15 October 2020

What will the internet look like in 2030?

By Dirk Auer

On both sides of the Atlantic, lawmakers are gearing up to heavily regulate Big Tech. In the US, the House Judiciary Subcommittee on Antitrust has just released a long-awaited report on competition in digital markets. Meanwhile, the European Commission is in the middle of drafting a new Digital Services Act (“DSA”).

Both proposals are strikingly similar and, if passed into law, would significantly alter the Internet as we know it. For better or, more likely, for worse.

So what do the changes entail, and how will they affect what the internet looks like in the years to come?

For a start, Facebook, Amazon, and Google (and maybe others) would be broken up into smaller firms. Indeed, the US House report recommends stopping large internet platforms from operating at different levels of the distribution chain. That would force tech firms to divest large parts of their operations: Facebook would have to sell WhatsApp and Instagram, Google would lose Android, and Amazon’s retail platform and cloud business would also be split up.

But won’t a more competitive internet be good for consumers? Not so fast.

For a start, breaking up these companies would increase the price of online goods and services.

Think of a product like WhatsApp. Once separated from Facebook’s money-making platform, the messaging service would either have to charge fees, as it did before it was acquired by Facebook, or introduce ads.

The same is true of Android, whose profitability currently stems (to a large extent) from Google’s search engine being built in as a default. Take that away, and Android may no longer be a viable product, and almost certainly not open source and free as it is now.  Similarly, Amazon Retail would have to deal with a separate Amazon Web Services – and likely pass on the costs to consumers. And the same would apply to its logistics arm.

Sometimes this separation would lead to absurd outcomes. Imagine Netflix with no ‘Netflix originals’, or the iPhone with no App Store (since Apple currently both designs the devices and runs the app marketplace they come with).

The EU Digital Services Act will likely include provisions that trigger similar outcomes. For instance, recently revealed drafts would notably place heavy restrictions on digital firms’ ability to operate in adjacent markets.

So far, things are not looking great for the 2030 Internet. But readers may be glad to know that they will have “more choice” than today.

Indeed, both the US House report and the draft Digital Services Act would prohibit platforms from placing their own (or others’) services more favorably than those of rivals. So when they boot up a new device for the first time, users would be prompted to choose which browser (and other applications) they want as default. Similarly, shoppers would no longer be “bothered” by favorably-placed AmazonBasics goods (or the retailer’s other house brands), or Google Maps boxes when they use Google Search to look up a restaurant.

But choice can be a mixed blessing. There is a reason why so many products are sold in bundles – not just digital products but things like newspapers (a bundle of domestic and international news, comment, sports coverage and features), kitchenware (usually sold in bundles of plates, bowls, cups, and utensils) and even meal kits, which are an increasingly popular bundle of ingredients to make home cooking easier.

All of these, like digital bundles, contain complementary products that match each other in ways that make them worth more as a whole than the sum of their individual parts. The cost of forced unbundling is losing that complementarity. The browser that users end up choosing might not function as well with their device as if they’d been given one to use as a default – this kind of problem is what causes Windows’s blue screens of death.

Worse, users might install apps that contain malware, as platforms will no longer be able to act as “gatekeepers” and exclude bad apples. This is the logic of criticisms of Apple’s App Store for being too closed – the closedness is what enables Apple to give users a safe experience. Likewise, shoppers will have to ensure that the cheap goods they buy are safe and reliable; retail platforms will no longer be able to perform this function by offering house brands.

A final piece of the puzzle is that the tech industry would look quite different. Yes, small firms would theoretically be able to enter existing markets with less fear from incumbents. But they will also face new obstacles.

Regulatory barriers to entry would be much larger than today – firms would need to navigate a web of regulation imposed to enforce such rules in an ever-changing and complex technological environment. For instance, designing a compliant platform with data portability baked-in from the start will not be an easy feat. Venture capital investments may also shrink, as large platforms would find it harder to purchase startups (this is currently one of the main exit strategies for VC investors). Finally, investors would probably aim for markets that are less heavily regulated (regulation has been known to deter innovation).

Paradoxically, we might also see more ‘closed’ services than today. Indeed, if dominant platforms are prohibited from being active in adjacent markets, there is a strong incentive to design ecosystems whose building blocks cannot be construed as being separate.

This would be a great loss. Part of what makes the iOS and Android ecosystems so valuable is the vast interoperability that they currently enable. Both platforms host, literally, millions of apps. The same is true for retail platforms such as Amazon, which is home to hundreds of thousands of independent retailers. Unfortunately, in a world where retail platforms are hamstrung by regulation, the overriding incentive for entrants is to remain mere retailers.

The upshot is that regulation would noticeably diminish users’ online experience. Thankfully, there is still time for lawmakers to change course.

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Dirk Auer is Senior Fellow in Law & Economics at the International Center for Law & Economics.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.