Tim Wu thinks it’s time to break up Facebook

Best known for coining the phrase “net neutrality” and his book The Master Switch, Tim Wu has a new book coming out in November called The Curse of Bigness: Antitrust in the New Gilded Age. In it, he argues compellingly for a return to aggressive antitrust enforcement in the style of Teddy Roosevelt, saying that Google, Facebook, Amazon, and other huge tech companies are a threat to democracy as they get bigger and bigger. Nilay sits down with Wu for this week's interview episode of The Vergecast. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Nilay Patel?

  This episode of The Vergecast is brought to you by Audi. The electric car has always raised questions. Can it contend with the elements? What's the range? High-speed charging, long-range capabilities, and quattro all-wheel drive? The fully-electric Audi e-tron could be the answer. Visit AudiUSA.com/e-tron to learn more and stay informed.

• 0:16Nilay Patel?

  Hey, everybody. It's Neelai from The Vergecast. This is the second of our new interview episodes we're going to start doing earlier in the week. It is Monopoly Week at The Verge. We have a whole series of articles coming out about antitrust law, monopolies, regulating big tech. And I got to sit down with Tim Wu, who you might know as the guy who invented the phrase net neutrality. He also wrote the book The Master Switch, which we have probably talked about 5,000 times on The Vergecast over the past few years. Tim has a new book coming out in November called The Curse of Bigness: Antitrust in the New Gilded Age. It's all about how we used to break up big companies like Standard Oil and AT&T. Went after Microsoft, we stopped doing it, and he thinks we should start doing it again. So Tim and I talked about how antitrust law works, where it went wrong, how we can fix it.

• 1:00Nilay Patel?

  And honestly, we talked a lot about breaking up Facebook. Check it out. All right, we're here with Tim Wu, who is the coiner of the phrase net neutrality. The last time we talked, which was years ago, you had some regrets about this phrase, but it has endured beyond your doubts. You've also wrote The Attention Merchants, a book about online advertising. You wrote Master Switch. And you have a new book coming out in November called The Curse of Bigness, which is about antitrust law. Welcome, Tim. How are you doing?

• 1:27Speaker 01

  Thank you. Great.

• 1:28Nilay Patel?

  So it's Antitrust Week at The Verge, which I think we're actually calling Monopoly Week now. It's a slightly more interesting name. And I know your book isn't coming out in November, but I really wanted to bring you on and sort of talk about the state of play in regards specifically to the big tech companies. I know you talk about them in your book. You specifically talk about breaking up Facebook as something that might be a desirable outcome. But I want to start with what's happening in the news right now, which is that Donald Trump, our president, is tweeting that he wants to regulate Google. There is animus towards big tech on sort of the right of this country. And it seems to align, in a strange way, with the idea that these companies are maybe too big and their power needs to be checked. Are you seeing that as in alignment? Are you seeing what's happening in antitrust in a different way?

• 2:12Speaker 01

  I mean, one thing that Trump does, I hesitate to ever say good things about him, but he does have his finger on populist impulses. And one of the historic things you see is when business gets really big and feels very unaccountable, there starts to be this kind of popular desire for, you know, some more control, or, you know, they need to be accountable. And frankly, Trump has been able to tap into that in all kinds of places. It's like, sometimes it's China, and trade is overwhelming us, and sometimes it's like Google, you can't control what the searches look like. You know, it doesn't make sense necessarily, but he really does have his finger on something.

• 2:53Nilay Patel?

  So what inspired you to write a book about antitrust? I mean, we've talked about the net neutrality stuff. You were at the FTC for a while. Why now is, do you think there's a time for a book about antitrust and rethinking of that?

• 3:04Speaker 01

  You know, it's a good question. I think everything has its cycle. And the moment has come where I think democracy itself is under threat from the just sheer size and power of certain industries, where they have more control over politics than people do. So I think it's been going in that direction for a while. Maybe with some of my time in the White House, I started to see very closely some of the concentration statistics and see how much more the economy was running just to a couple of big firms. I think for me, it really dovetails also with the concerns about inequality that have come up, which is linked to concentration. And finally, with the rise of more populist and nationalistic,

• 3:45Speaker 01

  even borderline fascist leaders who say, hey, listen, you know, everything's out of control, we're going to help you. I think we're in a time where we need to bring back the controls on bigness.

• 3:56Nilay Patel?

  So you say bring back. I think that's really interesting. I read the galley of your book at light speed before you showed up today. I did it as fast as I could. Probably I didn't catch everything, but you make the case that historically in America, we have been very anti-giant corporation.

• 4:11Speaker 01

  Yeah.

• 4:11Nilay Patel?

  And that was a thing that we treasured and revered, and we got away from that. Talk about that a little bit.

• 4:17Speaker 01

  Sure. I mean, what do you think the Tea Party was all about? The original Tea Party? It was an anti-monopoly protest. You know, an American tradition.

• 4:23Nilay Patel?

  The British Crown had a monopoly on tea and we threw.

• 4:26Speaker 01

  Well, the British, no, the British Crown gave British Company a monopoly on tea. And the colonialists were like, what is this? We just, this is not cool. So we're going to dress up and throw tea in the water. I mean, a lot of it was, a lot of the American Revolution was about resistance to centralized power. The Constitution is about resistance. No one entity should have too much power. And monopoly, around the turn of the 19th century, people were like, what is this? Why do we have these creatures? You know, corporations were new then, they called them trusts. Like, how do we have an entity like Standard Oil that has so much power that no one can control it? How is this compatible with the basic idea of the American Republic where everybody is finally accountable to the people?

• 5:11Speaker 01

  So, you know, I think it's time to return to these traditions. Louis Brandeis, who's one of the inspirations for this book, said, you know, we're real danger of losing who we are. We're going to become passive people who just sort of accept uncontrollable power. So, in any way, the time is here to return to the older American traditions that prized equality and thought that power should never be concentrated in too few hands.

• 5:35Nilay Patel?

  Yeah. And the idea that concentrated power is actually a threat to the government, I think, is not something that we think about anymore at all.

• 5:42Speaker 01

  It's obvious if you're in Washington.

• 5:43Nilay Patel?

  Really?

• 5:44Speaker 01

  You know, if you spend a little time there, you're like, well, you know, everyone pays lip service to the citizens and, you know, and what voters care about or so on. But they're like, you know, what does the oil industry have to say? What does tech have to say? What does the telephone industry want? You know, those are the real players. You know, they're the ones who make things happen or stop them. It's been like that for a while and somehow we accept it. One thing I'm suggesting is the more concentrated industry gets, the worse that problem gets. The more politics gets away from the people and towards, you know, what small industrial groups want.

• 6:15Nilay Patel?

  So the standard we have now, which you're saying in your book, you compellingly argue, is a new standard, is the consumer welfare standard, which says that antitrust actions have to be predicated on prices going up for consumers. We've actually talked about it in the Vergecast lots of times. That's really hard when you have a Google and a Facebook and the prices are free, when you have an Amazon that relentlessly promotes the lowering of prices, whether or not that's actually true, but they relentlessly promote the lowering of prices. And that all came out of what is called the Chicago School. And to be honest with you, I went to University of Chicago, so I feel a great deal of guilt that I paid a lot of tuition money towards the promulgation of this theory. But you're saying that standard is broken and we need to move away from it.

• 6:52Speaker 01

  That's right. And I love University of Chicago, too. I was a visiting professor there and, you know, I have a real admiration for the relentless way, but it doesn't mean you should let them run the economy. It's a little different, you know? So, yeah, you know, we get a little technical here. Antitrust became neutered over the 80s through, basically, the 2000s because the Chicago School said you shouldn't have any sort of action. It's not about power, it's not about politics, it's not about helping small producers or any of the kind of historic goals of antitrust. Instead, they said you need to prove in every single action beyond, you know, whatever standard, that we can clearly see a price

• 7:34Speaker 01

  increase here, or clearly predict that one will happen. So, you know, I don't know, Microsoft wipes out all of its competitors, okay, but can we clearly prove that therefore Microsoft Windows got more expensive or something? And that stuff's kind of hard to prove.

• 7:48Nilay Patel?

  Yeah.

• 7:49Speaker 01

  And I think anyone will agree that creates a very challenging screen where most antitrust's cases die. Sometimes it's not, most of the prices will go up, but you can't prove it because it's hard to prove. And so, basically, it created an enormous barrier to antitrust law and it has almost killed it. And that's what I'm trying to overthrow in my new book.

• 8:08Nilay Patel?

  Yeah, overthrow. That's a good word.

• 8:10Speaker 01

  Yes. You gotta tell, you gotta go for it, man.

• 8:13Nilay Patel?

  Yeah. So what's interesting to me about that is the DOJ just tried to stop the AT&T Time Warner merger. I read, you know, the opinion in that case. I wrote thousands of words about it. And to me, it seems like everybody missed the point entirely. And the D O A didn't even argue a net neutrality argument because they can't because the FCC is striking down net neutrality. But it seems like everyone missed the point, which is A T and T owns the pipe, they're gonna give preferential treatment to Time Warner content, and they're gonna not distribute Disney content the same way.

• 8:42Speaker 01

  I could not agree with you more. You know, this is what happens. You know, the economy is too important to be left to economists because it controls how we live. And we get fixated on something like, okay, if A T and T buys Time Warner, will prices go up by forty five cents a month? Like, that is what we're talking about when we should be talking about what does this mean for the power of that entity? What does this mean for their ability to discriminate among different types of content? What does it mean for a republic predicated on the idea of free speech and the sense that too few people controlling too few properties creates problems? Is this a merger that will set off a chain reaction of other mergers? Has everyone armors up and become fully vertically integrated? Yeah, I mean, those ideas are out there, but everything goes through this framework

• 9:26Speaker 01

  where we are having this insane debate, impossible for anyone to understand, who's actually a citizen and not an economist, as to, you know, how exactly this might affect cable bills in some ways. And so the law has completely lost its way. You know, I'll add to it. Facebook, over the 2010s, basically bought most of its competitors. Instagram, WhatsApp, you know, these companies that might have challenged it. And the agencies could not find any problems with these acquisitions. And I've read some analysis, and it is, you had to have a lot of training to say things as absurd as those decisions do.

• 9:58Nilay Patel?

  Wait, go into that. What do you mean by you need a lot of training to say things this absurd?

• 10:01Speaker 01

  Okay, so you ask the man on the street, are Instagram and Facebook competitors? They would be, yes. I read the analysis of the British Office of Competition, and they said, well, Facebook does not have that important a photo app. And they said Instagram in 2012 does not have advertising revenue yet, so Facebook and Instagram are not actually competitors at all. That was their conclusion.

• 10:24Nilay Patel?

  Yeah.

• 10:25Speaker 01

  So the merger goes through with no conditions. The same kind of thinking. Google was allowed to buy Waze, so a merger to Duopoly. Google bought YouTube, which I think was anti-competitive. Facebook bought WhatsApp. You know, WhatsApp was sort of a naturally more privacy-protective messenger service that might have become a sort of rival social network based on its reach.

• 10:45Nilay Patel?

  Yeah.

• 10:46Speaker 01

  That didn't happen. Now it has all the same privacy problems Facebook has.

• 10:49Nilay Patel?

  And its founders are literally leaving.

• 10:50Speaker 01

  Yeah, they're leaving.

• 10:51Nilay Patel?

  They're so unhappy.

• 10:51Speaker 01

  I mean, one of the things that people predict will happen is if you have a merger to monopoly, it's either you'll raise prices or you decrease quality. One way you measure quality is privacy protection, right? So we all have this thing where one of the reasons we have such terrible privacy protections is because we've allowed mergers to monopoly or duopoly in the online space. And, you know, neither Google or Facebook has any real reason to have to give you real privacy protections because, well, you know, what's the alternative?

• 11:18Nilay Patel?

  So a counterargument to this is so many startups in the valley are literally created because they see a hole in Facebook's product or Google's product, and they know that's a good exit, right? Is that the wrong incentive? Can you change that incentive?

• 11:30Speaker 01

  I think if we have a tech economy entirely premised on the idea that monopolists may one day buy the underlying thing, it really limits what can happen. I mean, Google and Facebook didn't start that way.

• 11:41Nilay Patel?

  Yeah.

• 11:42Speaker 01

  Google was like, hey, we can do search better. Let's do it. Now it's like, uh, well, let's not try and do search better because that's Google's, and if we try to do that, we'll be destroyed. Let's try and find some tiny little niche. That's one reason I think that a lot of innovation, to my mind, like really profound innovation, no one's willing to fund it because it's like, well, you're not going to displace Facebook or Google. So, you know, we'll go around the edges somewhere and try and find some cute little thing that doesn't bother anybody too much and get bought out. You know, I think that's a problem. I think, look, I think buyouts are part of innovation incentives, but I think you also have to have room for the debt-clearing thing that is really trying to change everything.

• 12:16Nilay Patel?

  Yeah.

• 12:16Speaker 01

  Now, that's why some of it's going through cryptocurrency. It's another, another conversation. But I think everyone's, you know, kind of steering way away from the monopolists, and I think it's hurting innovation in the tech sector.

• 12:26Nilay Patel?

  Well, one argument would be that that's why there's so much action in cryptocurrency, right? This is done. We can't win. Let's put all of this energy into something wild. But you're saying that's not necessarily the best outcome.

• 12:36Speaker 01

  Well, I'm saying it would be nice if you could, and it's important, I think, to an economy, that we not have an IBM, we not have a Microsoft, we not have a company.

• 12:45Nilay Patel?

  You mean of those scales? Like, Microsoft can exist in your mind, but not at its dominant scale.

• 12:49Speaker 01

  No, no, no, no, I mean, you can't have, you can't have this, it's bad for the economy when you have, you know, Europe's had this, and Japan has had this problem, where they have kind of these lingering monopolists who are there for decades, like AT&T back in the old days. Nobody dares really challenge them, and the sector's kind of become dead after a while. You know, it's like, what's going on with tech innovation in Japan over the 90s? It's like, Japan, everyone's like, oh my god, Japan's gonna pass America. But they never broke up their telecom monopolist. So, everything was like, well, don't disturb the mothership.

• 13:20Nilay Patel?

  Yeah.

• 13:21Speaker 01

  And I think there's a really profound difference in the kind of innovation you see when people are afraid of, like, disturbing the mothership versus what you do when you sense a real opportunity.

• 13:32Nilay Patel?

  So, let me add, just the big, sort of, five. You think Google obviously has a monopoly on search.

• 13:37Speaker 01

  Mm-hmm.

• 13:37Nilay Patel?

  Facebook has a monopoly on, what, social networking?

• 13:39Speaker 01

  I guess it'd be some, you know, I guess that's how to find the market, yeah.

• 13:42Nilay Patel?

  Do you think Apple is a monopolist?

• 13:44Speaker 01

  You know, that's a good question. Actually, I don't think so. It sort of depends on how you think the iPhone is its own product, or whether it competes with Android, but I think it does compete with Android, so I don't think they're a monopolist.

• 13:56Nilay Patel?

  That's interesting, because I would argue that they're, the ability of Apple to tightly control the distribution of apps on the iPhone

• 14:02Speaker 01

  Uh-huh.

• 14:02Nilay Patel?

  Leads to some very big questions about discrimination.

• 14:05Speaker 01

  Oh, now, if you're gonna ask me if I, do I think Apple does anti-competitive things?

• 14:09Nilay Patel?

  [laughing]

• 14:09Speaker 01

  Slightly different question. You kind of got me in this technical question as to whether they're, you know, whether they have, uh...

• 14:14Nilay Patel?

  Well, explain the difference for the audience, because not everybody...

• 14:16Speaker 01

  Yeah, sure, so, there's a sort, maybe, this is too much education.

• 14:20Nilay Patel?

  No, this is what, this is what the Verge has all that.

• 14:22Speaker 01

  So, you know, the technical criteria or prerequisite for the law is that you wield monopoly power, and then when you said, are you a monopolist, that means, like, do you control 70% of your market or something? So, Apple doesn't clearly control any one market, they're just very effective in their market, so that, that's what I meant by that. But I agree they do anti-competitive stuff, things that challenge them on their own app store, they're, they're not particularly friendly towards, Spotify back in the day, for example. So, yes, I do, I do think they wield the power they have.

• 14:50Nilay Patel?

  Yeah. Do you think that should be regulated?

• 14:52Speaker 01

  I think they should be continually poked and not allowed... I don't think I would want a law that's like the App Store Commission or something. But I think they should be constantly watched and poked whenever they do stuff that is blatantly anti-competitive, like, oh, someone wants to do music, but that would be a threat to iTunes. You need to poke them and make sure they.

• 15:12Nilay Patel?

  So for example, right now Netflix just removed the ability for you to sign up for Netflix inside of iOS because Apple charged a 30% fee. It's exactly what they did to Spotify.

• 15:23Speaker 01

  Yeah.

• 15:23Nilay Patel?

  Is that something that you'd want the government to poke at or the government to actually change?

• 15:27Speaker 01

  I think they should poke at Apple about all this stuff. Partially depends on whether you really think Android is a competitor to the iPhone or whether people just won't switch. Certain people just will never go to Android.

• 15:39Nilay Patel?

  Yeah.

• 15:39Speaker 01

  Right? And so, yeah, I think it should be the subject of a lot of poking. You have got me on one of the hardest questions.

• 15:45Nilay Patel?

  Yeah, I'm curious.

• 15:46Speaker 01

  It's a good question because you know, you could say, oh, you know, they're a retail store and they get their 30%. You know, the average retail store charges 50%. But the average retail store is just a store. They don't have this power that Apple has.

• 15:57Nilay Patel?

  My thinking is that if you are a platform vendor, your obligations actually change. Right? And so when you become the platform vendor, you have this set of obligations to consumers. I don't know how you would codify that into a regulation of any kind, but it seems like the second you become one of these dominant platform vendors, your set of obligations should change.

• 16:15Speaker 01

  I'm sympathetic to the idea that we're moving toward an era, if we're, we are in an era where the platforms are the most important basis of power on top of our favorite topic, net neutrality, which is the wires. So if you take that seriously and you think, well, really, the economy depends on these major platforms and so tiny decisions, then I think there's a case for, for strong oversight.

• 16:38Nilay Patel?

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• 18:04Nilay Patel?

  So moving on to the companies, we talk about Google, Facebook, Apple, Microsoft. Is Microsoft wielding anticompetitive power? Are they monopolist in some sense?

• 18:10Speaker 01

  They've kind of chilled out. You know, I mean, they had this tangle with the Justice Department. I think it's very important. Can I make a point about Microsoft and also about IBM? One of the really important things that antitrust does, I think, and what it hasn't done for 18 years now, is give a company an important lesson as to who actually rules this country. You know, Microsoft was pretty kind of out of control in the late 90s. They, any company that seemed threatening, they would just kill them.

• 18:36Nilay Patel?

  Yeah.

• 18:37Speaker 01

  They had no sense that they were accountable to the law in any real sense. And, you know, the Justice Department took a very spirited run at them, found that they had violated the antitrust law very blatantly, in fact. It wasn't even close. The effect was this sort of mellow out Microsoft. They were under watch. They had a policeman at the elbow.

• 18:54Nilay Patel?

  Yeah.

• 18:54Speaker 01

  And I think that really affected the early 2000s. So sometimes I think what you see is because Microsoft in the early 2000s had been humbled, it had this monopoly over browsers. Now, when you think about it, yeah, near 2001, I think Explorer had an 86% market share. So they own the browser market.

• 19:11Nilay Patel?

  Yeah.

• 19:12Speaker 01

  Now, if you have the old Microsoft and there's this new company called Google, and, you know, it's doing pretty good, why are you going to let Google succeed on your browser?

• 19:20Nilay Patel?

  And they didn't want to. I mean, they were pretty clear that they did not want that to happen.

• 19:22Speaker 01

  Well, but they had, this is something that some tech people don't realize, is they were being watched. Microsoft's being watched and poked very carefully. And they could have said, "Google doesn't operate in our browser." They could have said, "The default is always going to be MS," whatever they call it, MSN search, whatever. But they couldn't get away with it and they were afraid that that would bring back the Justice Department, which would break him into pieces for good. So a whole generation of companies, Microsoft, Google, Facebook, some of these early companies, they owe a sizable debt to the antitrust law. I'd add to that, you know, the same thing happened with the AT&T breakup. If you don't break up AT&T, you have this company which controls all the pipes and at that point still didn't think consumers should have modems.

• 20:07Speaker 01

  You know, they didn't think it was appropriate. So, you know, modems don't really get started. Companies like CompuServe, AOL, do they? How do they get started? So you have this, I think, really important role of sort of taming the beast in the tech industries. IBM's another similar story, I can go on each of them if you want, that I think were overdue to do again.

• 20:28Nilay Patel?

  Yeah. You know, the thing about AT&T, it comes up in The Master Switch, comes up again in this book, that AT&T prided itself on being a monopolist. They thought they were operating in the public interest and that competition was bad. Do you think that has carried over into the modern era where the Facebooks, the Googles of the world, think competition is bad? Or is there a different tenor to the conversation?

• 20:49Speaker 01

  They don't tend to say so openly. You have people like Peter Thiel, who writes that competition is for losers, that monopoly is kind of the transcendent form, that what you need to do is sort of trust in the great man who's running the monopoly firm. This is has an alluring, the lure of like the great, strong man who's going to run everything and be kind of absolute in his power. It goes back to Plato.

• 21:13Nilay Patel?

  Yeah.

• 21:14Speaker 01

  But it never really goes away. And I think some people in Silicon Valley are like, yeah, competition is for losers. What you need is one company that's kind of beneficent, that knows best for everyone and just does it. And, you know, if you're competing with other people, you might have to make compromises or you know what, it's better just to have one guy, the right guy, making all the decisions. So that's what AT&T thought. They were like, listen, we know the phone system, we know what works, this internet stuff is never going to work, packet switching is too flaky, too weird, too unreliable. What you need is like perfect networking with circuits, a little technical, everything's guaranteed. And, you know, free for all is a disaster.

• 21:56Speaker 01

  And the problem always is that we're unable to realize our own limitations. You know, so AT&T, break the suspense was wrong about the internet.

• 22:06Speaker 01

  You know, packet switching was better than they thought. The TCP IP protocol worked for a lot of stuff. You know, they thought, okay, maybe it's okay for email. It'll never work for video. It'll never work.

• 22:17Nilay Patel?

  And I used to read long articles, sort of in the early 2000s, about how hard packet switch video was going to be.

• 22:23Speaker 01

  Yeah, it's never gonna work.

• 22:24Nilay Patel?

  Does not appear to be the case now.

• 22:26Speaker 01

  Yeah, so, you know, basically, you gotta entrust everything at AT&T, or else you won't see the future. And I think sometimes, Google and Facebook might think of things that way, just like Leave It All Does. They're not public in saying so, but they...

• 22:38Nilay Patel?

  So Mark Zuckerberg was recently just public about it.

• 22:41Speaker 01

  Yeah.

• 22:41Nilay Patel?

  He said, "If Facebook gets harmed, a competitor likely from China will fill the space." And he asked Caris Schwisher and Rika Dika, "Do you want that to happen?" And I honestly, I don't know the answer to that question, but I think he is thinking of himself in that way. Like, Facebook is the biggest thing. I'm in charge of it. I know I'm trying to do good in this world. And if I go away, like, somebody else will do it, and you might not trust them. I think that argument is very dangerous, actually.

• 23:05Speaker 01

  It's extremely dangerous. I mean, it is, it is, like I've said, it has, historically, in politics as well as in business, supported the rise of dictatorships and authoritarian governments, and also supported the rise of monopolists, and, you know, who come to be trusted. But the countries who have listened to those arguments in the long run really suffer. Most of Europe was like, you know, they're right, the telecom, like Deutsche Telekom.

• 23:29Nilay Patel?

  Yeah.

• 23:29Speaker 01

  Deutsche Telekom knows what's going on. We're not gonna mess with them. And so, you know, Europe basically lost a generation, because they listened to their phone operators, who told them that, you know, the internet was never gonna work. And I think Facebook is exactly in the same position. They're trying to set themselves up as kind of the regulated monopolist for the foreseeable future.

• 23:49Nilay Patel?

  By the time the audience hears this podcast, Facebook, Google, a bunch of companies will be testifying on Capitol Hill. Do you think that's why they're pushing towards, "Hey, we're open to regulation"? Because if they make that compromise, their size and existence is guaranteed?

• 24:02Speaker 01

  I think Facebook knows that making peace is essential to its future. Historically, it is true that regulated monopolists do gain protections from competition. Facebook has this deep insecurity. They know their product's not that good. Right, there's nothing exciting. There's never been anything like, oh, Facebook. What an incredible product. You know, Google, when the first time I used Google Search, I was like, holy shit, this is good.

• 24:26Nilay Patel?

  Yeah.

• 24:27Speaker 01

  Right? The first time you order something, and the first time I used Facebook, I was like, that's it? I mean, look, it doesn't crash, unlike Friendster. It wasn't as bad as MySpace, but you can't be like, oh, here's this like giant leap forward. It's like, okay, it works. So they have that kind of insecurity and, you know, they're sort of comforting. Yeah, I think that they see regulation as in their favor, so long as it doesn't expose them to competition.

• 24:50Nilay Patel?

  So this was the argument against the GDPR, which I think a lot of people think was ultimately a good thing, but increasing the amount of regulatory burden imposed on a company will drive smaller firms out and actually benefit the larger incumbents and make them even better.

• 25:04Speaker 01

  Yes, I have this feeling. I'm a bit more American on this stuff and less European, which is I think that anytime starting a business means mastering a really complex regulatory scheme, that that tends to discourage a lot of businesses. So I'm not too into the European approaches. That doesn't mean I don't care about privacy, but I think that something, as I said, that involves mastering regulatory schemes can slow down competition.

• 25:30Nilay Patel?

  So where do you, so that Google and the EU right now, they got to break up Android.

• 25:34Speaker 01

  Right.

• 25:35Nilay Patel?

  Saying they got to unbundle the Play Store and Play Services from Android. Is that the right remedy, or is the right remedy breaking up Google?

• 25:42Speaker 01

  I'm very much disposed towards structural remedies, which means breakups, big breakups as opposed to unbundling or kind of ongoing. It's again, I'm sort of anti-regulatory. I'm a student of Louis Brandeis, and I don't like concentrated power, whether it's private or public. You know, I make kind of an exception for net neutrality, but net neutrality is pretty straightforward. It's like, don't discriminate.

• 26:04Nilay Patel?

  Yeah.

• 26:05Speaker 01

  So yeah, I don't like these unbundling remedies. I prefer a breakup. It's somewhat challenging to ask what a Google breakup would look like. Maybe it would be like Google Europe.

• 26:15Speaker 01

  It's not a crazy idea. Google Europe facing the rest of the world. Maybe you break it vertically, so Android has to be broken off from Google and see if they can survive or not.

• 26:23Nilay Patel?

  Yeah.

• 26:23Speaker 01

  But I'm much more into the structural, break them up, reduce the concentration of industry as opposed to this sort of, we're going to try to fiddle around at the edges and make something that works.

• 26:34Nilay Patel?

  So, last week on this show, we had Microsoft's president and chief legal officer, Brad Smith. We actually didn't talk about antitrust, but he had just been at the Code Conference with Kara Swisher, and he said, he basically implied that the police at the elbow situation with Microsoft is what distracted Microsoft and made them miss mobile, which is a lot. But certainly, they were distracted, you kind of laid out. They were more careful, they were more cautious. Would you prefer to structural remedy for Microsoft?

• 27:02Speaker 01

  Yes, I think it would have been better to break Microsoft into two with Windows and the operating-

• 27:10Nilay Patel?

  And what was Appsco and-

• 27:11Speaker 01

  Yeah, some kind of thing that had all the applications and something, and see if they survive or not. Maybe WordPerfect would have beaten Word, I don't know. Yes, I would have preferred that. I will say that having Microsoft with a policeman at the elbow, I do not think was a bad thing. I think it was a really important thing for the early net economy, and I think we need it right now. I think Facebook and Google in particular need somebody to make them a little nervous about what they're doing in terms of anti-competitive actions.

• 27:39Nilay Patel?

  So, let's talk about breaking up Facebook. Which is really the reason I wanted to talk to you today, after all this preamble. And I do want to talk about Brandeis a little bit.

• 27:45Speaker 01

  Sure.

• 27:46Nilay Patel?

  How would you break up Facebook?

• 27:47Speaker 01

  Well, the easiest way to do it is you start by breaking off WhatsApp and Instagram. So, those are separate companies. And hopefully, those companies try to introduce more privacy sensitive or otherwise better social networking options. So, you know, you have another option. For Facebook, most people don't really feel like they have right now.

• 28:07Nilay Patel?

  So, you think Instagram would be a straight-on, dead-ahead competitor to Facebook?

• 28:10Speaker 01

  They'd be a little different. I mean, obviously, they're slightly, but I think they might be that and also evolve into that as well, when they realize they can do it. I mean, right now, because they're all owned by the same place, they're never really allowed to get at the mothership, and- Be a true replacement for Facebook. I think WhatsApp is even better positioned frankly to try to go at it. I mean, they've got this great messaging service. Everyone loves it. They have this enormous user base. It's like, well, maybe it could also be a nice place to share photos with your family, like a direct replacement for the core function, which is like seeing other people's grandkids or whatever that is. Like, go after that core family function.

• 28:49Nilay Patel?

  So if you can't go after Facebook with the consumer welfare standard, because all these things are free, what is the standard you would have?

• 28:54Speaker 01

  No, you can. You can. If you want. I mean, I have my own standards, but I think, I actually think the breakup of Facebook would not be hard, because what would be the harm? You know, you have three competitors. It's not one of these things where you'd be like, oh, my God, if you get rid of WhatsApp and Instagram, well, then the whole world's going to call apart. It would be like, okay, no, now you'd have some, you know, companies trying actually to offer you an alternative to Facebook, a very...

• 29:16Nilay Patel?

  But you have to prove, to reach into a private company and break it up, you need to show some harm that is caused or show some reason.

• 29:22Speaker 01

  Yes, I think it wouldn't be hard. I can get into details, but you are allowed under a law called the Clayton Act, passed in 1914, to assess mergers for their anti-competitive effects. I think if you took a hard look at the acquisition of WhatsApp and Instagram, the argument that the effects of those acquisitions have been anti-competitive would be easy to prove.

• 29:44Nilay Patel?

  Yeah.

• 29:45Speaker 01

  For a number of reasons. One was earlier, I mentioned, which was loss of quality competition. The other gets even more technical, has to do with attention markets and the idea that you had a decrease in the competition for attention, which, you know, relates to my other book, The Attention Merchants, as a result of the merger. So I don't think actually it'd be a hard case. If readers are interested, they could get into the details in some of my academic work, but I don't think it's hard.

• 30:12Nilay Patel?

  Yeah. Do you think the Trump administration is going to go that way?

• 30:14Speaker 01

  I don't know. They're actually a little unpredictable when it comes to antitrust. They're unpredictable in all ways, but, you know, the Justice Department, I mean, they did bring this AT&T case, and maybe they'll bring one. I think somebody actually might bring the case I'm describing for some of the reasons I've described. Now, you mentioned earlier, there's a sort of a lot of popular anger at Big Tech. People just think there's too much power concentrated. They like the companies, but they think they're too powerful. So I actually would not be surprised.

• 30:45Nilay Patel?

  Yeah, I've actually heard the conversation in Silicon Valley around Facebook often includes the idea that it would be broken up.

• 30:52Speaker 01

  Yeah, I mean, one thing that you could say, so the case against Google, there's a stronger case for Google that having all these things together makes it a better company. The strongest example is Google Maps integrated with Google Search.

• 31:04Nilay Patel?

  Yeah.

• 31:05Speaker 01

  Seems to make your life a little easier. You know, that's how I got here.

• 31:09Nilay Patel?

  Yeah.

• 31:09Speaker 01

  And it seems to actually be an advantage. You know, Android, is Android and Google together an advantage? Well, at least there's a case for it, but the Facebook stuff, there's just like no argument.

• 31:19Nilay Patel?

  Yeah. Yeah. One popular theory about Instagram is actually that it is effectively Facebook-like, right? That Facebook is proceeding on two tracks. There's a regular Facebook app, and then there's this other thing that Facebook could have been, which is Instagram. And Instagram is a much happier place with fewer Nazis, and that really what Facebook had always wanted to build was Instagram.

• 31:36Speaker 01

  Right. Yeah. Unless you believe, as we said, that we want one ruling master of all social networking, and it should be Mark Zuckerberg, I mean, I just don't find that very appealing argument. But unless you believe that, then there's no good reason not to break it up, actually. I would put it that way. Like, what's the argument against it?

• 31:53Nilay Patel?

  Well, I think the problem that faces is that currently, as we live in America, the case for the government to proactively up and do stuff.

• 32:01Speaker 01

  Ah, you're so right. We live in America, which has a strong and proud tradition of breaking up companies that are too big for inefficient reasons. That's what we need to reverse, is this idea that's not an American tradition. We've broken up dozens of companies.

• 32:13Nilay Patel?

  Yeah.

• 32:13Speaker 01

  Now, look, obviously, they don't like it.

• 32:14Nilay Patel?

  [laughing]

• 32:16Speaker 01

  But it's not a person, you're not, so I agree that we should not chop people into pieces, but these are corporations.

• 32:22Nilay Patel?

  Yeah.

• 32:23Speaker 01

  You know, they have subunits. Sometimes corporations divide by themselves. It's not that dramatic. And there's been this campaign to say, oh, my God, this would be like the most insane thing ever. Well, first of all, Congress has repeatedly said that this is what you're supposed to do.

• 32:36Nilay Patel?

  Yeah.

• 32:36Speaker 01

  Most recently, 1950, where they said, listen, we don't want companies to get too big. And second of all, like, nobody gets killed.

• 32:45Nilay Patel?

  Yeah.

• 32:47Nilay Patel?

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• 33:32Nilay Patel?

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• 33:37Nilay Patel?

  This takes me right into Brandeis. So, there is a movement now. So, we had the Chicago School, the Consumer Welfare Standard, which has been dominant way of thinking about antitrust for some time. You're saying, "We gotta go back to Louis Brandeis. We gotta go back to Teddy Roosevelt, basically, and start breaking up companies aggressively."

• 33:55Speaker 01

  Yes.

• 33:55Nilay Patel?

  Talk about that movement. Is it building? Is this just you and a book and you hope it starts? Is there conferences?

• 34:01Speaker 01

  No, I think it is building. I think there is a new spirit. You know, it's in a lot of different directions. The larger movement is a great sort of public dissatisfaction with the state of inequality in the United States, with the sense that corporations are above the law, too big to be accountable to anybody. Those people don't necessarily call themselves followers of Louis Brandeis.

• 34:22Nilay Patel?

  Yeah.

• 34:22Speaker 01

  But sometimes they have these instincts. And, you know, the popularity of candidates like Bernie Sanders and Elizabeth Warren is also part of it, on the left. And on the right, actually frankly, you know, I hate to say it, but it is Donald Trump who sees some of that initiative of like, you know, "We're really angry." He directs it in weird, dark ways, like, "Oh, you know, it's really the Mexicans and the Chinese who are our problems," or whatever. So, there's a lot of people who have these feelings. But Brandeis's vision is very enticing, and I, you know, sort of encourage readers to try to see if this works for them.

• 34:54Nilay Patel?

  There's two names for the movement. There's the sort of like neo-Brandeis, the new Brandeis School, and then I've heard it called hipster antitrust. Are you... The last term you coined was net neutrality, which has persisted. Which one would you pick now?

• 35:07Speaker 01

  You don't want to call anything hipster or anything.

• 35:11Speaker 01

  I was in a bar like two weeks ago and someone who was this kind of probably considered hipster 10 years ago, she was going on about how much she hates hipsters. I've never met anyone who who has a kind word to say for hipsters, including people who would look like hipsters themselves, so.

• 35:29Nilay Patel?

  So you're going with the new Brandeis?

• 35:31Speaker 01

  Yes, you know, maybe I need to work on a better better slogan. That's what I said with net neutrality too, but let's talk about re seizing the mantle of of Brandeis and maybe the return to neo progressive movement that sort of gives it 1910s kind of feeling.

• 35:46Nilay Patel?

  Well, I think you could, if you want to, look, Teddy Roosevelt was not a great progressive in many ways.

• 35:51Speaker 01

  Well, he did found the Progressive Party, by the way.

• 35:54Nilay Patel?

  Yeah, but I mean, he ran as a Republican, he'd had some horrific policies of his own, but he was the first trust buster, right?

• 35:59Speaker 01

  He was the first trust buster and he had courage, you know, if he were around today, he'd be like, what's this deal with Facebook, we got to bring them to heel. So it is a combination of Brandeis and Roosevelt. And let me just spend a moment on what I think each contributes. So Brandeis has a very alluring sense of what the economy is for. He points out that, you know, for most of us, abstract freedoms are sort of important, but our day to day is governed by our economic conditions, our job, you know, public infrastructure, schooling, all these things, the economy governs how we live. And he said, we need a society where we have a sense of freedom, both from public coercion

• 36:41Speaker 01

  government, but also private coercion, you know, where people have the right not merely to exist, but to thrive and become all that they can be. Sometimes he sounds like a guy from the 60s, California, but it's very powerful. And I really think we should structure our government that way. And one of his points was when there's too much unaccountable power, when employees have no real say, we all become kind of passive, cogs in a wheel, our lives start to lose meaning. That's an instinct that I think we need to recapture. Now Roosevelt, Theodore Roosevelt, what I like about him is he was fearless. He looked at these giant trusts, Standard Oil and JP Morgan, who made the trusts, and

• 37:23Speaker 01

  he said, we need to make it clear that America has ruled. By Americans and that, you know, the citizens are in charge and, you know, if we think a merger is anti-competitive, we're going to stop it. So, his courage is the courage that is willing to do something, take these, these actions and stand up for the people. That's a tradition I wish to return to. And having spent some time as a trust buster myself, I think what we need is an infusion of sort of energy and courage in those areas.

• 37:53Nilay Patel?

  Do you think Facebook and Google are at the level of Standard Oil?

• 37:56Speaker 01

  Uh, no.

• 37:57Nilay Patel?

  Yeah, still?

• 37:58Speaker 01

  No, they're not quite, but they're getting there. The pharmaceutical industry could use some attention, banking could use some attention, the airlines, the cable companies, you know, there's, there's a lot of sort of unaccountable power and I don't mean to say like, it's only Facebook and Google control everything. It just goes, I, I think one thing is we see them every day.

• 38:17Nilay Patel?

  Yeah.

• 38:18Speaker 01

  Airline, you only see when you have to go somewhere. I don't know why we let airline industry become three major airlines. That was like a, one of the worst failures of the Obama administration. Don't want to get into it. Or, you know, Live Nation and Ticketmaster, I mean, you see these things now and then. Google, Facebook, you see every day. But, you know, I think they have similarities and one thing is that time makes a difference. You know, if we let this problem fester for another 10 years, I don't know what Facebook is like now, but if you imagine the trends continue, it's insulated from competition. 10 more years in, Zuckerberg starts to become a little even crazier and more power hungry. You know, that's not a pretty picture.

• 38:55Nilay Patel?

  So, one thing, my co-host on the Vergecast often says, Paul Miller, is, look, big companies are stupid. They fail. And if they get big enough, they start to dawdle around and make mistakes and there's opportunities for challengers to arrive or they might just collapse on their own. And you, in the book, you bring up, there's actually diseconomies of scale at a certain point. Is time not just the remedy here? There's, Mark Zuckerberg, he'll get old, he'll make some bad decisions, you won't see the next, around the next corner and he'll fail?

• 39:21Speaker 01

  It is true that bigness is a curse and leads companies to become doddering and bad.

• 39:27Nilay Patel?

  That's good, it's the name of the book.

• 39:28Speaker 01

  Yes, it is, the curse of bigness. But where your co-host makes a mistake is assuming that the market automatically fixes those problems. Let me give you a few examples. AT&T had a monopoly for 70 years. And you know, by the 50s or 60s, they were not a great company anymore. They, as we said, were incredibly hostile to anything new. They thought they knew everything. They thought the internet was a mistake. They didn't believe in modems. They didn't believe in answering machines. They were this enormous daughter in company, but nothing could get rid of them. General Motors. How long were they around? Forty, 50, 60 years? And obviously, they should have been gone. But the market does not like work where you snap your fingers and these companies get replaced. Nothing's great about the airline industry. There's three majors.

• 40:11Speaker 01

  Their product seems to get worse every year, and they charge more for it, which is kind of an amazing... Think about the tech industry. You know, it's amazing. Airlines are in a way a tech company, right? And they are one of the few areas where the product frankly just gets worse.

• 40:26Nilay Patel?

  Yeah.

• 40:27Speaker 01

  Seats get smaller, you know, you have to pay for more things. And they're not getting displaced. So, the mythology and the problem is assuming that these companies sort of automatically go away. When they... If you wait long enough, maybe 100 years, they'll go away. But we could very well have Facebook, a inefficient, ineffective, obsolete company hanging around for another 20 years. And I'm just not really sure that's what we need.

• 40:53Nilay Patel?

  Yeah. Lay out the other standard. Because I was hoping when I said, "How'd you break out Facebook?", you would lay out the other standard. You could do it under the Clayton Act in consumer welfare. What is your other standard to preserve competition instead of focus narrowly on...

• 41:05Speaker 01

  Sure.

• 41:05Nilay Patel?

  ...making a number go down?

• 41:06Speaker 01

  So, Brandeis, when he was a Supreme Court Justice, suggested a standard which was simply you need to protect the process of competition. And usually, as a law enforcement antitrust buster, you face a situation where a small company is under attack by a larger company. And I think what we need to do is simply ask the question of whether what the large company is doing is part of the competitive process, whether they're fighting fair, whether in fact they're destroying the other company on the merits, or whether they are exceeding the bounds of what's considered fair competition and are in fact destroying or excluding that other company without any...

• 41:49Speaker 01

  Particular justification or something you might say, well, I understand that that is actually serving the competitive process. I know that sounds a little subjective, but it's not. When you go inside an agency and you're facing real cases, this is actually what you're doing.

• 42:03Nilay Patel?

  Yeah.

• 42:04Speaker 01

  They don't mess with this numbers. They look, okay, Facebook's killing Snap. Are they doing that in reasonable ways? You know, they're copying and then they're better than them? Or are they actually doing this in unfair ways? That's basically about the limit of where human minds can go.

• 42:19Nilay Patel?

  You were at the FTC and this is the work that you were doing?

• 42:21Speaker 01

  Yes, that's right. And also the New York Attorney General's Office. And that's basically what you can do. And I think that that is the standard we need to do is a protection of the process of competition and a defined jurisprudence as to what represents undue interference. It's a little bit, puts the antitrust enforcer a little bit more in the position of a referee at a football game.

• 42:40Nilay Patel?

  Yeah.

• 42:40Speaker 01

  So you can imagine like, you know, you want the game to go on, but you don't want people to be holding, doing illegal tackles, because then it ruins the game.

• 42:48Nilay Patel?

  Yeah.

• 42:49Speaker 01

  And the side that wins is the side that masters all the dirty tricks, right? And so that's the process of competition is just like that. You want competition to be something where the better product wins. And the question is, is the defendant winning because they have a better product, or they're winning because they're using dirty tricks?

• 43:05Nilay Patel?

  Yeah. So there's a line that I've heard attributed to you by way of Brandeis that I just wanted to ask about at the end here, which is the idea that antitrust is the compromise between capitalism and socialism. I've heard someone attribute it to you, but I don't actually know if it's you.

• 43:18Speaker 01

  I think it's true. I wish I'd said it. Okay, I'll say it. That, you know, antitrust is the compromise between capitalism and socialism. Socialism is not appealing to me for a number of reasons. You know, the ideals are right, but it always ends up in the same direction, which is you have to accept concentrated power, unaccountable. Most socialist economies monopolized all the industries and then put government in charge. And, you know, that didn't go so well. I'm a believer in a different faith. I'm a believer in the industry of the common man or common woman in charge of their own destiny, a nation of small businesses, small concerns, people feeling a sense of opportunity. And I think what deadens that is always excessive concentrated power, whether in government or in private

• 44:02Speaker 01

  industry, that kind of puts a lock on things. So, you know, that's the kind of country I want to live in. I wouldn't want to live in a socialist country. And I don't like living in a country where unaccountable capital faces no real check on its power.

• 44:16Nilay Patel?

  Yeah, well, that's, I think that's as good of a place to end it as we can. Thank you very much, Tim Wu. I gotta say, your book is coming out in November. You can preorder it now.

• 44:25Speaker 01

  Yeah, that's right.

• 44:25Nilay Patel?

  On Amazon.

• 44:27Speaker 01

  You can, or other places, but I don't mind people ordering on Amazon. And actually, it's a good deal. I should say, for a book, it's pretty cheap.

• 44:34Nilay Patel?

  Well, hopefully you come back again when it comes out. We can get it. I'll have read it more closely. If we can come back again when it comes out. But check out the book, The Curse of Bigness: Antitrust in the New Gilded Age. It is, I will say, on quick skin, extremely excellent. And I enjoyed reading it this morning. And Tim, thank you for being here.

• 44:49Speaker 01

  It's been a pleasure.

• 44:50Nilay Patel?

  All right, that's it. Thank you to Tim Wu. His new book, The Curse of Bigness: Antitrust in the New Gilded Age, comes out in November. You can go preorder that on Amazon, everywhere else books are sold. I highly recommend it. And let me know what you think of these new interview episodes. We really like them, but I'm dying to hear what you think. Tweet at me, I'm at Reckless. And we'll see you later this week for the Normal Vergecast. This episode of the Vergecast is brought to you by Audi e-tron. Despite all of its technology, there's a lot that the all-new Audi e-tron doesn't offer. For example, it has no tailpipe emissions and no need to fill up at the gas station. You just plug it in at home. The Quattro all-wheel drive system offers no reason not to tackle roads in almost any weather. And with long-range capabilities and high-speed charging, e-tron is a new way to think about electric mobility, which makes sense. It's the first fully electric vehicle from Audi. e-tron is built to defy the elements and upend the conventional wisdom.

• 45:35Nilay Patel?

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