US government is not serious about a Big Techmandate
by Greg Rodman W ashington is saying that it is cracking down on Big Tech’s free-wheeling practices with the Department of Justice conducting a broad review of tech companies in addition to a reported antitrust investigation of Google, and Facebook disclosed in a new antitrust probe by the Federal Trade Commission in July. However, when issues have been uncovered the minimal penalties that have been imposed on these companies for violations in the past few years is a joke when compared to the revenues and size of the companies involved, showing that the U.S. government is not yet prepared to take actions that will fundamentally change the industry and the way it practices business today or in the future. Recently, the Federal Trade Commission hit Google-owned YouTube with a record fine for allegedly violating privacy protections for children and that YouTube would need to pay $170 million to settle the claims. But does that really send a message? This penalty is just a fraction of the revenue Alphabet generates in a single day. Based on its second quarter 2019 earnings, Alphabet averages more than $400 million in revenue daily. So that penalty is wiped out in about 10 hours for the company. If this sounds familiar it should as it is the third agreement the Federal Trade Commission has reached with Google since 2011, when it charged the company with using “deceptive” privacy practices at the launch of its now-defunct social network. In 2012, the agency hit Google with a $22.5 million penalty, its highest ever for a violation of a commission order at the time, over charges that it misrepresented its ad-targeting practices to consumers. But this is not just a Google issue, the Federal Trade Commission went through a similar public inquiry into Facebook a few months ago. The agency imposed a $5 billion fine, its largest ever on a tech company, over alleged violations of a previous privacy agreement. What does that mean for Facebook, well that fine is about one month’s worth of revenue for the company based on its second quarter earnings report of almost $17 billion.
During an interview on “Closing Bell,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, told CNBC, “I don’t concede that the punishment here was inadequate. I think that it is consistent with our prior cases, with our prior COPPA [Children’s Online Privacy Protection Act] cases, it’s consistent with the penalties we’ve sought and obtained in those cases. It just happens to be so much larger because YouTube is so much larger. But I do think that this is a penalty that sends a strong message to the marketplace and I have to respectfully disagree with the detractors.” So, are these penalties hurting or helping the company? Well for Google it appears to be business as usual with stock price up more than 260 percent since the time of its historic 2012 FTC penalty and the company’s now worth more than $800 billion meaning that both revenue and profits have more than doubled for the company. Google faces criticism and fines from government officials, but so far have not been able to force Big Tech to make real changes to the industry. Why you may ask? Well it is very simple, companies like Google do not sit around and take a reactive approach to what the government in Washington is doing. The company was one of the top lobbying spenders among its peers in 2018, according to the Center for Responsive Politics, spending $21.7 million. While it’s since eased off some of its lobbying the company still reported spending $2.9 million on lobbying in the second quarter of 2019, compared with $5.8 million in the same quarter last year, which gives them a big voice in Washington. The government could force real change on the tech industry by mandating they alter their fundamental business operations, but it will have to be seen if Washington is willing to do so now or in the future.
SPOTLIGHT ON BUSINESS MAGAZINE • OCTOBER 2019
49 OCTOBER 2019 • SPOTLIGHT ON BUSINESS MAGAZINE
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