Busting Up Big Tech is Popular, But Here’s what the US May Lose

“Our engineers are helping America remain a global leader in emerging technologies like artificial intelligence, self driving cars and quantum …

The heads of Facebook, Apple, Google and Amazon appeared before angry lawmakers Wednesday as Congress prepares to weigh new anti-monopoly regulations, including possibly breaking them up. Facebook’s Mark Zuckerberg turned to a familiar argument, saying that breaking up the big tech companies would hurt U.S. competitiveness against China in developing new technologies and America’s ability to curb Chinese influence globally.

So are U.S. tech giants an asset to the U.S. in its competition with China or a hindrance?

Google CEO Sundar Pichei answered several questions about his company’s loyalty to the United States by recounting its expanding work with the Defense Department. Ever more, he attempted to cast Google as an engine of U.S. innovation.

“Our engineers are helping America remain a global leader in emerging technologies like artificial intelligence, self driving cars and quantum computing,” he said.

Zuckerberg contrasted between what he described as Facebook’s “American” values and ideas with those of China. “China is building its own version of the internet focused on very different ideas, and they are exporting their vision to other countries,” he said in his prepared testimony.

He is not alone in this view. Daniel Castro, director of the Center for Data Innovation at the libertarian-leaning Internet Technology and Innovation Foundation, told Defense One, ”Breaking up U.S. tech firms would undercut American innovation. At a time when Chinese companies are growing more dominant in the global digital economy, U.S. policymakers should not hamstring successful tech companies.”

Eric Schmidt, Google’s former CEO who now chairs the Defense Innovation Board, has made similar statements, telling the Telegraphin May, “Chinese companies are growing faster, they have higher valuations, and they have more users than their non-Chinese counterparts…It’s very important to understand that there is a global competition around technology innovation, and China is a significant player and likely to remain so.”

But not everyone agrees. David Segal, co-founder of the left-leaning group Demand Progress, took a categorically different view, telling Defense One, “Far from stifling innovation, antitrust enforcement is necessary in order to enable it.” He pointed to what he described as “kill zones” or areas of technology development that are too close to the products that the giants produce to attract venture capital.

Legal scholar Ganesh Sitaraman argues that conflating big tech with American innovation is part of the problem. Big tech, he says, is too intricately intertwined with China to be purely American.

“The claim that big American tech companies are somehow an alternative to Chinese dominance—or, in the more extreme form, that they are competing with China on behalf of the United States—is largely backwards” he argues, in a January article for the Knight First Amendment Institute. “Big tech’s integration with China thus supports the rise and export of digital authoritarianism; deepens economic dependence that can be used as leverage against the United States in future geopolitical moments; forces companies to self-censor and contort their preferences to serve Chinese censors and officials.”

Lawmakers of both parties love to hate on big tech and its poster-child representatives, like those summoned to Wednesday’s hearing. Conservatives routinely claim that Google is censoring their speech, a line they returned to repeatedly on Wednesday. Liberals argue that Facebook doesn’t do a good enough job of calling out misinformation, especially if it might anger conservatives. Some observers worry that all of those resentments get in the way of a functional discussion about whether or not the companies are too big.

“I’m not confident that in the current environment you would see constructive solutions put forward that are not based on political retaliation, rather than a principled approach,” said Mieke Eoyang, vice president for national security at think tank Third Way.

There is ample reason for lawmakers to be suspicious of how the big tech interacts with the Chinese government. A May report from London-based research firm Top10VPN shows that Amazon provides web services to Chinese companies on a Commerce Department sanctioned “Entity” list. Google has an AI research effort in China.

Facebook, which is effectively banned in the country, is arguably the least reliant on the Chinese market. Hong Kong-based TikTok is a major competitor to Facebook-owned Instagram. But that doesn’t tell the whole story. Facebook is such a large gamer marketplace, it still makes money off of China from companies like Tencent that need Facebook’s users to play their games.

From the Pentagon’s perspective, American tech giants do offer a unique technological resource, one that does produce innovation and that arguably would not exist if they were broken up. Consider the Pentagon’s JEDI cloud program. Smaller cloud providers complained that the program’s requirements were tilted toward Amazon, the only company that many believed could meet them. Part of the reason that the JEDI contract came down to a race between Microsoft and Amazon (after Google pulled out) is because those are the companies with the largest cloud offerings, able to provide the highest level of security. It was only after visiting them that former Defense Secretary James Mattis realized that what American’s private big tech firms were doing with cloud computing was decades ahead of what the government was doing with smaller, patchwork capabilities. He also realized that cloud computing at enterprise scale was essential to real innovation in AI.

The size of that cloud capability and the amount of data available plays a big role in a company’s ability to develop next-generation AI products. Google’s compute power, and access to a massive dataset of online video footage via YouTube, was vital to the development of deep learning technologies. Facebook’s compute power and its access to billions of biometric facial records — pictures of faces — allowed it to create unique facial recognition technology to rival the human brain.

These companies developed the world’s largest compute capabilities in order to become the world’s largest companies. Busting them up could eliminate something that doesn’t exist anywhere else and actually is a driver for innovation, one that arguably requires more regulation and oversight but also that can’t be replicated at a smaller scale.

The unique resource of big tech firms is what Congress is considering in the context of these companies’ overall effects on the market, individuals, and tangled U.S. relations with China. How to do that? The answer is carefully and case by case. While Republicans and Democrats love to vilify big tech, these companies are very different from one another, even if they do have anti-competitive practices.

“I think these companies are all differently situated based on their business models. So when it comes to discussions around breaking them up, the implications are all different,” said Eoyang, “as are the unintended consequences of doing so.”

Daily Crunch: Tech CEOs face Congress

Investment in AI startups slips to three-year low — A new report from CB Insights shows historically strong but declining investing rates for AI startups.

U.S. tech giants face antitrust scrutiny, Spotify has a mixed quarter and at-home fitness startup Tempo raises funding. This is your Daily Crunch for July 29, 2020.

The big story: Tech CEOs face Congress

Amazon’s Jeff Bezos, Apple’s Tim Cook, Facebook’s Mark Zuckerberg and Google’s Sundar Pichai all appeared remotely this afternoon before the House Judiciary Antitrust Subcommittee.

Different representatives seemed to focused on very different issues: Republicans repeatedly returned to the question of whether the large tech platforms are suppressing conservative viewpoints, while Democrats seemed more concerned about potentially anticompetitive behavior.

For example, citing newly revealed emails sent by Zuckerberg to other Facebook executives, Rep. Jerry Nadler declared, “Facebook saw Instagram as a powerful threat that could siphon business away from Facebook so rather than compete with it, Facebook bought it.” And Rep. Val Demings (like Nadler, a Democrat) suggested that Google was responsible for “effectively destroying anonymity on the internet.”

The tech giants

Spotify users are streaming again, but ad revenues still suffer due to COVID crisis — In its latest earnings report, Spotify said it grew its active monthly users by 29%, reaching 299 million.

Google One now offers free phone backups up to 15GB on Android and iOSGoogle One is Google’s subscription program for buying additional storage and live support, and it’s getting an update.

Samsung reportedly considering a Google deal that would deprioritize Bixby — That’s according to Reuters.

Startups, funding and venture capital

Mirror competitor Tempo raises a $60M Series B — The news comes almost exactly a month after Mirror, one of the San Francisco-based company’s chief competitors, was acquired by fitness brand Lululemon for $500 million.

Remitly raises $85M at a $1.5B valuation, says money transfer business has surged — CEO Matt Oppenheimer told us that customer growth has increased by 200% compared to a year ago.

LA’s consumer goods rental service, Joymode, sells to the NYC retail investment firm, XRC Labs — Joymode’s founder Joe Fernandez will continue on as an advisor to the startup as it moves to pivot its business to focus on retail partnerships.

Advice and analysis from Extra Crunch

How to time your Series A fundraise — At our Early Stage event last week, Emergence Capital’s Jake Saper said that finding the right time to fundraise requires a micro- and macro-level strategy.

Investment in AI startups slips to three-year low — A new report from CB Insights shows historically strong but declining investing rates for AI startups.

Where is voice tech going? — One of the biggest stories in emerging technology is the growth of different types of voice assistants.

(Reminder: Extra Crunch is our subscription membership program, which aims to democratize information about startups. You can sign up here.)

Everything else

Walmart launches its own voice assistant, ‘Ask Sam,’ initially for employee use — The tool allows Walmart employees to look up prices, access store maps, find products, view sales information, check email and more.

The Hummer EV is shaping up to be GM’s electric answer to the Ford Bronco and Tesla Cybertruck — GM just released its first look at the vehicle, which was announced pre-COVID, at the Super Bowl.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

Silicon Valley places bets on India

Other recent Bay Area investors in Jio include Silver Lake Partners, TPG and Intel Capital. In July Google announced a larger investment of $10 billion …

As the list of issues with China lengthens, the US and India are drawing closer together. As they do Silicon Valley companies are starting to place their bets.

In January of this year, California’s Lieutenant Governor led a Bay Area delegation to India. It found strong opportunities to expand trade and investment. Since then much has changed, but much has not. Like all economies today India has been severely impacted by the coronavirus pandemic. The IMF is projecting an economic contraction of 4.5% this year, followed by a 6% rebound in 2021.

More important than today’s growth rates, however, are the long-term forces driving them: economic reform and massive digitization of the economy that is creating expansive new digital markets – estimated at $710 billion by 2024.

One benchmark is the World Bank’s annual Ease of Doing Business Index. In 2019 India ranked 77 out of 190 countries, moving up 20 places from 2018. The latest Index (2020) shows India improving its position further to 63 of 190, advancing another 14 slots. Much of this momentum can be attributed to continued economic reform as Prime Minister Narendra Modi began his second term, reforms that will likely continue for the remainder of his tenure.

Another key measure, driven by digitization, is an increased investment from Silicon Valley. As several recent examples:

  • Taiwan manufacturer Foxconn has announced plans to invest up to$1 billion to expand a factory in Southern India that assembles Apple iPhones, as Apple shifts some production out of China.
  • In April Facebook announced a $5.7 billion investment – its largest ever – in India’s cellular internet company Jio Platforms, with Google adding another $4.5 billion in July. Other recent Bay Area investors in Jio include Silver Lake Partners, TPG and Intel Capital.
  • In July Google announced a larger investment of $10 billion; the India Digitization Fund, through equity investment and partnerships, will focus on digital infrastructure and on new products and services for the Indian market, including affordable access in local languages and digital transformation in sectors such as health and education.
  • Also in July Sequoia Capital announced commitments of $525 and $825 million – $1.3 billion total – to two new venture funds targeting India and Southeast Asia (Sequoia manages its Southeast Asia investments from India.) With hundreds of millions of connected smartphone users, Southeast Asia’s internet economy reached $100 billion last year, up 40% from 2018.

As regional tensions with China have increased, the US and India – two democracies with market-based systems – are drawing closer strategically. Border clashes between China and India in June led India’s government to ban 59 Chinese apps including TikTok and Tencent Holdings’ WeChat, a setback for Chinese ambitions for the Indian market that is opening doors for Silicon Valley companies such as Facebook’s Instagram. Huawei is also scaling back its presence.

While China’s market and manufacturing capacity remain enormous, the evidence is growing that India and Southeast Asia will offer increasingly attractive opportunities in a diverse Indo-Pacific market and that Silicon Valley companies are taking notice.

5 things to know before the stock market opens on Wednesday

Expectations for any changes to the Fed’s overnight rate are at zero, according to the CME Group’s FedWatch tool. Fed Chairman Jerome Powell is …

The CEOs of Apple, Amazon, Facebook and Google-parent Alphabet were all set to testify before the House Antitrust Subcommittee on Wednesday. The testimony, which will be given over video conferencing, will give lawmakers and investors insight on how these massive companies are grappling with the antitrust concerns that have been brewing over the past few years. These stocks are among the market stalwarts of 2020, with Amazon rallying more than 60% year to date and Apple jumping 27% in that time. Both Facebook and Alphabet are up more than 12% in 2020.

US prosecutors seek 27 months imprisonment for former Uber self-driving head

(Reuters) – U.S. prosecutors are seeking 27 months of imprisonment for the former head of Uber’s self-driving technology unit, Anthony Levandowski, …

(Reuters) – U.S. prosecutors are seeking 27 months of imprisonment for the former head of Uber’s self-driving technology unit, Anthony Levandowski, who agreed to plead guilty in March for taking sensitive documents from his former employer Google before joining Uber.

Federal prosecutors are also seeking three years of supervised release and an agreed-upon restitution payment of nearly $756,500 to Alphabet Inc’s self-driving car company Waymo, according to the court papers filed in the U.S. District Court for Northern District of California.

Levandowski’s attorneys have asked for 12 months of home confinement for him, with an obligation to perform community service, and a $95,000 fine, the court papers added.

“It is, unfortunately, no exaggeration to say that a prison sentence today can amount to the imposition of a serious health crisis, even a death sentence, given the BOP’s (Federal Bureau of Prisons) current inability to control the spread of the coronavirus,” Levandowski’s attorneys wrote.

The case stemmed from accusations by Google and its sister company Waymo in 2017 that Uber jump-started its own self-driving car development with trade secrets and staff that Levandowski unlawfully took from Google.

Uber issued company stock to Alphabet and revised its software to settle the case, and the Department of Justice later announced a 33-count criminal indictment against Levandowski.

Levandowski filed for bankruptcy protection in March, shortly after a court confirmed that he must pay $179 million to Google to end a legal battle over his split from the Alphabet Inc unit.

(Reporting by Sabahatjahan Contractor in Bengaluru; Editing by Saumyadeb Chakrabarty)