The New York Times - USA (2020-07-31)

B4 Y THE NEW YORK TIMES BUSINESS FRIDAY, JULY 31, 2020 K

issued thinly veiled threats to
Kevin Systrom, the co-founder of
Instagram, about what would
happen to his company if he
refused to sell.
An honest Mr. Zuckerberg
might have replied, “Yes, Con-
gresswoman, like most success-
ful tech companies, we acquire
potential competitors all the
time, and copy the ones we can’t
buy. That’s how we’ve avoided
going extinct like MySpace or
Friendster, and we’re about to do
it again with Instagram Reels,
our new TikTok clone.” That
would have been an illuminating
answer, and one that could have
let lawmakers in on the kill-or-
be-killed ethos of Silicon Valley.
Instead, he dodged and weaved,
trying to explain away the emails
without admitting the obvious.
He did the same thing when
Representative Hank Johnson,
Democrat of Georgia, pressed
him for answers about Facebook
Research — an app that was
used to snoop on users’ smart-
phone usage and give Facebook
detailed data about its competi-
tors. Mr. Zuckerberg initially said
he wasn’t familiar with the app,
even though Apple’s decision to
bar it from its App Store nearly
caused a meltdown at his com-
pany last year. (He later said he
misspoke, and that he remem-
bered it.)
I don’t mean to pick on Mr.
Zuckerberg. Every other witness
at Wednesday’s hearing — Jeff
Bezos of Amazon, Sundar Pichai
of Google and Tim Cook of Apple
— also dodged lawmakers’ most
pointed questions, or professed
their ignorance.
The result was a hearing that,
at times, felt less like a reckoning
than an attempted gaslighting —
a group of savvy executives
trying to convince lawmakers
that the evidence that their
yearslong antitrust investigation
had dug up wasn’t really evi-
dence of anything.
The performance wasn’t par-

ticularly convincing. You don’t

become a tech mogul by being

sloppy or forgetful, and it strains

credulity to imagine that these

four hypercompetitive, detail-

obsessed men — all of whom had

many weeks to prepare for

Wednesday’s hearing — simply

didn’t remember major decisions

they’d made.

At one point, Mr. Bezos was

asked about a recent Wall Street

Journal report that Amazon had

set up a venture capital fund to

invest in start-ups, only to then

introduce its own versions of

those start-ups’ products.

“I don’t know the specifics of

that situation,” Mr. Bezos replied.

At another point, Mr. Pichai,

asked to explain whether it was

anticompetitive for Google to

threaten to delist Yelp if it didn’t

allow the company’s search

engine to use its listings in its

featured snippets, said he was

“happy to engage and under-

stand the specifics” at a later

date. Yelp has complained pub-

licly about Google’s search en-

gine for years.

And confronted with emails

acquired by House investigators

in which Apple employees prom-

ised to fast-track a company

through its App Store approval

process — a seeming contradic-

tion of Mr. Cook’s assertion that

it treated all developers equally

— Mr. Cook responded, “I don’t

know about that, sir.”

Give the executives this: It’s

hard to have nuanced conversa-

tions about complex and often

technical topics in front of an

audience of hostile politicians,

some of whom seemed more

interested in generating fiery

clips for their Facebook pages

than investigating antitrust

concerns. And the panel’s format

— rapid-fire rounds of question-

ing conducted over video confer-

ence, with each member given

only five minutes at a time to

question the witnesses — nearly

guaranteed that the conversation

would remain surface-level.

In addition, many Republican

members of the subcommittee

seemed to have no interest in

antitrust issues at all, preferring

instead to ride partisan hobby

horses like claims of anti-conser-

vative bias on social media.

But many Democratic mem-

bers came armed with real,

substantive questions that de-

served a fuller airing. The execu-

tives’ choice to sidestep these

questions — or their inability to

answer before being cut off —

may signal that they still believe

they can run circles around

Congress without engaging in

hard, detailed conversations

about how they exercise their

power.

That may have been a reason-

able conclusion to draw after the

last several years, a period in

which Silicon Valley giants added

hundreds of billions of dollars in

market value while Washington

barely gave it a passing glance.

Despite plenty of clamoring,

lawmakers have failed to pass

any meaningful privacy or data

protection laws during President

Trump’s time in office, and Mr.

Trump has shown little interest

in any tech regulation that does

not involve his own Twitter ac-

count.

But it is less clear that a say-

nothing strategy will continue to

work, now that lawmakers have

begun doing their homework.

Sure, some members of Congress

may still need their iPhones

explained to them, but there is

real expertise on Capitol Hill that

wasn’t there even a year ago,

and new allies who are willing to

give Congress the ammunition it

needs.

When Mr. Zuckerberg ap-

peared before Congress in 2018,

tech expertise in Washington

was a rare commodity. Now,

antitrust experts schooled in the

intricacies of tech platforms are

helping Congress investigate.

One such specialist, Lina

Khan, whose analysis of Ama-

zon’s anti-competitive business

practices made her a star of the

“hipster antitrust” movement,

appeared at Wednesday’s hear-

ing sitting behind Representative

David Cicilline of Rhode Island,

whom she now advises. Tech

industry leaders, who once re-

frained from criticizing their

fellow titans out of courtesy or

cowardice, are now speaking up

about issues like the 30 percent

cut Apple takes from purchases

made through its App Store. And

if Mr. Trump loses his re-election

bid in November, the calls from

Democrats to break up or regu-

late big tech companies will only

grow louder.

None of this necessarily means

that Congress is on the verge of

reining in Silicon Valley’s ex-

cesses. There are still plenty of

lawmakers who would rather

focus on promoting dubious

claims of partisan censorship on

Facebook, or complaining about

fund-raising emails getting stuck

in constituents’ spam filters. And

tech companies’ generally good

reputations with Americans —

not to mention their deep lobby-

ing pockets — may protect them

in the end.

But at certain moments on

Wednesday, each of the four tech

executives appeared to be taken

off guard by the rigor and depth

of the questions they faced. If

they were expecting to teach

Tech 101 to a group of clueless

lawmakers, they instead found

themselves in the principal’s

office, being confronted with

evidence of the spitballs they’d

thrown. And they must have

realized, in those moments, that

they were seeing the beginnings

of accountability.

Sundar Pichai, the chief executive of Alphabet, Google’s parent company, was one of four Big Tech leaders who dodged pointed questions by lawmakers.

MANDEL NGAN/POOL

Big Tech, on Hot Seat, Turns Up Gaslight

Evasive answers

don’t fly as

lawmakers become

more informed.

FROM FIRST BUSINESS PAGE

ing director of equity research at

Wedbush Securities. “As many

companies are falling by the way-

side, the tech stalwarts continue

to gain muscle and power in this

environment.”

The tech companies’ financial

performance was a remarkable

contrast to the overall health of

the U.S. economy. The Commerce

Department said on Thursday

that the country’s gross domestic

product fell 9.5 percent in the sec-

ond quarter of the year as con-

sumers cut back spending. It was

the steepest drop on record.

Combined, the companies re-

ported $28.6 billion in quarterly

net profit, underscoring how regu-

latory scrutiny remains more

background noise and a distrac-

tion for them rather than an immi-

nent threat to their businesses.

On Wednesday, a congressional

antitrust panel questioned the

companies’ leaders — Jeff Bezos

of Amazon, Tim Cook of Apple,

Mark Zuckerberg of Facebook

and Sundar Pichai of Alphabet —

about their market power and

business practices.

It was part of a broader inquiry

by regulators and lawmakers into

the dominance of the tech giants,

with open investigations from the

Justice Department, the Federal

Trade Commission and state at-

torneys general.

The spectacle of the chief exec-

utives of the four companies,

worth nearly $5 trillion by market

capitalization combined, appear-

ing before a House subcommittee

was historic. But antitrust investi-

gations often take years, espe-

cially if regulators seek more

drastic measures like breaking up

companies.

The pandemic has reinforced

the advantages held by the big

tech companies. As consumers

stay home, demand for Amazon’s

shopping site surged, while com-

panies are turning to its cloud

computing products to keep their

services up and running. Apple

said the shift to working and

learning from home had led more

people to splurge on Apple’s de-

vices and use its services.

“Our products and services are

very relevant to our customers’

lives, and in some cases, even

more during the pandemic than

ever before,” Luca Maestri, Ap-

ple’s finance chief, said in an inter-

view. He noted, however, that Ap-

ple could have made several bil-

lion dollars more if not for the pan-

demic.

Facebook and Google continue

to be important to marketers and

they are weathering the downturn

in advertising better than rivals.

Facebook shrugged off a spending

slowdown, hailing record levels of

engagement with its products.

Alphabet said revenue from

Google search ads fell 10 percent

— pushing the company’s overall

revenue lower for the first time in

the company’s history — but that

still was better than rivals. Last

week, Microsoft reported an 18

percent slide in search advertis-

ing revenue.

Since the beginning of March,

the companies’ stock prices have

risen by an average of 35 percent,

compared with a 10 percent rise in

the S.&P. 500.

Amazon

Buoyed by a pandemic-induced

surge in online shopping, Amazon

had $88.9 billion in quarterly

sales, up 40 percent from a year

earlier. Profit doubled, to $5.2 bil-

lion, even though the company in-

vested in expanding warehouses

and other ways to increase capaci-

ty.

“Simply put, Covid-19, in our

view, has injected Amazon with a

growth hormone,” Tom Forte, an

analyst at the investment bank

D.A. Davidson & Company, wrote

in a recent note to investors.

In April, Mr. Bezos told invest-

ors to expect no operating profit,

and maybe even a loss, as the

company planned to spend about

$4 billion on coronavirus-related

expenses like temporary pay in-

creases, declines in warehouse ef-

ficiency because of social distanc-

ing, and $300 million for testing its

work force for the virus.

But even those costs did not

compare to the immense surge in

demand, with online retail sales

up 48 percent.

On a call with reporters, Ama-

zon declined to say if it would give

its warehouse workers virus-re-

lated bonuses or raises in the cur-

rent quarter, but added that pan-

demic-related expenses would fall

to $2 billion in the quarter.

Sales at Amazon’s lucrative

cloud computing business, whose

customers include major corpora-

tions and small start-ups, grew 29

percent, to $10.8 billion, falling

short of analyst expectations,

though it was more profitable than

they had expected.

Facebook

Facebook’s revenue for the sec-

ond quarter rose 11 percent from a

year earlier to $18.7 billion, while

profits jumped 98 percent to $5.2

billion. The results were well

above analysts’ estimates of $17.3

billion in revenue with a profit of

$3.9 billion, according to data pro-

vided by FactSet.

Despite increasing scrutiny

from regulators, questions about

its role in subverting elections and

how people use the platform to

spread misinformation, neither

users nor advertisers have shown

an inclination to stop using Face-

book.

More than three billion people

now regularly come to Facebook

or one of its family of apps, as the

services have overtaken much of

the developed world. And some

2.47 billion people use one or more

of Facebook’s apps every day.

The company said its number of

monthly active users rose 12 per-

cent from a year ago and added

that it was seeing record levels of

engagement and usage this year

because of shelter-in-place orders

around the world.

In late June, a grass-roots cam-

paign, Stop Hate for Profit, rallied

many of the top advertisers on

Facebook to reduce their spend-

ing because of issues with hate

speech on the site.

Facebook cautioned investors

on Thursday that fallout from the

ad boycott was noticeable in July

and warned that greater eco-

nomic turmoil from the pandemic

could eventually hurt Facebook’s

bottom line.

Apple

Despite the global economic slow-

down, people kept buying Apple

devices en masse and paid the

tech giant billions of dollars more

for apps and services on those

gadgets.

Apple said its sales rose 11 per-

cent to $59.7 billion and its profits

increased 12 percent to $11.25 bil-

lion. Both figures handily beat an-

alysts’ expectations, with Wall

Street having forecast declines in

both areas.

Sales were particularly strong

for iPads and Mac computers, as

the public was increasingly forced

to work and socialize virtually.

Revenue also surged in its inter-

net-services business, which in-

clude Apple’s cut of sales from the

App Store, the subject of antitrust

investigations in the United States

and Europe.

Even the iPhone, which re-

mains the company’s biggest

seller, had a slight increase in

sales for only the second time in

the past seven quarters.

Apple also announced a stock

split on Thursday that would

quadruple its number of shares,

allowing people to buy a share in

the company for a quarter of the

current stock price, which closed

at $384.76 on Thursday.

Alphabet

Google’s parent company, Alpha-

bet, reported its first-ever decline

in quarterly revenue, hurt by a

slowdown in spending by adver-

tisers. The company posted reve-

nue of $38.3 billion and a profit of

$6.96 billion — significantly

higher than what Wall Street ana-

lysts had predicted.

Ruth Porat, Alphabet’s chief fi-

nancial officer, said advertising

revenue “gradually improved” as

the quarter went on. The decline

came largely from lower sales of

advertisements that run along-

side Google’s search results, but

the company’s efforts to diversify

its business paid off as revenue

from YouTube ads and its cloud

computing business grew.

When asked in a call with finan-

cial analysts about the congres-

sional hearing, Mr. Pichai said the

company would have to learn to

live with the investigations.

“The scrutiny is going to be

here for a while and we’re commit-

ted to working through it,” he said.

Economic Lean Times,

But High Tech’s Big 4

Fatten Up on Profits

FROM FIRST BUSINESS PAGE

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