The Daily - The Big Tech Hearing

Episode Date: July 30, 2020

The C.E.O.s of America’s most influential technology companies — Amazon, Apple, Google and Facebook — were brought before Congress to answer a question: Are they too powerful?Today, we talk to our colleague who was in the room about what happened. Guest: Cecilia Kang, a technology and regulatory policy reporter for The New York Times.For more information on today’s episode, visit nytimes.com/thedaily Background reading: In the hearing, the chiefs of Amazon, Apple, Google and Facebook faced withering questions from Democrats about anti-competitive practices and from Republicans about anti-conservative bias.

From The New York Times, I'm Michael Barbaro. This is The Daily. Today, the CEOs of the nation's most influential technology companies, Amazon, Apple, Google, and Facebook, are brought before Congress to answer a question. Are they the two powerful and two dominant monopolies of the internet age? My colleague, Cecilia Kang, was in the room. It's Thursday, July 30th.

It's Thursday, July 30th. Cecilia, we are talking just ahead of the start of what is probably the most anticipated hearing in the history of the tech industry. So just to begin, why is this hearing happening at all. This hearing is happening because there is a recognition across government that these four very powerful and very important companies to the economy have become so dominant that they are harming consumers and harming competition. So Congress has summoned the CEOs of the corporations, CEOs of the corporations, Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook, and Sundar Pichai of Google, to ask them and interrogate them on their business practices and find out if these internet giants that have become, in many ways, the new trusts of our economy, if they are harming consumers and competition. So how exactly do we get to this point where these four executives are being summoned before

Congress and being forced to confront that question? I think you can start with the 2016 presidential election that really was a wake-up call in Washington and across the world, really, about the power of these social media platforms to be used for harm, not just for entertainment and good. The presidential election of 2020 in the United States then really picked up on this feeling of concern. I'm deeply concerned right now that the space around companies like Amazon, Facebook, Google is now referred to by venture capitalists as the kill zone. And we saw for the first time a political candidate, Elizabeth Warren, announced her promise to break up big tech. Break those things apart and we will have a much more competitive, robust market in

America. That's how capitalism should work. This was the first time that even the real term big tech became sort of part of our lexicon. Right. And almost like a kind of epithet. Absolutely. You have criticized a lot of big banks. Today you're talking about breaking up big tech. Why? So here's the deal. We need real competition in this field. And there's a problem. And there was a domino effect after that. So I think that Google and Twitter and Facebook. Donald Trump. They're really treading on very, very troubled territory, and they have to be careful. It's not fair to large portions of the population. I'm also really disappointed in a lot of the tech companies. Hillary Clinton, Bernie Sanders.

I think we need vigorous antitrust legislation in this country. All articulated similar concerns about big tech. They have incredible power over the economy, over the political, over the political life of this country in a very dangerous sense. Soon after, the ground moved underneath the technology companies in Washington. In the span of one week in June 2019, the Department of Justice, the Federal Trade Commission, and state attorneys generals all announced that they had opened

investigations into the biggest technology companies. It was unprecedented. These companies have not been investigated except for Google on antitrust grounds before in the United States. And beyond that, it was a real recognition to put these four companies into a cohort. these four companies into a cohort. I wonder if you can briefly walk us through how each of these companies' behavior has gotten them to this point, into this hearing room. Because these four companies are all big

and they're all tech, but they're actually all pretty different, right? So what exactly has each done that people during this hearing are going to be confronting them about? So in the case of Amazon, the accusation is that it is both a retailer and it is a platform for third-party sellers. In other words, you know, another small business that might sell, let's say a face mask or tissue paper that will sell their goods on Amazon. And the accusation is that Amazon abuses its position

and its clout to make sure that their own products will always perform better than these third parties. And they also use the data and the intelligence they have to suppress and to charge these third-party sellers more. In the case of Apple, the accusation is that it unfairly uses its clout over the App Store. I mean, the App Store is huge it unfairly uses its clout over the App Store. I mean, the App Store is huge.

It has more than a million apps on it. And it uses its power over the platform to block rivals and to force the apps that are on the App Store to pay high commissions. Facebook, the accusation is that it is a monopoly in social networking and that it has acquired rivals like Instagram and WhatsApp to maintain its monopoly and in the process really killed off competition on the internet. In the case of Google, the accusation is that it uses its dominant position in search and online advertising and in the Android smartphone market to crush rivals and to continue to maintain its dominance in all of those marketplaces. So the common theme here is size, dominance, and basically monopolistic conduct. Yeah. And I would say that they are different companies and they do have different business

models. But the one thing I would say they have in common is that they are different companies and they do have different business models. But the one thing I would say they have in common is that they are gatekeepers. They are actually like choke points on the Internet because they control commerce and they control communications and they control the discovery of information on the Internet. These are sort of unprecedented in their scope and they're global. Everyone around the world uses them. So listening to you talk about this hearing, the stakes of it, the questions around influence and conduct, I am inevitably reminded of... I'd like to ask our guests to please take your seats. What was probably the most famous congressional hearing of my lifetime, which was the tobacco industry hearings of 1994.

For the first time ever, the chief executive officers of our nation's tobacco companies are testifying together before the United States Congress. And of course, tobacco, smoking, health are different than technology. But it was a moment when the top executives of billion-dollar companies and very powerful companies in the economy The truth is that cigarettes are the single most dangerous consumer product ever sold. were summoned before Congress and really held to account in a highly public way. I similarly see the comparison to the tobacco hearings. I mean, this is the moment when you have the heads, the captains of the

biggest companies in technology, just like we saw the heads, the captains of the biggest companies of the tobacco industry have to come before Congress. If you raise your right hand, stand up, do you swear, raise their right hand, swear in, and really defend themselves as companies that are potentially harmful to society. First, I'd like to just go down the row, yes or no. Do you believe nicotine is not addictive? I believe nicotine is not addictive, yes. Mr. Johnston.

nicotine is not addictive? I believe nicotine is not addictive, yes. Mr. Johnston. Congressman, cigarettes and nicotine clearly do not meet the classic definitions of addiction. There is no intoxication. We'll take that as a no. The moment of reckoning is similar for the tech industry in the way that that was a moment of reckoning for the tobacco industry. And of course, in that case, those tobacco hearings, they were the beginning of very serious changes in how the United States regulated tobacco companies. There were big reforms, there were big fines. It was a turning point.

And if this hearing ends up feeling like a turning point for the technology industry, I wonder what the basis for whatever regulation flows from this would be. The hearing is going to be a real test of whether antitrust laws and competition laws that were first created in 1890 can actually apply to internet companies, where the companies of Silicon Valley are just so different than rail, sugar, steel, the trusts that at that time were the inspiration for trust busters like Theodore Roosevelt and others that were trying to contain the power of the big industrialists

at that time. So a lot of the conventional tests that have been used on whether a company has violated antitrust laws may not apply. And one of the biggest tests is this test known as the consumer welfare test. This is a standard that's been used for about 40 years now and very much permeates antitrust thinking in this country. And that question is, are consumers harmed? this country. And that question is, are consumers harmed? It's really hard to prove harm with a company like Google or Facebook when they can say, well, at the end of the day, our products are free. And at the end of the day, if you don't like us, we're one click away from an alternative. Well, this is going to be an interesting hearing.

It certainly will. We'll be right back. Hi, this is Cecilia Kahn and it is noon. I am in the House Judiciary Committee's hearing room in the Rayburn building. Right now we have some lawmakers and many of their aides are shuffling in all with their face masks on and there is in the middle of the room which would normally be about five rows of chairs very tightly packed together. They're all spread apart about six feet each. It's an odd scene. There's a lot of cleansing of desks and microphones. We have right now a cleanup crew coming in with their gloves and face masks, cleaning off the microphones with some alcohol, and everybody being handed Purell and hand wipes. So that's the scene a few minutes before we begin.

The subcommittee will come to order. So Cecilia, tell us how this hearing starts on Wednesday. So the hearing started just a little bit late, about one hour late, and the lawmakers, 15 of them, looked towards the back of the room at a big jumbotron type screen from their dais. And they saw the faces of the CEOs dreamed from the homes and offices of Silicon Valley and presumably Seattle with Jeff Bezos. And please unmute your microphones and raise your right hands. Do you swear or affirm under penalty of perjury that the testimony you are out to give is true and correct to the best of your knowledge? After Chairman Cicilline gavels in the hearing, he begins to ask the CEOs to introduce themselves. And Cecilia, I found these introductions, these five-minute kind of testimonials,

surprisingly personal. I think the CEOs really wanted to accomplish a lot in these opening remarks. Thank you, Chairman Cicilline, Ranking Member Sensenbrenner, and members of the subcommittee. I was born into great wealth, not monetary wealth, but as said, the wealth of a loving family.

You heard Jeff Bezos and Sundar Pichai in particular really emphasize their humble roots. My mom, Jackie, had me when she was a 17-year-old high school student in Albuquerque. Being pregnant in high school was not popular. I didn't have much access to a computer growing up in India. So you can imagine my amazement when I arrived in the U.S. for graduate school and saw an entire lab of computers to use whenever I wanted. They are known as the richest individuals in the world, and that's certainly the case with Jeff Bezos and Mark Zuckerberg.

And I think they wanted to be more relatable. Each of these companies wanted to start off right off the bat by explaining how they were scrappy for so long, and they continue to have that scrappy spirit. And then in some cases, they aren't monopolies. Many of our competitors have hundreds of millions or billions of users. Some are upstarts, but others are gatekeepers with the power to decide if we can even release our apps in their app stores to compete with them. And that, in fact, there's competition all over the world. And history shows that if we don't keep innovating, someone will

replace every company here today. And that change can often happen faster than you expect. So they wanted to set a line early on to just dispel the notion that there is a big tech kind of threat right now in our economy and that they, as individual companies, are part of a very vibrant, competitive marketplace that's changing very quickly. So then we get to the questions from lawmakers to these four CEOs. And what do you think characterize those questions overall? Well, it was fascinating, Michael. The Democrats and Republicans were very much split in their approaches. So my first question, Mr. Bichai, is why does Google steal content from honest businesses? Right off the bat, the Democrats launched into very specific questions about antitrust and the antitrust cases against each of these companies. Mr. Chairman, with respect, I disagree with that characterization.

They really used this opportunity to show off the most damning evidence that they had collected over 13 months, the hundreds of hours of interviews that they've held with employees and rivals. Conservatives are consumers too. The Republicans were very coordinated as well on one particular message. Censorship of conservative viewpoints. They believe the tech companies represented are so powerful that they're censoring public discourse. They're censoring speech. You know, I'm concerned that the people who manage the net and the four of you manage a big part of the net, you know, are ending up using this as a political screen. I was wondering throughout that line of questioning,

Cecilia, is there a case that the Republicans focusing on this idea of conservative bias kind of is related to antitrust? That ultimately these companies have a monopoly on the market of ideas? Or is this really just Republicans using this opportunity, this FaceTime with these executives, to focus on political grievances and kind of ignoring the intention of this hearing? I do think that there's a sincere belief that antitrust is related to their concerns about censorship, because they believe that the companies have become so powerful, the social media companies, and that they are right now the biggest marketplace of ideas and the biggest exchanges of information. And so they see the problem of censorship as a symptom of companies that are

too big and powerful. That's interesting. But we didn't really see much Republican focus on the more traditional idea of antitrust, meaning a business has gotten so big that it's hurting kind of all consumers and is anti-competitive to other businesses. Is that an indication that the Republicans are less concerned about big tech as an economic threat than Democrats are? Yeah, I was surprised, actually, by how little the Republican side went into the specific debates on antitrust around these companies. And you did hear, for example, James Sensenbrenner, who is the ranking member of the Antitrust Subcommittee, say that- I think the law is good. Actually, right now, the market should work itself out. And we don't need to throw it all in the wastebasket. And that things are okay right now. The laws do not need to change.

Let me ask Mr. Bezos, you know, say you were required to spin stuff off, so you might have no more of a one-stop shop. How are the consumers helped by that? And said that this test, the consumer welfare standard, this test that whether prices go up and if there are fewer options for consumers, that should remain the big test for even big tech and these tech companies. Sir, thank you. They would not be. Right. Very clear. Right.

He said the laws don't need to change. Enforcement of those antitrust laws. But that enforcement does. Indeed. He said that enforcement is appropriate. The laws just simply don't need to change. And also, we should be careful. He said, in his words, he said, being big is not inherently bad. It doesn't inherently mean that you're bad.

Okay, so let's talk about the most memorable exchanges involving each company when the focus was on the more traditional aspects of antitrust and the evidence that had been dug up in the course of this investigation. Did they focus these lines of questioning on what you had predicted? For example, Facebook, you had said, was going to be asked about its tendency to buy up competitors. Is that what happened? I definitely expected the issue of buying up competitors to come up. What I did not expect is the level of specificity that was included in

the line of questioning. I thank you, gentlemen. I now recognize the distinguished chair of the full Judiciary Committee, Mr. Nadler from New York. I was really surprised, for example, that Jerry Nadler. Mr. Zuckerberg, I want to thank you for providing us information during our investigation. Brought up and read directly from emails from the top executives at Facebook during the time when they wanted to purchase Instagram. However, the documents you provided tell a very disturbing story. And quoted from these emails the intent to, for example, neutralize competitors. You have written that Facebook can likely always just buy any competitive startups.

And the concern articulated in these emails. When Facebook contemplated acquiring Instagram, a competitive startup, you told your CFO that donations, Instagram could be very disruptive to us. And in the weeks leading up to the deal, that Instagram was going to be a big threat, saying that, quote, Instagram can meaningfully hurt us without becoming a huge business. And Mark Zuckerberg responded by saying, yes, I've been clear that Instagram was a competitor. Well, yes, Instagram is a competitor and we clearly thought they're a competitor. And by the way, I think the FTC had all of these documents and reviewed this and unanimously voted at the time not to challenge the acquisition. The FTC in 2011 approved this merger. So let's be clear that this has been vetted by the federal government. He also said that if not for Facebook and the resources that Facebook had, Instagram perhaps would not be the company it is today, the app that it is today, which is a wildly popular global app. And Jerry Nadler responded to that. Mr. Zuckerberg, you're making my point. I think you're proving my point.

He's saying you do take nascent competitors and you gobble them up and then you turn them into important parts of the executives in these emails and in these documents straight back to the executives and asking them directly to respond and defend themselves. And that was something that these executives aren't used to having to do and certainly not in front of the public. Okay, let's move on to Google. You had predicted that Google would be asked about the downside of its dominance in search? Is that what happened? Yes. David Cicilline asked Sundar Pichai about his search practices. He said, We heard throughout this investigation that Google has stolen content to build your own business. You steal content. You surface search results that are not necessarily the best search results, but that are the best search results for you and your services. These are

consistent reports. And so your testimony that that doesn't happen is really inconsistent with what we've learned during the course of the investigation. And you steal content from companies specifically like Yelp, which is a restaurant review site. And you use that content to help lift and benefit other Google services. David Cicilline's accusation was that Google has a walled garden of all kinds of services. And they just want users to be on their services as much as possible. to be on their services as much as possible. And as a consequence of that,

any rival is either being used or being blocked entirely from this important gateway, which is this Google search engine. And I noticed that when the chairman tried to press the CEO of Google on, for example, this allegation of stealing content from Yelp, Mr. Pichai, isn't that anti-competitive? The CEO of Google did not respond. Sundar Pichai, throughout his whole testimony, was very reserved.

Congressman, you know, when I run the company, I'm really focused on giving users what they want. We conduct ourselves to the highest standard. And often he did not reply to specific accusations. And that was the case this time as well. Happy to engage, understand the specifics, and answer your questions further. He was deflecting. And on Amazon, Cecilia, you had said that Jeff Bezos would be challenged about the way that company treats third-party vendors? How did that play out?

Several lawmakers questioned Jeff Bezos about its treatment of third-party vendors. Does Amazon ever access and use third-party seller data when making business decisions? And just a yes or no will suffice, sir. I can't answer that question, yes or no. Representative Lucy McBeth. And we've interviewed many small businesses,

and they use the words like bullying, fear, and panic to describe their relationship with Amazon. Aired the recording from one of her constituents in her district who was a bookseller on Amazon. And as we grew, we were shrinking Amazon's market share in the textbooks category. And this bookseller was delisted from the marketplace. So now in retaliation, Amazon started restricting us from selling.

And in this recording, we heard the bookseller talk about how being delisted essentially crippled her business entirely. We haven't sold a single book from the past 10 months. We were never given a reason. Amazon didn't even provide us with a notice as to why we were being restricted. There was no warning. There was no plan. What did that anecdote, that audio tape, illustrate about Amazon and this question of antitrust? I think it demonstrated that Amazon is so big. Do you think this is an acceptable way to treat someone that you described as both a partner and a customer?

And it spoke to the fact that Amazon, in a way, has become its own economy. No, Congresswoman, and I appreciate you showing me that anecdote. You could say the same thing with Apple, too, and its App Store. There's so many other companies that depend on these economies and platforms, if you will, for their livelihoods. And in a way, they've become their own sub-economies, all four of them, actually. You just mentioned Apple, and it was your prediction that this hearing would be about

the App Store and not much else. Was that true? That was the case. With Apple, Tim Cook was asked about Apple's control over its App Store. And Representative Hank Johnson, a Democrat from Georgia, asked Tim Cook, Mr. Cook, does Apple not treat all app developers equally? If he treated all apps fairly, he asked, why is it that developers have to get permission? And why is it that you charge developers 30 percent commission on average for simply operating on iPhones? If you look back at history.

What's to stop Apple from increasing its commission to 50%? Sir, we have never increased commissions in the store since the first day it operated in 2008. There's nothing to stop you from doing so, is there? What's to stop you from raising that commission price? The line of questioning really was about how Apple maintains its monopoly over that app store and make sure that it stays ahead of rivals by that dominant gateway position that they have as the controller of the app store. So we had fierce competition at the developer side and the customer side, which is essentially, it's so competitive, I would describe it as a street fight for market share in the smartphone business. And Tim Cook really didn't have a great

answer. As a great American Supreme Court Justice Louis Brandeis once said, we must make our choice. We may have democracy or we may have wealth concentrated in the hands of a few, but we can't have both. This concludes today's hearing. Without objection, this hearing is adjourned. So let's talk about how this all went. This was supposed to be big tech's big tobacco moment, as you said. But Democrats and Republicans were up to two very different things in this hearing. And I'm mindful that lawmakers have been ridiculed in the past for their kind of shallow understanding of technology in hearings like this.

And this is for tech companies that are distinctly difficult to understand because of their vastness, you know, pinning down their inner workings. And so I'm wondering if you think that this did feel like a big tobacco moment. Did this hearing accomplish what lawmakers had intended? This hearing felt like big tech's big tobacco moment in that for the first time, the four CEOs of the four biggest technology companies had to defend themselves from accusations that were pretty tough, that presented these companies in a pretty dark and negative light as brutal, dominant enterprises that are willing to squash competition

and harm consumers along the way to maintain their dominance. In that way, the hearing presented them through a lens that the companies had not before been viewed through by consumers or the public. The hearing really presented the companies as something different than just tech startups. They presented them as big enterprises, very similar to the trusts of the late 1800s and the early 1900s. At that time, the same sort of debates were swirling around whether it was good for U.S. steel or for Standard Oil to be such sprawling enterprises and to be such big actors and have so much influence.

So where does this leave us now? I mean, this culmination of a 13-month investigation, this spectacle of this hearing, what happens next? So that's a big question, Michael. I think that what you saw was agreement among the Republicans and Democrats that they were angry at these technology companies and they had a lot of concerns. But where you're going to see disagreement is what comes next in terms of legislative change, what comes next also in terms of recommendations to enforcement agencies that are actually investigating these companies at this time?

So there's going to be a lot of disagreement as to the path forward is going ahead. What does change is that these companies now really can't shake this image that they have an antitrust problem, that all of them are in some way dominant and have abused their monopoly power to harm competition and potentially to harm consumers as well. And that's not the kind of tag that any of these companies want attached to them. In other words, once you have been tagged as a trust and a monopoly, it's probably just a question of what the regulatory answer to that is. Yeah, I think it's just a question of time.

Thank you, Cecilia. Thank you. We'll be right back. Here's what else you need to know today. The Times reports that more than 150,000 people have died from the coronavirus in the U.S., a new milestone in the pandemic. The death rate, which had briefly fallen over the summer, is now rising in 23 different states, especially in Arizona, South Carolina, and

Mississippi. On average, the virus has killed 1,000 people a day over the past week alone. 1,000 people a day over the past week alone. And the governor of Oregon, Kate Brown, said that federal officers would begin to withdraw from the city of Portland today. Under an agreement between the governor and the Trump administration, Oregon State Police will provide security for the exterior of the city's federal courthouse, replacing the federal officers who had repeatedly clashed with and tear-gassed protesters there. You hear all sorts of reports about us leaving. We're not leaving until they've secured their city.

We told the governor, we told the mayor, secure your city. Even as the negotiations to leave were underway, President Trump threatened that federal agents would remain in Portland or return there. We're all prepared to do it. So in Portland, they need to clean out their city. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.