Watchdogs close in on Silicon Valley giants as monopoly concerns mount

Mark Zuckerberg failed to name a single direct competitor to Facebook earlier this year - AP
Mark Zuckerberg failed to name a single direct competitor to Facebook earlier this year - AP

Tech giants face having their rising monopoly power curbed by tough new rules after the world’s top competition regulators pledged to clip their wings.

Joe Simons, the chair of America’s Federal Trade Commission (FTC), and Margrethe Vestager, European Commissioner for Competition, signalled that legal changes aimed at correcting market distortions were being crafted on both sides of the Atlantic.

Mr Simons raised the prospect of blocking tech giants from buying smaller competitors, saying that “in hindsight” sales of start-ups to major companies should have been blocked.

Silicon Valley giants have bought smaller rivals in the past, acquisitions that critics say have entrenched their dominance and enfeebled competition. Google bought companies such as DoubleClick, YouTube and the Android smartphone system, which are now central to the company. Facebook has bought social media competitors including Instagram and WhatsApp.

“There are instances that people could point to where, at least in hindsight, it certainly looks like we should have stopped something, so we’re very focused on educating ourselves on what is the best way to review those kind of things,” Mr Simons told US politicians on the House Judiciary Committee last week.

Federal Trade Commission chairman Joe Simons
Federal Trade Commission chairman Joe Simons

The remarks echo warnings from Ms Vestager that Silicon Valley giants like Google are living on borrowed time. 

On the sidelines of a conference in Helsinki, Ms Vestager said new rules would be designed to prevent the big companies from using their heft to crush start-ups – a trend she claimed was having a corrosive impact on European innovation.

“What we are trying to do is to keep the market open, because in an open marketplace as a start-up you have a fair chance actually of presenting your products, your services to potential customers,” she said. 

“If the market is closed down then it becomes almost impossible.”

She called for a “fair and balanced relationship”, adding that 500 experts will meet in Brussels in January to consider reforms. The EC has already hit Google with £6.1bn in fines for favouring its own shopping comparison services, search and browser apps. Amazon’s use of data on third-party merchants is also being examined. 

The European Union's competition commissioner Margrethe Vestager - Credit: Reuters
The European Union's competition commissioner Margrethe Vestager Credit: Reuters

Mr Simons said “roll-up” acquisitions were a key area in hearings the regulator is running on reforms to US competition law. “We’re getting lots of comments, we’ve had very good testimony and that will inform how we improve our abilities to deal with these acquisitions of nascent competitors,” Mr Simons said.

US competition law has been regarded as outdated when it comes to dealing with the almost unprecedented power of Silicon Valley’s biggest companies. Mergers and acquisitions are largely assessed on whether they will result in higher prices for consumers, something that is seen as irrelevant to Facebook and Google, which provide their services for free. 

But calls for the companies to be scrutinised more effectively have intensified. In August, Senator Orrin Hatch urged the FTC to re-open an investigation into Google and earlier this year, Senator Ron Wyden warned that Facebook could be broken up.

In April, when Facebook’s Mark Zuckerberg appeared at a hearing in Washington, he failed to name a single direct competitor.

More rigorous scrutiny of takeovers may prove controversial in the US, where selling to a major tech company is seen as a lucrative exit route.

Ms Vestager said: “Small businesses are saying: ‘We rely on a platform for our business but something happened, we don’t know why, we don’t know how and we don’t know who to turn to’. It’s the equivalent if you have a bricks-and-mortar shop and someone comes, paints your windows, takes down your sign, closes the door. Obviously you can’t do business any more.”

She added: “This is why we proposed legislation to regulate the relationship between businesses.”