What Mark Zuckerberg and Tim Cook should have learned from Rockefeller

Big government is finally taking on Big Tech. In the most momentous antitrust lawsuit in a generation, The US Federal Trade Commission (FTC) accused Mark Zuckerberg’s Facebook of unfair competition and asked a federal court to break it up. The EU proposed sweeping new rules forcing big technology companies to take more responsibility for policing content on their websites and refrain from anti-competitive practices or face billion-dollar fines and break-up threats.

We are witnessing a struggle between Facebook and its regulators that will determine nothing less than the future of the Internet and our data.

Experts say that data is the new oil, and it is in our opinion hard not to be struck by the parallels between the FTC’s Facebook complaint and the attacks on another era -defining monopoly, Rockefeller’s Standard Oil company.

In the 19th century, new technologies spawned a generation of millionaires, ushering in a Gilded Age. None was more prominent than John D. Rockefeller whose mammoth oil conglomerate grabbed staggering levels of market share using suspect tactics. Facebook chief Mark Zuckerberg’s 2008 emails saying that “it is better to buy then compete” recalls, to an uncanny degree, Rockefeller’s screeds against “ruinous competition”.

That makes it in our opinion worthwhile to look at what happened the last time government took on a company of this size and power. Rockefeller was by no doubt a consummate student of capitalism, which then, as now, is based on the idea that everyone is better off if companies compete with one another to provide better products and sell them for less. Adam Smith called this the “invisible hand”, a powerful force that in a free market leads individuals acting in their own self-interest to promote the common good. But Rockefeller understand, better than others, what companies were competing for. To him, the ultimate goal was to win, to crush competitors and sell all the products. If they were very good at it, they could beat their rivals out of existence and stop having to compete entirely.

An economist might point out that even a monopoly has to continue to “compete”, in a theoretical sense, lest new entrants come in and woo away its customers. But, as Rockefeller knew very well, it is a lot easier to stamp out new companies than it is to compete with established ones.

One of his favorite tactics was the railroad rebate. Oil companies at that time relied on railroads to ship their oil to market and so profits depended on the price of railroad freight. So Rockefeller negotiated special deals using Standard Oil’s size as leverage to get lower rates for his own oil. He even convinced railroads to pay him anytime they allowed a competitor to use their lines. This gave Standard Oil an insurmountable advantage over its rivals and, by 1879, it had near-complete control of the industry, accounting for 90% of all of America’s refining capacity.

“The day of combination is here to stay”. Rockefeller proudly announced. “Individualism has gone, never to return.”

Rockefeller has beaten his competitors into submission. But he had not taken into account Smith’s point about the common good. Standard Oil’s deceptive and bullying tactics beat rivals, but undermined claims that the corporation was good for the nation as a whole. And, in 1902, Rockefeller was undone by a “muck raking” investigative journalist named Ida Tarbell. That year, she began publishing a series of articles for McClure’s Magazine that described Standard Oil’s deceptive business practices, its anti-competitive agreements and its legislative maneuvering. Her damming conclusion: “Mr. Rockefeller has systematically played with loaded dice, and it is doubtful if there has ever been a time since 1872 when he has run a race with a competitor and started fair.”

The company had beaten its competitors but lost the war of public opinion. President Theodore Roosevelt launched an investigation of the company and, in a landmark ruling in 1911, the Supreme Court ordered Standard Oil to be broken up.

That story in our opinion provides important lessons for us about Facebook’s and Apple’s past, present and future. Just like Standard Oil, Facebook’s and Apple’s history of controlling their core platform and buying out small start-ups before they grew to be rivals, as described by the FTC, has proved remarkably successful.

And Apple’s next antitrust battle is shaping up to be over Apple Pay, the digital wallet, as the COVID-19 pandemic turbo-charges the use of contactless payments. The company has spent much of 2020 fighting allegations of anti-competitive behavior in its App Store. But Apple wallet in our opinion is a killer app – more of a killer app than much of the world really understands right now. And it’s absolutely going to become a battleground for regulators in the future.

Last year, the European Commission already opened a formal antitrust probe into Apple Pay and competition regulators in the Netherlands launched their own investigation. Philip Lowe, Australia’s central bank chief, recently said Apple’s approach to payments was “raising competition issues.”

Apple Pay allows users to store their payment card details on their iPhone or Apple Watch and to pay by tapping on a terminal. It is used by 507 million people, or roughly half of all iPhone users, up from 67 million users four years ago.

Apple takes an estimated 0.15% fee on each transaction. the potential competition issues for Apple Pay revolve around how Apple blocks its rivals from using their near – field communication technology (NFC) on iPhones and Apple Watches, which enables tap – and – go payments. as Apple is only giving the consumer one option in how to use that technology to pay for services is what in our opinion will get the attention of regulators.

Today, Facebook’s recent controversies – from its handling of personal data, to its use in disinformation campaigns, to allegations that it stokes political polarization – have tarnished its reputation. The FTC’s lawsuit in our opinion is just the beginning. The EU, with its vigorous – critics would say overzealous – enforcement of competition law, could well be next.

The last lesson speaks to the future the government broke up Standard Oil, but before long it started to reassemble itself. The fragments would soon emerge as Exxon, Chevron and Mobil, new corporate giants with sprawling new empires. The same thing happened do the seven regional telephone companies known as Baby Bells that were created out of the 1980s break-up of AT&T.

If Big Tech like Facebook, Amazon, Google and Apple are shattered into a thousand pieces, we need to watch those pieces.