On July 29, the CEOs of four of the world's most powerful technology companies – Apple, Facebook, Google, and Amazon – will appear in front of a congressional committee that wants to inform them about their excessive influence on the economy and their alleged anti-competitive practices.
The all-day event, which Kara Swisher refers to as "Techpalooza" by the New York Times, is led by Rep. David Cicilline, a Rhode Island Democrat who has become one of the greatest critics of Big Tech's tremendous clout. The remote appearance of Amazon's Jeff Bezos, Facebook's Mark Zuckerberg, Google's Sundar Pichai, and Apple's Tim Cook will conclude a one-year antitrust review of the congress, which included eight round tables, 93 requests for information, 43 expert testimonials, and five hearings.
These hearings are only part of a major attack on big tech. Politicians and regulators are considering new laws to protect privacy and competition, to repeal a law that gives platforms immunity to the content of their websites, which may be the most drastic.
The two of us – David Kirkpatrick, founder and editor-in-chief of Techonomy, a conference and media company that now focuses on virtual events and author of The Facebook Effect, and Brian Dumaine, author of Bezonomics: How Amazon Is Change Our Life and What Learn from it the best companies in the world – discuss what the future will look like for Amazon and Facebook. This discussion has been processed.
Brian Dumaine: David, Facebook has been slow to address hate speech, voter repression, and other problematic content on its platform. The company makes Trump and other politicians lie on its platform, or even try to incite violence. An internal Facebook survey released this month found that "Facebook's approach to civil rights remains too reactive and piecemeal". You wrote a book on Facebook, followed the company closely and knew Zuckerberg. Will he give in to Congress pressure and change his behavior?
David Kirkpatrick: Barely. His style is said to be adamant, even when faced with convincing reviews of him and his company. In June, more than 30 early Facebook employees who were no longer with the company wrote a letter to Zuckerberg that was devastating. You have emphasized the basic point that it is inaccurate to say that you are not an arbiter of the truth. You are already an arbiter of truth in 1,000 ways. You simply choose not to be an arbiter of the truth when it comes to politicians because that's practical. They pointed out that what Zuckerberg is doing now is a reversal of Facebook's original raison d'être, which should be a tool to empower ordinary people.
And now the company is preventing ordinary people from spreading falsehoods, but it is making politicians spread falsehoods. Instead of preferring the Hoi Polloi, Facebook prefers the people who already have power and care for and address them.
Dumaine: Right, but that means Facebook curates. Once you've curated, you should be responsible for the content. Social media platforms such as Facebook use Section 230 of the Communications Decency Act, which exempts them from liability, as an excuse for not reviewing or editing any material. The real reason why they don't edit or check facts is that it costs a lot of money.
Here's a question, David. If Bezos ran Facebook, would he do it differently?
Kirkpatrick: He owns the Washington Post, so I would say yes with this big limitation, and that's Wall Street. Tom Friedman recently said that Zuckerberg is the Rupert Murdoch of his generation and all he cares about is money. It is not a good thing for the company.
However, the reality is that if you really treated Facebook the way the Washington Post is treated, it wouldn't grow with the growth rate. And his profit would not increase with the rates they go up, and his price / earnings ratio (P / E) would not accelerate with the rate it speeds up. Approval on Wall Street would decrease dramatically, and that would have a number of other related, implosive consequences, including compromising the company's ability to attract good engineers and use option-based compensation. Zuckerberg couldn't afford to treat Facebook like the Washington Post.
Dumaine: What if Bezos ran Facebook and felt that its reputation has become so bad that the company is in danger of being regulated by Washington? Bezos thinks long term. I could see how he turned and figured out how to solve the problems Facebook is accused of: how do you prevent it from being a sewer for bad content? How do you prevent it from being manipulated politically?
So I think Bezos would introduce stricter standards and hire more people. Yes, Facebook's margins will suffer and growth will slow, but Bezos would argue that Facebook would be even worse off in the long run if the Washington bureaucrats coped with it.
Kirkpatrick: That would be a reasonable answer, but the limitation here is that it depends on who runs the government.
Dumaine: If Biden is chosen, Facebook will be worse off.
Kirkpatrick: Zuckerberg seems to have done the calculation that he has to appease Donald Trump to prevent Facebook from being hit by incriminating regulations, and I firmly believe that this explains a lot of his indulgence towards Trump and his right-wing language, which is in itself it manifests numerous possibilities. Well, you are right, that could turn out to be a very erroneous calculation if Biden is chosen.
Another interesting aspect is the diametrical contrast between their relationships with Donald Trump. Zuckerberg has now met Trump twice in person and spoke to him after the president wrote: "When the looting begins, the shootings begin." (Trump had also tweeted it and Twitter had removed it.) In contrast, Bezos sued the government for believing that Trump had pulled the carpet out of the contract under AWS (Amazon Web Services), cloud computing services for the Pentagon and to supply claimed that the tendering process was not fair. He also owns the Washington Post and releases it on Trump, at least according to the president. He doesn't seem to have the slightest problem with Trump loathing him, while Zuckerberg seems to be afraid that his company may not grow if Trump annoys him.
Dumaine: He is betting that Trump will be re-elected. If he thought Trump wouldn't win a second term, he wouldn't be afraid of him because Trump can't do much to harm Facebook until the election.
Kirkpatrick: Zuckerberg is likely making a wrong assumption about Trump, or he may still be living with the consequences of a gamble he previously made that Trump would be re-elected, and now sees no way to focus on Biden's likely victory. It is very important to remember that tech billionaire Peter Thiel is the longest serving member of the Zuckerberg board of directors, and his advice is likely to be heard more than any other member. He is a libertarian and a big Trump supporter who spoke on behalf of Trump at the Republican National Convention.
This is really important to understand Zuckerberg. Thiel's fingerprints can be seen everywhere on Facebook. In addition, Zuckerberg has pulled every single board member except Sheryl Sandberg and Peter Thiel and Marc Andreessen out of circulation over the past 18 months because some of his directors openly challenged him on a number of his management decisions, including politicians' policies in advertisements.
Dumaine: Zuckerberg's PR is terrible – all these photos of him with Trump must hurt if you try to hire the best and brightest millennials and Gen Zers. But I think the real problem is that he doesn't want to pay to build a journalistic organization and he would do anything to avoid it.
David, some government officials want to disband Facebook. Does it make any sense?
Kirkpatrick: Zuckerberg is most afraid of this. And one of the reasons he's afraid of regulation is that there's no logical way to break Facebook. Both stocks have performed very well in the past decade, but I would argue that Zuckerberg's future risks are far greater than those of Bezos. I think Amazon is a much better choice than Facebook in the long run, because if Amazon were at risk of separation, you could think of a way to logically break it down, including the spin-off from AWS, where profits would stop, where shareholders would be a piece would have of both successor companies and would cry all the way to the bank.
Dumaine: An Amazon separation could be similar when Teddy Roosevelt split Standard Oil into many small oil companies and J.D. Rockefeller became many times richer than originally. This was because each of the resulting smaller companies grew into large companies. Exxon, Mobile, Amoco and Chevron all emerged from the split. That could happen on Amazon.
However, there are risks. The structure of Amazon offers – and I use this word with caution – synergies. Speed and efficiency offer a huge advantage when Amazon's e-commerce platform is tied to the retail store and distribution network. Separate these two and the Amazon platform will basically become eBay. The big advantage is that Amazon’s retail, media, and advertising stores can access all of AWS’s smart computing capabilities at all times. I am concerned that if you dissolve Amazon, the essence of what makes Amazon such a growth machine will decrease at least in the short term.
Kirkpatrick: The interesting thing about Amazon that I take out of your book Bezonomics is the omnivorous nature of the company. Her cautious advice to all other companies is: "Don't assume they are not after you." There are no limits to what you can strive for. "
Dumaine: Yes, they are omnivores. They operate in areas such as advertising, finance, shipping and healthcare. However, the majority of the antitrust focus on Amazon is in e-commerce. In the United States, they make up an impressive 38% market share – eight times larger than Walmart in this segment. Those who attack Amazon miss that bricks and mortar still make up 90% of all retail in the United States. This means that Amazon accounts for less than 5% of all retail in the U.S. and only 1% of the global market. This is hardly the kind of dominance that justifies separation.
In addition, current antitrust laws ask whether a company is hurting customers. It's hard to argue that Bezos hurts its customers with lower prices and faster deliveries. If politicians dissolve Amazon, it will do so on the basis that it has become too big and too scary. This happened when Teddy Roosevelt dissolved the trusts – he felt that they had become more powerful than the federal government and could not be regulated.
No matter what the antitrust laws say, at some point Amazon will just seem too scary, and we won't even know why. These black box algorithms do things that even people at Amazon can't understand at the end of the day. It takes on a life of its own and we don't know in which direction it will lead us.
Kirkpatrick: The scale of these two entities has something fundamentally unsettling that scares me and is wrong in itself. It is socially wrong and ultimately socially unsustainable unless we want to move to a different system of government that resembles corporatocracy. We can't really hand over the management of social systems to large internet-oriented private companies, but both companies act as if this is the direction we are moving as a global society.
The type of regulation that Zuckerberg fears and which you and I would both agree with is likely to slow the company's growth, increase the company's costs, and depress the company's stock price. I am always amazed that investors do not seem to take this into account when investing in Facebook. This is because profits continue to grow so phenomenally and Facebook's profitability per dollar sales is so high – by the way, much higher than Amazon's. I mean, it's probably 15 or 20 times more profitable per dollar sales than Amazon. Facebook has been literally the most profitable large listed company in human history for most of its history in terms of net margins.
Dumaine: I think the reason investors on Facebook are still optimistic has more to do with the antitrust lawsuit against Microsoft in the 1990s and early 2000s. It was a lot of noise and legal fees for 10 years and in the end nothing really changed. In technology companies, the antitrust authorities are often behind the curve. Technology is moving so fast that regulators end up waging the last war. Maybe that's why investors are betting on the future of Facebook and maybe also on Zuckerberg.
Kirkpatrick: Another advantage of Amazon is that Bezos is an older person with more management experience than Zuckerberg. Amazon has been a company for longer than Facebook and has been public for much longer. He saw and understood the behavior of his investors, while Zuckerberg only went public in 2012 and is still a very immature market leader. He is only 36 years old and Bezos is 56 years old. Zuckerberg doesn't care what other people think, so that makes a big difference. It seems that one of the most outstanding features of Bezos in the company is that it listens. I think we see that it has proven how much Zuckerberg is not listening.
Dumaine: What Facebook needs is a little more maturity.
Kirkpatrick: Maybe Bezos should run Facebook.
Dumaine: Great idea – theoretically.