The real fight between big techs – 09/29/2023 – Tech

Jeff Bezos made his fortune on a really big idea: What if a retailer did everything it could to make customers happy?

Its creation, Amazon, was fueled by energy, selling as many items as possible for the lowest possible price and delivering them as quickly as possible. The result is that US$40 (R$200) of every US$100 (around R$500) spent online in the United States goes to Amazon, and Bezos has a fortune valued at US$150 billion (around R$760 billion).

Lina Khan built her reputation on a very different idea: what if satisfying the customer wasn’t enough?

Low prices can mask behavior that stifles competition and undermines society, Khan argued in a 95-page analysis of Amazon in the Yale Law Journal. Published in 2017, when she was still a law student, it is already one of the most important academic articles of modern times.

These two very different philosophies, each driven by a fearless person willing to take risks, finally have their long-awaited confrontation.

The FTC (Federal Trade Commission), now led by Khan after his impressive rise from policy expert to policy participant, filed suit against Amazon in federal court in Seattle on Tuesday. The complaint accused Amazon of being a monopolist who used unfair and illegal tactics to maintain its power. Amazon said the lawsuit is “wrong on the facts and the law.”

Bezos, 59, no longer runs Amazon on a day-to-day basis. He handed the CEO reins to Andy Jassy two years ago. But make no mistake: Bezos is the chief executive of Amazon and owns more shares in the company than anyone else. It is his innovations, carried out over more than 20 years, that Khan is challenging. The FTC complaint cites it repeatedly.

No Zuckerberg x Musk

Silicon Valley spent the summer fascinated by the prospect of Elon Musk and Mark Zuckerberg fighting in a ring, but the chance of that actually happening is close to zero. The clash between Khan and Bezos, however, is a reality. A courtroom showdown that could have implications far beyond Amazon’s 1.5 million employees, 300 million customers and companies worth a combined $1.3 trillion.

If Khan’s arguments prevail, the competitive landscape for technology companies will be very different going forward. Big antitrust cases tend to have this effect. The government achieved only a messy victory in its pursuit of Microsoft 25 years ago. However, this still had enough force to weaken a much-feared software empire, allowing 1,000 startups to flourish, including Amazon.

This is largely due to the 34-year-old Khan. After spending a few days interviewing her and the people around her for a story in 2018, I thought she understood Bezos because she was so much like him. Very few people can see possibilities that others don’t see and be successful in pursuing them for years, and still bringing other people along with them. But these were attributes they both shared.

“How does the change in history occur?” asked Stacy Mitchell, an early Khan ally who currently serves on the executive board of the Institute for Local Self-Reliance, a research and advocacy group that promotes local power to fight corporations. “Lina captured the imagination in a way that allowed the reform movement to engage a broader set of people.”

Khan and Bezos were even similar in their silence. For years, every article about Amazon had the phrase “Amazon declined to comment,” indicating another form of control. Khan also never voluntarily gave me a piece of personal data, even if it was insignificant.

Amazon and the FTC declined to comment for this article.

Bezos: From the risk of bankruptcy to dominance

Bezos’ unlikely saga has long since become folklore. He spent his childhood summers on his grandfather’s farm in West Texas, wanted to be a theoretical physicist, but ended up becoming a Wall Street analyst. He had no retail experience. He was interested in ideas, not things.

Amazon wasn’t the first online store — not even the first online bookstore. She spent a lot of money on foolish bets and mercilessly pressured her employees. The whole venture almost collapsed during the internet company crisis in the early 2000s. But the media was fascinated by the idea, customers liked it and this gave Bezos space to act.

A former Amazon engineer described Bezos as someone who makes “ordinary obsessive controllers look like stoned hippies.” A company that puts “attendance reminder” signs on bathroom doors, telling workers they will be “evaluated for dismissal” if they clock in wrong, is a company with overwhelming ambition.

Reformers are like entrepreneurs: They are also fighting reality, trying to make room for their vision of how things could be better. Khan’s journey in confronting Amazon in federal court is, in some ways, an even less likely story than Bezos’. And so, like Bezos in Amazon’s early years, she has become a fascinating figure.

Khan and the quest to understand power

Daughter of Pakistani immigrants living in London, Khan had the natural instincts of a good journalist. At school, she participated in the school newspaper. A friend described her as someone interested in understanding power, particularly how to gain even more power. She was in her 20s when she wrote her paper about Amazon — about the same age Bezos was when he left his job on Wall Street to drive with his wife at the time, MacKenzie Scott, toward Seattle and their destination.

Antitrust law was the traditional tool used to contain companies that became too powerful. Antitrust law played an important role in the 1890s, marking the beginning of the Progressive Era, and again in the 1930s, during the New Deal. But in the early 1980s, antitrust law fell into disuse. It was reduced to one purpose: the price customers paid. If prices were low, there would be no problem.

The Microsoft case was important and influential, but it was much more of an aberration. In the early years of this century, the predominant philosophy of laissez-faire (let it do, in French) has allowed Amazon and other startups to stand out much faster than they otherwise could. Facebook and Google did not charge users anything and had an open path to domination. Six of the eight most valuable companies in the United States are technology companies – seven if we consider Tesla a technology company.

The government was slow; Silicon Valley moved fast. The electronic market would decide the fate of corporate empires. In 2015, when Khan was entering law school, almost no one was interested in promoting competition through government intervention. Criminal justice reform, environmental law, immigration — these were the topics that attracted students. She chose antitrust law, practically alone.

Amazon’s accusations against the FTC chairman

Anyone with a radical idea in Washington faces so many obstacles that it’s not surprising it happens so rarely. When Khan was nominated to be FTC chair in 2021, Amazon complained that she was biased.

“On multiple occasions, she argued that Amazon was guilty of antitrust violations and should be broken up,” the company wrote in a 25-page petition, requesting that Khan be barred from ruling on any matter related to the company.

The logic: If you are critical of a company, you cannot be allowed to be anywhere near it as a regulator. Khan survived that challenge, but it was only the first. To go against the let-it-be-it attitude of many bureaucrats requires relentless determination.

A hostile media is another obstacle. Dozens of editorials, op-eds and letters to the editor in the Wall Street Journal have criticized Khan over the past two years. They called on Congress to investigate her, argued that she didn’t understand that monopolies were actually good, and accused her of letting people die by blocking a merger between pharmaceutical companies.

Then there is also the lobby. Amazon spent $10 million in the first half of this year, five times more than in 2013. It donated money to hundreds of trade associations and nonprofits in 2021, some of which issue pro-Amazon reports without disclosing that they are funded for her. Following the “know your enemy” philosophy, Amazon has also been hiring Khan’s former colleagues at the FTC.

Going to court doesn’t bring much relief. Well acquainted with decades of consumer welfare standards, the justices are not particularly supportive of Khan’s arguments. Cases against Facebook’s parent company Meta, and more recently against Microsoft, have failed. The case against Amazon incorporates aspects of the consumer welfare standard, which may make it more palatable in court.

That’s a formidable amount of opposition. Even some of his ideological enemies are impressed that Khan is nevertheless having such a big impact. Through her intellectual strength, she is opening up a conversation about how companies are allowed to behave.

“Five years ago, you would have been laughed at if you challenged the consumer welfare standard,” said Konstantin Medvedovsky, a former antitrust lawyer who is now a hedge fund analyst. “Now serious people make this argument at important conferences and are taken seriously. That’s Lina’s triumph.”

Medvedovsky is not very sympathetic to Khan’s goals. He was one of the critics who derided the reform movement as “hipster antitrust.” Still, he said, “It’s hard not to be a little impressed.”