- Shares of Google, Facebook and Amazon slumped following reports that U.S. regulators plan to investigate the companies, along with Apple, for possible antitrust violations.
- Antitrust enforcers are unlikely to seek a breakup of any of the tech titans, with the government likely to press a case only if it's sure it can win.
- Yet mounting federal scrutiny of their practices in online advertising, internet search and supplier contracts could pressure the companies to make changes aimed at increasing competition.
The U.S. government is putting America's biggest technology companies in its crosshairs, with the Department of Justice and Federal Trade Commission preparing to investigate Google, Facebook, Amazon and Apple over potential antitrust concerns. Wall Street is taking notice--shares of Google parent Alphabet lost 6% on Monday, Facebook dropped 7.5% and Amazon fell 4.6%.
Despite investor concerns, the scope and focus of the federal probes remain largely unclear. All four companies declined to comment. Here's what is known, as well as potential remedies to the company's competition issues.
Breakups unlikely, but that's not the point
Reports that the government is preparing to scrutinize the companies don't mean regulators have yet opened an investigation, let alone point to an eventual breakup that many U.S. lawmakers and other critics are calling for. Many such federal investigations fizzle out without a trial.
"The decision to investigate comes from complaints from any source -- they could come from the president, they could come from consumer groups," said Herbert Hovenkamp, professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania. "Once they investigate, they only bring a case if they are pretty sure they can win."
The FTC brought just such an antitrust case against Google for its search practices in 2011, only to close it a couple years later. By contrast, companies that show up on the government's radar often do act to reform their approach to doing business to avoid perceived violations of antitrust law, even if remedies fall short.
A case against any of the four tech giants would be the largest antitrust suit since the government's attempted takedown of Microsoft in the 1990s. Although the FTC did not get the breakup it asked for in that case, it did succeed in making Microsoft open up some of its systems to third-party developers.
Bigness isn't enough
While criticisms of tech companies often focus on their size, U.S. antitrust enforcers typically don't go after a company simply for being big. The central questions are how concentrated a given market is, what control a company has over the sector, how many competitors it has and what the barriers are for other companies to enter the space.
Size, however, often does lead corporations to act in ways that hurt consumers or competitors—and that is a reason for government action. Take Google, which handles two out of every three online searches and takes the lion's share of online advertising spending (37 percent, according to eMarketer). Google has been fined in Europe for manipulating searches to put its own shopping results over competitors and, in March, for freezing out online advertising rivals.
Google also has faced criticism for how it handles advertising. The internet titan has taken steps to shield its ad sales from scrutiny, making it harder both for businesses that buy ads and for any other online publisher that sells ads, said Dina Srinivasan, an antitrust scholar and former advertising executive at WPP.
"Without transparency, publishers can't know if Google is running [advertising] auctions in a fair manner, or whether Google is leaking user data to give some buyers an advantage, or even giving itself an advantage in some other way" she said on Twitter. "All these coercive terms are clear antitrust issues."
Another area that's ripe for scrutiny is Big Tech's treatment of their competitors and vendors, Hovenkamp said. "There are lots of complaints about both Google and Amazon with respect to their contract practices with suppliers, clients and so on. Exclusivity agreements are a big issue."
An example: "One of these companies will deal with a supplier and make the supplier promise not to sell to any other firms, or give market share discounts where a supplier will get a discount for not dealing with other firms," Hovenkamp explained.
Instead of breaking up Google, Facebook or Amazon, the government could bar them from offering exclusive contracts, promoting competition among its suppliers. It could also stop these companies from getting bigger through mergers, an outcome that some on Wall Street predict.
"The biggest impact may be that future acquisitions of size will be much harder to do," analysts at investment bank Raymond James said in a research note.
Who are the customers?
When it comes to Amazon, one are that could invite scrutiny from antitrust investigators is its role as a selling platform as well as a retailer. Today Amazon makes more money from third-party sellers than it does from its own merchandise.
Regulators "probably will call up some of the companies that are customers of Google and Amazon, like some smaller retailers, and talk to these companies about what they see as their options. If X became much more expensive to use, what alternative would they have for their business?" Charlotte Slaiman, a former antitrust enforcement attorney at the FTC, told CBS News.
Srinivasan added on Twitter: "[S]ince Amazon controls about 50% of the e-commerce market, it feels inherently unfair that Amazon its using its position (where it sees third-party sellers sales data) to compete against third-party sellers."
Focus on Apple Store
The Justice Department is also looking into Apple and whether the company used its size to violate antitrust laws. Its activities in the Apple Store are "front and center" in the inquiry, according to Wedbush stock analyst Daniel Ives. "For the most part the DOJ would be looking into how/if the company's subscription fees from developers and the use of its App Store, which it owns and operates as an online marketplace, are in any way anti-competitive," he said in a client note.
Some app developers might agree. A number are currently suing Apple over the 30% fees it charges to sell in the App Store.
Impact on customers
Facebook likes to argue that its ad-supported model allows people free access to the internet and their social networks that they otherwise might have to pay for. But that rationale gets things backwards, consumer advocates say. They argue the dominance of Facebook and Google in advertising is squeezing out other online business that sell ads, which have to ask users to pay.
Srinivasan pointed to the prevalence of paywalls around digital publishers. "More and more sites that we visit online have paywalls," she said. "The practical impact at the consumer level is these businesses are not able to make digital advertising work for them, and they have to resort to other things, like asking consumer to pay up," she said.
If Google or Facebook were forced to compete in a transparent ad market, she said, that trend could be reversed, with the result that more websites would be able to sustain themselves on the advertising model.