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Can the Tech Giants Be Stopped?

The Wall Street Journal. logo The Wall Street Journal. 7/15/2017 Jonathan Taplin

© Robert NeubeckerGoogle, Facebook, Amazon and other tech behemoths are transforming the U.S. economy and labor market, with scant public debate or scrutiny. Changing course won’t be easy.

Sometimes it is hard to grasp how quickly the giant tech companies have come to dominate the world economy. Ten years ago, only one of them, Microsoft, was among the biggest companies in the world as measured by market capitalization. These days, the top five usually consists of Apple, Alphabet (the parent company of Google), Amazon, Microsoft and Facebook.

It has been an astonishingly rapid rise for the tech giants, and it’s far from over. The big question for the future is: How will their ever-expanding control affect other businesses and the labor market?

Over the past decade, Google, Facebook and Amazon have wreaked havoc on much of the creative economy—journalists, musicians, authors, filmmakers. In the decade ahead, the tech behemoths will use their dominance in artificial intelligence to overturn much of the service economy as well, including transportation, medicine and retail. With what result? To give just one example, Goldman Sachs recently reported that self-driving cars (a technology that both Google and Apple are developing) could eliminate as many as 300,000 jobs a year in two decades or more.

Will we be ready when the flood of unemployment brought about by the artificial-intelligence revolution is upon us? Politicians are dodging the issue, and Treasury Secretary Steven Mnuchin recently assured Mike Allen of the news website Axios that any big change wouldn’t arrive for up to a century: “I think that is so far in the future—in terms of artificial intelligence taking over American jobs—I think we’re, like, so far away from that, that [it is] not even on my radar screen.” At the Code Conference in California earlier this summer, the venture capitalist Marc Andreessen also rejected this “fallacy.” “It’s a recurring panic,” he said. “This happens every 25 or 50 years. People get all amped up about ‘machines are going to take all the jobs,’ and it never happens.”

Leaving aside which side of this argument is correct, the fact is that we are rushing ahead into the AI universe with almost no political or policy debate about its implications. Digital technology has become critical to the personal and economic well-being of everyone on the planet, but decisions about how it is designed, operated and developed have never been voted on by anyone. Those decisions are largely made by executives and engineers at Google, Facebook, Amazon and other leading tech companies, and imposed on the rest of us with very little regulatory scrutiny. It is time for that to change.

Who will win the AI race? The companies that are already in the forefront: Google, Facebook and Amazon. As AI venture capitalist Kai-Fu Lee recently wrote in the New York Times, “A.I. is an industry in which strength begets strength: The more data you have, the better your product; the better your product, the more data you can collect; the more data you can collect, the more talent you can attract; the more talent you can attract, the better your product.”

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Tech’s big three are already pushing into other sectors of the economy. Amazon made headlines last month by announcing its plan to acquire Whole Foods. Alphabet’s Verily (formerly Google Life Sciences) is producing a range of medical devices, from glucose-monitoring contact lenses for diabetics to robotic surgery systems. Alphabet’s autonomous-car division, Waymo (which originally started at Google), is already working with Avis to manage their forthcoming self-driving car fleet. As for Facebook’s brand-extension plans, it plans to launch original programming such as TV shows later this year.

How did we get here? I would date the rise of the digital monopolies to August 2004, when Google raised $1.9 billion in its initial public offering. By the end of that year, Google’s share of the search-engine market was just 35%; Yahoo’s was 32%, and MSN’s was 16%. Today, under Alphabet, Google’s market share is 87% in the U.S. and 91% in Europe. In 2004, Amazon had net sales revenue of $6.9 billion. In 2016, its net sales revenue was nearly $136 billion, and it now controls 65% of all online new book sales, whether print or digital. In mobile social networks, Facebook and its subsidiaries (Instagram, WhatsApp and Messenger) control 75% of the American market.

This shift has brought about a massive reallocation of revenue, with economic value moving from the creators of content to the owners of monopoly platforms. Since 2000, revenues for recorded music in the U.S. have fallen from almost $20 billion a year to less than $8 billion, according to the Recording Industry Association of America. U.S. newspaper ad revenue fell from $65.8 billion in 2000 to $23.6 billion in 2013 (the last year for which data are available). Though book publishing revenues have remained flat, this is mostly because increased children’s book sales have made up for the declining return on adult titles.

From 2003 to 2016, Google’s revenue grew from about $1.5 billion to some $90 billion as Alphabet. Today, it is the largest media company in the world, collecting $79.4 billion in ad revenue in 2016, according to Zenith. Facebook is a distant second, with $26.9 billion.

The precipitous decline in revenue for content creators has nothing to do with changing consumer preferences for their content. People are not reading less news, listening to less music, reading fewer books or watching fewer movies and TV shows. The massive growth in revenue for the digital monopolies has resulted in the massive loss of revenue for the creators of content. The two are inextricably linked.

In the third quarter of 2016, companies owned by Facebook or Google took 90% of all new digital ad revenue. As the Journal recently reported, “none of the would-be challengers to the Google-Facebook ‘duopoly’ even cracks a 3% share of global digital advertising” (with a few exceptions in China).

This extraordinary duopoly is responsible in large part for the declining fortunes of journalism and other content creators, and such businesses are finally starting to fight back. In early July, the News Media Alliance, a group representing U.S. and Canadian newspaper publishers (including Dow Jones, publisher of The Wall Street Journal), called on Congress to allow them to negotiate collectively, as an industry, with Google and Facebook on issues of revenue, customer data and news distribution.

Advertisers are critical not just of the duopoly itself but of the whole measurement system used by Google and Facebook to get paid. AdNews recently reported that the “viewability scores” for Facebook video ads are as low as 2% when compared with the standard used for TV ads. In other words, scrolling past an ad for as little as two seconds counts as a “view” for which Facebook charges, while for TV the whole 30-second ad must be viewed.

Given the superficiality of these exposures—was the sound even on as the user was scrolling through her newsfeed?—it’s a wonder that any agency pays for these ads. But global brands can’t afford to say no to the dominant platforms. They pay a premium for the privilege, even as Facebook and Google resist efforts to have third parties measure their ad systems, which is standard for TV and newspaper advertising.

This lack of transparency can also be seen in the proliferation of “fake news”—the deliberate spread, often with clear political aims, of online disinformation. Facebook likely knows a lot more about the forces behind the fake-news epidemic than it has publicly disclosed. As the Oxford University researchers Phillip Howard and Robert Gorwa recently wrote in the Washington Post, Facebook “has the metadata to identify precisely which [fake-news] accounts were created, where they operated and what kinds of things those users were up to during the U.S. election. Their data scientists could probably provide some insights that the intelligence services cannot.”

As for Google, its AdSense software, which provided much of the revenue to the Eastern European users who were flooding the web with fake news during the 2016 election, knows both the IP addresses and, in many cases, the bank-account information of the fake-news providers.

Privacy is another issue that the revolution ahead will raise as never before. The conventional wisdom is that Americans no longer care about privacy. As Kevin Kelly, the founding editor of Wired, wrote in 2014, “If today’s social media has taught us anything about ourselves as a species, it is that the human impulse to share trumps the human impulse for privacy.”

But will we be ready to accept the new ways that big tech will monitor our lives? Bioethicists worry that the same accelerometer in your smartphone that records the number of stairs you climb can also record the unique tremors of Parkinson’s disease. What is to stop that information from being harvested by health-insurance companies or employers? Indeed, at what point do they progress from offering you an insurance discount if you wear a health-monitor bracelet (like a Fitbit) to requiring you to wear such a device?

Facebook recently announced that it is trying to build “optical neuroimaging systems” that would allow users to direct their digital lives just by thinking. If Facebook succeeds in creating this brain-computer interface, will we really be prepared to welcome such corporate access to our very thoughts?

Questions of privacy will soon bleed into the discussion of artificial intelligence. Google has already applied machine learning in its Google Assistant (currently available on Android phones), the Google Home speaker and Android Wear accessories like watches. As we become more dependent on voice-activated “personal assistants,” we will be turning over more intimate details of our lives for Google to mine for data. In late June, the company announced that it would stop reading customers’ Gmail as a source of data for personalized advertisements—while conceding that it has enough data on its users from other sources to continue placing highly targeted ads in Gmail.

We shouldn’t make too much of the fact that Alphabet dropped Google’s early motto of “Don’t be evil,” but we still need to ask if the barons of Silicon Valley are considering the moral framework of the digital revolution. Too often it seems that the driving principle behind much of big tech’s dominance of the economy is Ayn Rand’s radically libertarian rallying cry, “Who is going to stop me?”

The world beyond Silicon Valley needs to start giving serious attention to these issues. Very few politicians have been willing to grapple with the possibility of mass unemployment caused by AI and robotics, but others see clear policy implications. The AI investor Kai-Fu Lee suggests, for instance, that it is “unavoidable that large chunks of the money created by A.I. will have to be transferred to those whose jobs have been displaced. This seems feasible only through Keynesian policies of increased government spending, presumably raised through taxation on wealthy companies.”

The possibility for such a massive new welfare program seems dim in the current political climate, but we can’t afford to ignore the problem, as Mr. Mnuchin suggests, or assume, like Mr. Andreessen, that millions of new jobs “that we can’t even imagine” will miraculously appear in the next 10 years. The elections of 2018 and beyond urgently need to address the troubling repercussions of the rise of the great tech monopolies.

Part of the answer may be more aggressive antitrust enforcement. By imposing a $2.7 billion fine on Google in late June, the European Union made clear that its aim is to maintain competition in the marketplace. U.S. regulators have applied a less demanding standard, seeing harm to “consumer welfare” as the only basis for action.

The history of Silicon Valley itself offers some guidance here. The astonishing technological revolution of the past half-century would never have occurred without the impetus of three seminal antitrust prosecutions. In 1956, AT&T signed a consent decree that forced it to license all of its Bell Labs patents (for such devices as the transistor, laser, cellular system, satellite and solar cell) to any American firm for free. From these technologies came firms like Fairchild Semiconductor, Motorola, Texas Instruments, Intel and Comsat.

In the 1970s, the Justice Department took on another tech giant, suing IBM for its vertical monopoly in the computer business. The government didn’t prevail in the 13-year-long prosecution, but IBM agreed to allow other companies to make the software for its computers. When the PC was being developed, IBM turned the development of its operating system over to two young men from Seattle, Bill Gates and Paul Allen. IBM still thought the core of its business was hardware, but the rise of Microsoft proved them wrong. The rest is history.

And finally, the antitrust case against Microsoft in 1998 centered on the company’s insistence that Windows customers had to use Microsoft’s own Internet Explorer browser. Without the settlement, which meant that Internet Explorer would no longer be the exclusive browser, Google would have never risen to its current dominance.

The clear historical lesson, which is waiting to be rediscovered in our own day, is that antitrust action has often served not to constrain innovation but to promote it.

Mr. Taplin is the director emeritus of the Annenberg Innovation Lab at the University of Southern California and the author of “Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy” (Little, Brown and Company).

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