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The Plain View
Two key figures in Biden’s murderers row of tech regulators—FTC chair Lina Khan and the DOJ’s assistant attorney general for antitrust, Jonathan Kanter—emerged from their hideouts this week to announce that they are preparing new guidelines on how mergers should be evaluated, kicking off the process with a 60-day call for comments.
In an apparent accident of timing (of course, skeptics would say there are no coincidences), Microsoft announced that same day that it was making the biggest merger in its history, capturing one of the bosses of the game world, Activision, for $69 billion. Clearly, Big Tech has already decided what guidelines bind them on acquisitions: whatever they can get away with.
Obviously, the two sides have differences in opinion. To clear up matters, I thought I’d take up Kahn and Kanter’s offer and make my own public comment, sent right to the inbox of you lucky Plaintext subscribers!
Dear Antitrust Czars,
I’m not a lawyer or an investor, but as a longtime observer of bad behavior and predatory mergers in the tech field, I have Thoughts. I’m not sure how much impact my view will have, though, because it seems to me you’ve already made up your minds on how you want to change merger guidelines, as well as what’s considered anticompetitive behavior. But that’s OK! It doesn’t mean, Chair Khan, that you should recuse yourself from your antitrust lawsuits against Amazon and Meta, just because you have Jeff Bezos and Mark Zuckerberg on your dartboard. They are there for policy reasons, not because you can’t stand Bezos’ laugh or Zuckerberg’s sunscreen. The president appointed you because he wants to get tougher with the likes of those corporate barons, and the judge in the Meta case has already rejected the argument that you’re conflicted.
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So I’m betting that all the comments the two of you get, including mine, won’t divert you from the course you basically set out this week. When you talk about modernizing the guidelines, the headline of your press release makes clear your agenda: to “strengthen enforcement against illegal mergers.” You already have your road map—expanding the definition of anticompetitive to include cases where products are free to consumers, considering the future impact on mergers in nascent markets, and assessing the eventual effects of a dominating company’s entry into a new business. In practice, you don’t necessarily need new guidelines—you’ve already been more aggressively challenging mergers in industries from publishing to computer chips. And those guidelines can be ephemeral. After all, Chair Khan, you’d hardly taken your seat at the agency when you tossed out a merger guideline established just last year by your predecessor. Maybe a future administration will trash your new guidelines just as blithely. But I get it—revising the guidelines to give you more power provides ammunition when companies challenge you in court, which they undoubtedly will.
You’re right in saying you need new weapons, especially since the forces stacked against you are so formidable. That’s your biggest problem: the unholy bigness of Big Tech. I know that an oft-used canard in antitrust law is that humongous size doesn’t necessarily equal anticompetitiveness. But Big Tech’s bulk has thrown everything out of whack. The combined market cap of Apple, Microsoft, Amazon, Google, and Meta is around $7 trillion. That would fund the Defense Department for a decade.
That size means that every one of those giants' substantial mergers is arguably anticompetitive on its face, because their acquisitions immediately become more powerful by virtue of being tied to those dominating platforms. When, for instance, a tech giant like Amazon or Apple decides to become a movie studio, it isn’t like a bunch of film students setting up a back lot somewhere. The new content, financed by the mother ship’s Brobdingnagian profits, has an immediate pipeline to existing consumers already locked into those ecosystems—ecosystems that might favor in-house productions over traditional fare.
Now let’s talk about how that bigness plays into the Activision bid. In terms of dollars, it’s the most expensive acquisition in Microsoft’s history. Even so, Microsoft doesn’t have to stretch to make the purchase. For perspective, let’s look back to the unsuccessful $45 billion bid for Yahoo that Microsoft made in 2008. If it had gone through, it would have remained the biggest acquisition in the company's history to date. Capturing Yahoo would have required Microsoft to squander a fifth of its value. (Buying the troubled Yahoo would also have been a huge mistake, but that’s another story.) But the Activision price tag eats up less than 3 percent of Microsoft’s current $2.25 trillion market cap. That’s pocket change for Satya Nadella.
That sum brings an anticompetitive bounty to Microsoft. It is one of two producers of high-end game consoles, and potentially it could limit Activision titles to Xbox. No wonder Sony took a $20 billion hit after the announcement. Activision also has tens of millions of users who now will find it easier to use Microsoft’s other offerings. Most importantly, camo gear might prove the fashion choice in the next generation of computing, as armies of Call of Duty warriors could use the popular Activision game as a gateway to Microsoft’s metaverse.
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The only way you are going to temper Big Tech—forget about taming it—is to challenge those companies early and often. Guts, not guidelines, might prove more decisive. I suspect you know this. You are right to push hard for Congress to increase your resources, in both financial power and new hires, because you need more regulators, more investigators, more lawyers, more analysts, and more pizzas delivered for late-night brainstorming. These titans will not slow down unless they know there’s a price to be paid. If a tech giant knows that an investigation, and then a lawsuit, could stand in the way of an acquisition, that bid might not be offered in the first place.
Chair Khan, you acknowledged in a television interview this week that because of your limited tenure, you have a “fierce sense of urgency.” But with the Activision merger announcement, Microsoft laughed in your face. Don’t let them have the last laugh.
Time Travel
Microsoft’s $45 billion public bid for Yahoo in 2008 would have been a blockbuster, as I wrote in Newsweek that February. Yahoo eventually fended off the acquisition attempt, though it might have done better for shareholders to take the money, as the company’s business sank in subsequent years. But no one knows how Microsoft might have used the struggling but still powerful portal to boost its own fortunes. Here's what I wrote back then:
By taking over Yahoo, Microsoft instantly makes itself the world's biggest online power, with the ability to amplify the reach of its other properties, including the "cloud" applications (which run on the Internet, as opposed to your computer) that many consider the future of software. For more than a decade, Microsoft has been building up its Internet assets, but it still loses money on them (a 2007 deficit of $700 million). In an instant, it becomes dominant in several online categories and mitigates its losses. (Yahoo made $4 billion last year.) According to the Hitwise measuring service, Microsoft is No. 2 in the United States in portal front pages—a vital statistic, since those send users directly to favored sites and services—with a 15 percent market share. Add Yahoo's page hits and that rises to an 87 percent share. In Web-based e-mail, Microsoft's share would rise from 25 percent to 80 percent (Google's Gmail has a 5 percent share). Because Yahoo draws customers with lots of other services, pairing its assets with those of Microsoft will have broad effects on a variety of companies …
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In a statement, Microsoft claims "the proposed combination would receive all necessary regulatory approvals." That's a bold exclamation for a company that decisively lost a huge antitrust case filed in 1998 concerning its operating-system monopoly … But Microsoft's general counsel, Brad Smith, says that people will understand that this takeover is all about giving advertising customers a necessary alternative to Google. "Regulators look to what companies in the industry who aren't competitors say about a merger," Smith says. "In this case, companies are telling us, 'Please get together with Yahoo, if that's what it would take [to hold back Google].'"
As far as the consumer is concerned, of course, the merger means less choice in search, as the second- and third-place engines behind Google would now be a single entity.
Ask Me One Thing
Rob has a question involving a celebrated quote from the late silicon entrepreneur Robert Noyce. “Don’t be encumbered by history—go off and do something wonderful,” the Intel cofounder once said. Rob asks, “Why was this advice ever thought to be inspirational and sensible? What does it reflect about Silicon Valley culture?”
Thanks for the question, Rob. And double thanks for your implication that Noyce’s advice is not inspirational and sensible. Even loaded questions are welcome here!
I hate to disappoint you, Rob—I liked the class you co-taught at Stanford!—but I’m not as offended as you are. As far as I can tell, Noyce wasn’t saying that people should ignore history, just that they shouldn’t be encumbered by it. That was clearly the case with Intel, which was producing something that thumbed its nose at history—a computer on a chip. It turned out to be transformative, opening up a world of previously unthinkable possibilities. To take advantage of those mind-blowing opportunities and produce things like personal computers, the iPhone, and Twitter, innovative minds had to free themselves from the restraints, if not the lessons, of history.
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I do acknowledge your larger point—the culture of Silicon Valley might be tempting fate by ignoring history, especially when people don’t assess the consequences of their creations. There also seems to be insufficient appreciation of the fates of classical deities. Looking at you, Icarus!
You can submit questions to mail@wired.com. Write ASK LEVY in the subject line.
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