely different factions, some trying to speed up and some trying to slow down the aggressiveness.

Still, until policymakers do actually start to wield power, we’re going to hear one thing and one thing only.

Fuck you, pay me…

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller

P.S. If you’ve read my book Goliath, let me know what parts stood out to you as most relevant to today.