Policing the power of tech giants - Axios
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Policing the power of tech giants

Rebecca Zisser / Axios

The world's largest tech companies — Google, Facebook, Amazon, Microsoft and Apple — have become enormous concentrations of wealth and data, drawing the attention of economists and academics who warn they're growing too powerful. "Platform companies have captured the economy," said Jonathan Taplin, who argues in a new book and a recent NYT op-ed that the dominant platforms are so big that they're undermining competition.

Our thought bubble: Despite populist promises, cracking down on Silicon Valley is not one of President Trump's near-term priorities. Makan Delhrahim, Trump's top antitrust enforcer at the Justice Department, has pledged to to enforce antitrust violations with respect to online platforms just as he would with any other industry, but insiders expect him to be cautious. And Maureen Ohlhausen, acting FTC chair, said in a recent speech that the agency has no intention of meddling in the way tech companies use algorithms and data.

Sheer size:

  • Facebook, Amazon, Apple, Microsoft and Google parent company Alphabet are the top five contributors to the S&P's 500 gains this year and their climbs helped drive the stock market's recent rally
  • These mega-cap tech stocks have earned the acronym FAAMG from Goldman for their performance, adding $660 billion in market value this year.
  • The market cap of tech giants is already greater than the GDP of large U.S. cities: On that basis, Google is bigger than Chicago, Amazon is bigger than Washington DC.
  • "It could ultimately lead to populist calls for redistribution of the increasingly concentrated wealth of Silicon Valley as the gap between tech capital & human capital grows ever-wider," according to a recent Bank Of America Merrill Lynch note.

Economists tend to agree that concentration has increased across U.S. industries, including the internet platform industry. What they don't agree on, though, is whether it's time for antitrust authorities to step in and if there's even a legal mechanism to do so.

Who's the regulator? The FCC regulates the networks these companies use to reach consumers, but not the online platforms themselves. That duty falls to the FTC, but the agency doesn't have the same rule-making authority and therefore relies on after-the-fact enforcement actions when companies mislead consumers or violate their own rules, such as privacy policies. Antitrust laws, some lawyers argue, were designed to oversee physical industries like steel and oil— not the new breed of digital commerce companies that have created entirely new markets.

"High-tech has no regulator so there's a huge policy gap" said Gene Kimmelman, CEO of consumer interest group Public Knowledge and former DOJ official under the Obama administration, who expects greater antitrust scrutiny of tech company moves. "The pot is simmering and it's getting hotter. I think it's a question of whether they overreach in an environment where people are distrustful of their power."

The case for more scrutiny: Overreaching is what Microsoft did in the late-90's, when a judge ruled it had attempted to monopolize the web browser market and unlawfully tie its web browser to its operating system, a violation of the Sherman Antitrust Act.

But the government's lack of enforcement over the past decade could lead to much stronger regulation as populist policymakers start to take notice. Gary Reback, an attorney at Carr Ferrell who led the charge against Microsoft and now does antitrust work against Google, said, "If this behavior goes unchecked for another 10 years, you're going to see the [formation of] the Internet Commerce Commission" to reign the companies in.

The antitrust sanctions against Microsoft helped lead to the startups that later displaced it, some argue.

"People don't fully appreciate that the reason we have Google and Facebook today is because there was an antitrust enforcement action against Microsoft that slowed down the ability of Microsoft to monopolize the internet, the browsers, the data, search, and so on," said Luigi Zingales, finance professor at the University of Chicago Booth School of Business. "Today's monopolies are yesterday's startups. In a good system, this keeps changing."

European regulators have taken much stronger positions against the data practices of these tech giants. Barry Lynn, head of New America's Open Markets program, thinks the EU's higher level of scrutiny is has already caught the attention of some U.S. policymakers.

The case against: Not everyone is ready to take the tech companies to task. In the complicated internet platform and data markets, it's sometimes hard to tell what's anticompetitive and what's just efficient business.

In the case of internet platforms, markets overlap and are are tough to clearly define. While Google may have 88% market share of search advertising, Facebook more than 70% of social media on mobile and Amazon 70% of the ebook market, at some level all three are competing against one another for time and attention and are moving into each others' turf.

"Each of these companies provides different things. That differentiation of platforms — search engines, social networks, vending websites, etc. — may reduce the tendency of concentration and the ability to dominate an entire market," said Michele Polo, economics professor at Italy's Bocconi University.

Market share does not necessarily equate to market power, said Michael Beckerman, CEO of the Internet Association, which represents Amazon, Facebook, Google and Microsoft in Washington D.C. Speaking on a panel about competition last week, he pointed to low barriers of entry to compete in the internet sector, and the consumers' ability to quickly switch to a new service with a single click.

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WeWork wants to take its brand beyond its own real estate

Courtesy of WeWork

WeWork is best known for its dozens of hip office buildings around the world where startups and freelancers can rent out desks by the month and mingle with each other. But the company is also working to extend its brand beyond the walls of its own buildings.

Companies "are now starting to ask if we can bring in the experience and environment to them," WeWork product chief Dave Fano told Axios of the startup's new office management services in an interview.

Why it matters: WeWork's business model has faced skepticism, especially from the real estate industry. Its potential over-reliance on the current startup boom has raised questions around its future, should there be a downturn. Showing that it's not limited to its current real estate holdings could help the company, currently valued at more than $17 billion, counter some of that skepticism.

Bringing WeWork to the office: WeWork plans to help manage and design companies' existing offices and corporate campuses on a subscription basis. The most basic service will be WeWork's own suite of office management tech tools. For companies that want more, it will deploy "community managers" who will run and manage their office space, helping it adopt the "startup" feel WeWork says many are seeking. And lastly, for those that want the full WeWork experience, it will provide design and renovation consulting services. WeWork, which first discussed its plans in April, says it can help these customers more efficiently use and manage their office space this way.

Origin: The idea came from WeWork's existing "enterprise" customers—large companies with 1,000 or more employees that have inked deals to house some of them at WeWork's buildings. Last month, these customers accounted for 30% of WeWork's sales and about 20% of its occupied office inventory, according to the company. As their co-working rentals became increasingly coveted among employees, some of these companies told WeWork that they'd like their own offices to operate in a similar way.

Two of WeWork's existing enterprise customers are currently in the process of rolling out this new service into their own offices, though the company decline to name them. IBM and Microsoft are among the big companies that have inked deals with WeWork.


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How Medicaid funding would change under the Senate health bill

The Senate health care bill would substantially reduce federal funding for all Medicaid beneficiary groups over the next two decades compared to current law, according to an analysis by Avalere, a health care consulting firm.

Why this matters: The funding cuts could encourage states to cut benefits for enrollees, payments to providers or eligibility for the program. It also saves the federal government $772 billion over 10 years, and likely much more over 20 years.


Data: Avalere Health analysis; Note: Adult age cutoff defined by state, ranging from 19-21. Seniors are 65+; Chart: Andrew Witherspoon / Axios

What the bill does:

  • Phases out enhanced federal funding for the Affordable Care Act's Medicaid expansion.
  • Caps the amount of federal funding per Medicaid enrollee. This cap grows with medical inflation beginning in 2020, but in 2025 the growth rate slows to inflation, which is tighter and causes most of the steep reductions.
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Axios Review: New Eero delivers even better Wi-Fi, albeit at a price

Eero

When it debuted a couple years ago, Eero was the first company to aggressively promote the concept of placing multiple networking boxes around the home for better Wi-Fi. Now, as Eero's second-generation product hits the market, the company is far from alone, facing competition from other startups as well as traditional networking companies like Belkin and Netgear.

Who it's good for: Anyone that has pockets of slow wi-fi in their home and doesn't already have a multi-unit system

Who it's not good for: Those whose homes are reasonably well covered, those who already have a mesh network or are particularly cost conscious, since others offer a more affordable alternative.

Our take: I eagerly bought the first Eero system due to poor in-home Wi-Fi coverage in an old San Francisco building. While it improved a bad situation, the Wi-Fi in the back of the house (where our bedroom is located) still left much to be desired. Eero's original system consisted of three identical units, while the new standard $399 system is one main system and two smaller "Eero Beacon" devices.

In testing the second-generation system, I initially tried a mix of three new devices and one older Eero and it actually made things slower. But when I went with just the new Eero-and-two-beacon system I found it delivered a significant speed bump, as measured by the Speedtest app, on the order of about 25% faster downloads.

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Waymo: Uber knew about the stolen files

Jeff Chiu / AP

Waymo is pushing back on Uber's defense, arguing in new court documents that the ride-hailing company not only knew that a former Waymo employee had downloaded proprietary files, but that it also set up legal mechanisms to cover that up.

Cover up: Waymo argues that Uber struck a deal with Anthony Levandowski, a former Waymo employee whose startup it was acquiring, that he submit to a due diligence investigation in exchange for indemnification. Uber either knew or suspected that he had stolen files in his possession and set up a legal agreement to protect both parties, says Waymo.

More: Waymo also points to other suspicious events, such as Levandowski's downloading of proprietary files onto a personal device on two occasions, and both on days that he was meeting with Uber executives. It also says it can't find text messages from Uber CEO Travis Kalanick to Levandowski, suggesting they may have been deleted. Uber has not produced all text messages between Levandowski and every witness yet.

Read here Uber's legal defense, also filed on Wednesday.

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Senior official contradicts Trump's South Korea stance

Evan Vucci / AP

On the eve of South Korean President Moon Jae-in's meeting with President Trump, a senior White House official told reporters in a background briefing that South Korea is not, in fact, a "laggard" on military burden sharing:

"South Korea in many respects is the model ally because they are spending somewhere in the order of 2.7% of their GDP on their defense. Burden sharing is always going to be part of the conversation with our allies. President Trump has made that clear, but we shouldn't view South Korea as somehow laggard on that front."

Why this matters: The senior White House official is directly contradicting Trump's long-running public statements — where he has frequently condemned South Korea for being a freeloader. This could preface a strategic shift for the administration. During the presidential campaign, Trump told CNN's Wolf Blitzer: "South Korea is a money machine but they pay us peanuts...South Korea should pay us very substantially for protecting them."

  • During Wednesday's briefing — a prelude to Moon's visit to the White House on Thursday, where he'll have cocktails and dinner with Trump — the senior White House official praised South Korea for paying an "enormous amount of money to help host U.S. troops in their country including through things like...the new base, south of Seoul, which 92% of that cost was shouldered by South Korea."

Since taking office, Trump has used far more bellicose rhetoric than his senior advisors — with the prominent exception of Steve Bannon — when it comes to South Korea:

  • Trump upset the South Koreans when he told Reuters in April he expected them to pay for the "billion dollar system," THAAD, to defend against North Korean missiles. Trump's national security adviser, H.R. McMaster, had to clean-up Trump's statement, assuring the South Koreans that "until any re-negotiation that the deal is in place, we will adhere to our word" to pay for the missile defense system.
  • Trump also told Reuters the Korean trade agreement was "a horrible deal, and we are going to renegotiate that deal or terminate it." In Wednesday's briefing the senior White House official used more diplomatic language — saying "I think they will have a friendly and frank discussion about the trade relationship."
  • The official did, however, specify the areas of tension on trade: "He will be, I think, forthright in terms of talking about things like U.S. autos and the fact that there are still some barriers to U.S. auto sales in Korea, certainly the enormous amount of steel that sometimes ends up surplus, Chinese steel that comes to the United States via South Korea."
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Mattis, Haley claim White House warning to Syria prevented attack

Jacquelyn Martin and Andrew Harnik / AP

Both Defense Secretary Mattis and U.N. Ambassador Nikki Haley are claiming President Trump's warning to Syria over chemical weapons prevented an attack.

Mattis, while on his way to a NATO meeting in Brussels Wednesday told reporters: "It appears that they took the warning seriously." When asked repeatedly how he knows Syria heeded the warning he said simply, "they didn't do it," three times.

Haley on Capitol Hill Wednesday, via The Guardian: "Due to the president's actions, we did not see an incident…I would like to think that the president saved many innocent men, women and children."

Our thought bubble: Reports on what prompted the White House statement Monday night that Syria was preparing for a possible chemical attack have been vague and at times conflicting. With so little known about the would-be attack, it's hard to assess whether the warning changed the regime's calculus.

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The story behind Trump's Medicaid argument

President Trump's rallying behind the Senate GOP's health care bill continued this afternoon as he tweeted that the bill actually increases Medicaid spending rather than cutting it:

Our thought bubble: The Senate bill would cut Medicaid spending by $772 billion over a decade from its levels under the Affordable Care Act. Some Republicans argue, as the the New York Times summed up yesterday, that health care spending under the ACA is dangerously out of control, so the Senate bill doesn't include "cuts," it simply increases Medicaid funding at a more reasonable rate.

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McMaster lays out North Korea strategy

Susan Walsh / AP

Trump's National Security Advisor H.R. McMaster laid out the way the U.S. is thinking about the North Korea problem Wednesday in three main points:

  1. "The North Korea problem is not a problem between North Korea and the United States. It's a problem between North Korea and China — and the world."
  2. A positive gain in the last few months has been "Chinese leadership's recognition that China does have a great deal of control over that situation mainly through the powers of the economic…relationship" with North Korea. This seems to diverge from Trump's stance that China has tried to exert influence but fallen short.
  3. "Denuclearization of the peninsula is the only appropriate and acceptable" solution.

Read more from Axios' Expert Voices on what the U.S. can do about North Korea, here.

On NATO: McMaster affirmed Trump is "absolutely committed to" the mutual defense protocol, known as Article Five.

On Afghanistan: McMaster said the Taliban is taking advantage of the disconnect between military action and political action in Afghanistan. He noted the previous approach of saying "let's talk to you about a political solution…but we're leaving" made little sense to him. "How does that work?"

On Russia: McMaster said the U.S. needs more tools to confront Russia's destabilizing behavior towards the U.S., including in cyberspace.

On budget: McMaster dodged a question about USAID and State Department budget cuts.

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New laptop inspections coming for U.S.-bound flights

Ted S. Warren / AP

Additional screening will soon be required before personal electronic devices (PEDs) larger than cell phones can be carried on to U.S.-bound flights, senior Department of Homeland Security officials announced Wednesday. The TSA and the State Department will also be involved in implementation.

The need for more security comes from the fact that terrorists continue to look at attacking commercial airlines as the "crown jewel," and are exploring new ways to conceal devices, DHS Secretary John Kelly said at the CNAS conference.

Why it matters: This move could have major commercial implications, but Kelly is pressing ahead because he places aviation in general, and the ability of terrorists to turn laptops into explosive devices in particular, at the top of his list of security concerns.

What to expect: As one senior DHS official put it, "if the PEDs [larger than a cellphone] are screened, they can fly. If they are not screened, they cannot fly." The officials would not discuss what the enhanced screenings will look like exactly, but added that DHS is calling for the use of next generation screening methods as well as K-9 assets. DHS is encouraging more airports to become pre-screening locations, which allows passengers to go through Customs and border security before boarding flights to the U.S., Kelly said.

If airline carriers choose to not implement these changes, the U.S. could suspend their flights to the U.S. and could not allow PEDs larger than cell phones on board at all. One DHS official said he believes every airport in the world would be able to implement these changes, however. The changes will affect 238 airports, 105 countries, and, on average, 2,000 flights per day.

Timeline: The DHS officials briefing reporters were vague about the implementation due to security reasons, noting the changes "could roll out this summer, absolutely." They ultimately claimed it was up to the airline carriers to get the changes implemented and that TSA and DHS officials stand ready to inspect the changes to approve the airlines' protocols.

The existing ban: The 10 airports in the Middle East that are already subject to a laptop ban can have those restrictions lifted if they comply with these new security measures. One DHS official clarified, "we're not rolling back those measures," but this gives those airports the opportunity to increase their security. (Those airports affected: Amman, Kuwait City, Cairo, Istanbul, Jeddah, Riyadh, Casablanca, Doha, Dubai, and Abu Dhabi.)

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Trump's latest social media salvo against "fake news"

Alex Brandon / AP

President Trump has shared videos on his official Instagram account from Project Veritas, the controversial right-wing outlet known for its deceptively-edited videos, that purport to show CNN figures — including contributor Van Jones — dismissing the federal government's Russia investigation. Trump captioned the videos, "CNN is fake news."

Sarah Huckabee Sanders yesterday: "There's a video out there circulating right now — whether it's accurate or not, I don't know — but I would encourage everybody in this room, and frankly, everybody across the country to take a look at it."

Note of caution: Per the Washington Post, Project Veritas is known for utilizing practices considered unethical in mainstream journalism, including using false identities and deceptive editing. For example, one video features a CNN producer saying there is "no smoking gun" in the Russia investigation but fails to note that he produces health and medical stories for the network — and is based in Atlanta, away from the epicenters of CNN's politics coverage in Washington and New York.