The Rising Risk of Platform Regulation

On Oct. 6, 2020, the U.S. House Judiciary Committee’s antitrust subcommittee released a 450-page report following a 16-month inquiry into the digital economy. It recommended fundamental changes to antitrust laws generally and targeted the Amazon, Apple, Facebook, and Google technology platforms specifically.1 Several weeks later, the U.S. Department of Justice filed suit against Google, accusing it of using “anticompetitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising and general search text advertising.”2 Similar regulatory initiatives aimed at platforms are underway around the world, including in the European Union, United Kingdom, Japan, Korea, and India.3

The blizzard of regulatory action swirling around platforms is producing new rules and laws, expanded powers for existing regulatory authorities, and the establishment of new regulatory authorities. These outcomes will not only affect Big Tech but also many other companies, in industries such as construction, health care, finance, energy, and industrial manufacturing, that have adopted or are considering adopting platform business models.

Few platform operators and owners have fully considered how the growing regulatory risk — which includes breakups, line-of-business restrictions, acquisition limits, and interoperability and data portability mandates — could derail their businesses. As a result, they could be caught off guard, just like many companies were caught off guard when the Sarbanes-Oxley Act of 2002 mandated board restructurings and expanded executive financial accountability in the aftermath of accounting scandals.4

The regulatory outcomes being proposed and adopted today could have varying degrees of impact on platform businesses. The most severe proposal in the House Judiciary Committee report would dictate a structural breakup, requiring “divestiture and separate ownership of each business.” This could unravel the network effects that drive platform growth and produce value. U.S. regulators have rarely pursued solutions this extreme, but there are notable exceptions, including the breakups of Standard Oil in 1911 and AT&T in 1984, and the attempted breakup of Microsoft, which settled with the DOJ in 2004. (It’s too early to say whether Google will join this list, but the DOJ complaint leaves open the possibility.)