Analysis | The Technology 202: Smaller companies taking a risk as they challenge Big Tech in hearing – The Washington Post

January 16, 2020

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Smaller technology companies have largely upheld a code of silence about the power of the larger technology companies on which they often depend for market share and sales.

But now, some of them are sharing their stories in the hope that Washington is finally getting serious about cracking down on the power of tech giants.

As part of its antitrust investigation, House Judiciary Committee lawmakers are headed to Colorado, where tomorrow they’ll hear from upstarts including Tile and Basecamp. It will mark the first time lawmakers will hear from executives in a public setting about going toe-to-toe with companies including Facebook, Apple, Amazon and Google, my colleague Tony Romm reports. (Amazon chief executive Jeff Bezos owns The Washington Post).

These smaller companies are taking a major risk by speaking out because they often rely on the tech titans to reach consumers’ eyeballs, while simultaneously competing in with them in offering some services. Another factor raising the stakes is the industry’s relationship-driven business culture. One wrong move can limit opportunities for investment or acquisitions.

“They face potential for very significant economic retribution as a result of what they share,” David Cicilline, the Rhode Island Democrat at the helm of the antitrust investigation, told Tony. “We have certainly heard from a number of companies about the practices of large technology companies that are very troubling, that have had negative consequences for other businesses, that they are unwilling to share in a public forum.”

The congressional field hearing has the potential to open the floodgates for companies to be more forthcoming with their concerns about allegedly anti-competitive conduct. The companies in the hot seat come from across the country and make very different products — highlighting how a broad range of corporations have grievances against Big Tech and might look to Congress for help.

Sally Hubbard, director of enforcement at the Open Markets Institute, an organization backed by groups that advocate for breaking up Big Tech, told Tony the public nature of the hearing will lead to more transparency.

“We don’t often hear from those entrepreneurs because they can’t afford to speak out,” Hubbard said. “We haven’t had a look under the hood of these companies.”

The chief executive of Sonos, Patrick Spence, said he kept quiet for years before going public with his concerns. The audio company executive told Tony the company’s brand and business “puts me in a unique position to speak up about our experience and still be able to thrive and grow.”

“I feel a duty to do that given there are many smaller companies that aren’t going to have the same ability to do that. It might be life or death for them,” Spence said.

Here’s a guide to the anti-competitive concerns each company is expected to raise, based on Tony’s interviews with each of the witnesses.

1. PopSockets chief executive David Barnett says he will accuse Amazon of bullying tactics, which prompted the smartphone kickstand maker to sever its two-year relationship with the e-commerce giant’s retail operation in November.

PopSockets said its lengthy battle with Amazon cost the company millions. The company tried to get the e-commerce giant’s help with counterfeits on the website, only to be pressured to spend more on its own marketing. The company also worried about a series of changes to Amazon policies that essentially forced it to sell directly to Amazon, allowing the titan to set the prices of its products it later sold to customers.

PopSockets ultimately opted to sever its two-year relationship with Amazon’s retail division. Barnett said Amazon leaders tried — unsuccessfully — to pressure the company even when PopSockets said it had reached its breaking point.

“They acted as if it wasn’t in our power to break up with them,” he said. “That’s where the antitrust power comes in. For most businesses our age, it’s not in their power to break up with Amazon. It’s not within their power to find an alternative.”

Amazon said the conflict arose because PopSockets essentially broke its rules. Amazon prohibits a firm from simultaneously selling through another intermediary that could later undercut the e-commerce giant on price.

“Amazon obsesses over our customer experience and we have policies for brands to ensure they are consistently meeting customer expectations,” said Jack Evans, a spokesman at Amazon.

PopSockets is trying to restart its relationship with the e-commerce giant. Barnett hopes the company can make changes on its own, and if not, he thinks Washington should step in.

2. Tile general counsel Kirsten Daru says she will warn that Apple stifles services like its business that help people locate lost belongings.

Tile was long in Apple’s good graces, but their relationship deteriorated in 2019, when Apple moved toward rolling out “Find My,” an enhanced effort to help its customers better locate their lost devices even when they are offline. It mimics many of the features long offered by Tile, and also has a major leg up: Apple made “Find My” functional even when iPhone owners turn off all location tracking.

Tile, meanwhile, must obtain users’ permission in hard-to-find settings, Daru said, then repeatedly give it again when presented with reminders. Daru said it resulted in a “confusing and frustrating experience for our users.” “We’re looking to Congress to level the playing field.”

Apple said the changes are about protecting users’ privacy. “Apple has not built a business model around knowing a customer’s location or the location of their device,” spokesman Fred Sainz said in a statement.

3. Basecamp co-founder David Heinemeier Hansson plans to blast Google’s dominant search engine, which he says favors larger collaborative workplace rivals that pay for prime advertising real estate.

The well-known programmer said he plans to tell regulators to “broaden your definition of what antitrust enforcement is, and what consumer harm looks like.”

Basecamp’s rivals for months have been running ads on Google against the company’s name and trademark, making it harder for people who search for Basecamp’s name to find it in the results.

Google’s practices puts smaller players like Basecamp in a position where they have to buy advertising just to compete on Google search, Hansson says. “If you want protections from these baseless, anticompetitive ads,” he said, “you have to pay [Google] protection money.”

“They built their monopoly by having a great search engine that really helped people,” he said. “Now that they have that monopoly, they’re exploiting it to reap monopoly profits.”

Google spokesman Jose Castaneda pushed back against Basecamp’s claims. He said competitors are allowed to “bid on trademarked terms because it offers users more choice when they are searching.”

4. Spence, of Sonos, will say that Google stole its technology for use in its competing smart-home tools.

Last week, Sonos revealed in court documents it is suing Google on these grounds. Google has denied the charge, and this week said Sonos has made “misleading statements.”

In testimony, Spence said he plans to raise awareness as to the ways tech giants practice what he called “efficient infringement.” For some of those companies, the calculation is that “over the long term we’ll just pay the fines. We can outlast anybody else given the war chest they have. By the time the war finishes we’ll have dominated the category anyways,” he said.

BITS, NIBBLES AND BYTES

BITS: Presidential candidate Mike Bloomberg will hold a private event in San Francisco to solicit support from some of the tech industry’s biggest power brokers, Recode’s Theodore Schleifer writes. The event highlights how the world’s eighth richest person could win over wealthy supporters who are concerned about liberal Democrats’ anti-billionaire rhetoric.

The event was described as “a private gathering of business and community leaders to hear directly from Mike on his path to victory,” according to a copy of an invitation seen by Recode. Bloomberg’s direct pitch to the tech industry, where he has deep financial ties, highlights how he’s continuing to seek support from Silicon Valley, even as other candidates like Sen. Elizabeth Warren (D-Mass.) are rejecting their support.

“Mike is supporting Democrats and that’s what this event is about,” a Bloomberg spokesperson told Recode. “These are people who want to support the Democratic Party and we’re bringing them together to help candidates up and down the ballot. As everyone knows, Mike has never taken a penny from special interests and as a tech entrepreneur himself, he appreciates the creativity, job creation, and ecosystem of innovation in this community.”

The Bloomberg’s campaign has invited Salesforce chief executive Marc Benioff, venture capitalist Ron Conway, LinkedIn co-founder founder Reid Hoffman and political fundraiser Susie Tompkins Buell. Conway confirmed his attendance to Recode. It’s unclear if Benioff, Hoffman or Buell are attending.

NIBBLES: Lawmakers called for bipartisan legislation that could pause the government’s use of facial recognition technology at a House Oversight Committee hearing yesterday.

“We just want to know which agencies are using this, how they’re using it—to what extent is it happening,” said Ohio Republican Jim Jordan in reference to a bipartisan bill he and Democrats have been drafting since last summer “Second, while we’re trying to figure that out … let’s not expand it.”

“It doesn’t matter if it’s a President Trump rally or a Bernie Sanders rally, the idea of American citizens being tracked and cataloged for merely showing their faces in public is deeply troubling,” he added.

“Our committee is committed to introducing and marking-up common-sense facial recognition legislation in the near future,” said Chairwoman Rep. Carolyn Maloney (D-N.Y.)

Experts also pointed to a lack of regulation of how private companies are developing the technology as a key issue. For instance, Amazon declined to voluntarily allow the National Institute of Standards and Technology to evaluate its Rekognition algorithm’s error rates. (Amazon CEO Jeff Bezos owns The Washington Post).

“We’re left in a position where we have to trust these companies, but we don’t have the options to say no or scrutinize the claims they make,” said Meredith Whitaker, co-founder and co-director at the AI Now Institute.

BYTES: The trade agreement signed yesterday by President Trump and China includes language to limit sales of counterfeit items on Amazon, CNBC’s Annie Palmer writes. The agreement comes as Amazon’s third-party marketplace has been flooded with counterfeits, despite attempts by the company to make tools to curtail the goods’ spread.

The United States and China said in the deal that they would “combat the prevalence of counterfeit or pirated goods” through “effective action” when intellectual property infringement goes unchecked by online platforms. China is considering revoking an e-commerce company’s operating license if there are continued sales of counterfeit goods. The United States has said it will “study additional measures of combating the online sale of counterfeit or pirated goods,” CNBC reports.

(Amazon CEO Jeff Bezos owns The Washington Post).

Amazon said earlier this month that it would ramp up counterfeit reporting to authorities, in an effort to assist law enforcement on cracking down on the copycats. The increased activity follows Trump signing a memorandum to limit the sale of counterfeits on Amazon, eBay and other online marketplaces.

U.S. Treasury Secretary Steven Mnuchin said on Wednesday that some technology issues would also be resolved in the next phase of the deal, according to Reuters.

“I think a very significant amount of the technology issues are in Phase 1. There are other certain areas of services away from financial services that will be in Phase 2. There are certain additional cybersecurity issues that will be in Phase 2,” Mnuchin told CNBC as the two countries were poised to sign the agreement’s first phase.

“There [are] still more issues to deal with, and we’ll address those.”

PUBLIC CLOUD

— California’s new privacy law is giving users more controls over their data, including the right to access the data that companies have collected about them. But the New York Times’s Kashmir Hill found the requests come with an unpleasant trade-off: To get your data, you have to give up more data.

Bloomberg News’s Alistair Barr called it “the new privacy circle of hell.”

Companies deluged with requests to turn over data are turning to vendors for help processing the requests, such as Berbix. The company asked people to upload photos of their government ID and to take a selfie to help verify them. People then have to take another selfie following instructions, such as to look happy or joyful — which many people found alarming.

“This is a nightmare future where I can’t request my data from a creepy shadow credit bureau without putting on a smile for them, and it’s completely insane,” Jack Phelps, a software engineer in New York City, told Kashmir.

But Kashmir argues companies have a good reason for this screening: They don’t want to give your data away to the wrong person. That has happened, like in 2018 when Amazon sent 1,700 audio files of a customer’s Alexa recordings to a stranger.

— News from the public sector:

They Were Promised Broadband and High-Tech Jobs. They’re Still Waiting. — ProPublica

Kentucky’s plan to bring broadband to remote parts of the state has sputtered and its future looks increasingly bleak. State leaders told rural residents it would create better business opportunities. But instead, they keep getting left behind.

Pro Publica

House Democrats Used Cellebrite to Publish Lev Parnas iPhone Messages

The released documents include an Apple iPhone “Extraction Report” generated by a Cellebrite product.

Vice

T-Mobile/Sprint urge court for deal approval, states warn of price hikes

A group of U.S. states suing to block T-Mobile US Inc from merging with Sprint Corp on Wednesday told a federal judge that the deal would raise prices for consumers, while the phone companies pushed back and emphasized they would compete aggressively to push prices down.

Reuters

Lawmakers Launch Caucus to Address Emerging Tech’s Impact on Work

The Future of Work Caucus’ ultimate goal is to develop a comprehensive policy strategy to proactively address emerging technologies’ impact on jobs and workers across the U.S.

NextGov

PRIVATE CLOUD

–The group No Music for Ice will protest Amazon-sponsored events at SXSW this year, it announced in a Medium post yesterday. More than 1,000 musicians have signed onto the group’s pledge to boycott Amazon-sponsored events and deals until it meets the group’s demands including terminating its contracts with “military, law enforcement, and government agencies that commit human rights abuses.”

— More news from the private sector:

Jeff Bezos Came To India To Invest A Billion Dollars But Still Got Shouted At

Amazon’s aggressive discounts in India have angered traditional retailers who say that online shopping is killing their business.

BuzzFeed

Facebook’s problems moderating deepfakes will only get worse in 2020

Deepfakes in 2020: more common, less serious

The Verge

TikTok was downloaded more than Facebook and Messenger in 2019

Well over 700 million people downloaded TikTok in 2019, according to Sensor Tower.

CNET

#TRENDING

— Tech news generating buzz around the Web:

Why #NeverWarren should make you nervous about 2020

How Twitter made the Elizabeth Warren-Bernie Sanders dust-up worse.

Vox

How Mormons Built the Next Silicon Valley While No One Was Looking

Could the very thing that made Utah a tech mecca end up holding it back?

Marker

There’s a new obstacle to landing a job after college: Getting approved by AI

College career centers used to prepare students for job interviews by helping them learn how to dress appropriately or write a standout cover letter. These days, they’re also trying to brace students for a stark new reality: They may be vetted for jobs in part by artificial intelligence.

CNN

Podcast Groups Aren’t Just About Podcasts

Fans of popular shows are converging on Facebook to talk about what they hear, and pretty much everything else too.

The New York Times

E-boys are the new teen heartthrobs — and they’re poised to make serious money

Popular e-boys on TikTok are nabbing fashion and entertainment deals. They could be the boy bands of the 2020s, with way better style and minus the actual singing.

The Goods

@MENTIONS

The Silicon Valley Leadership Group has hired Justin Hyer as vice president of government relations, according to a news release.

CHECK-INS

— Coming up:

The House Antitrust Subcommittee will host a field hearing on the role of competitors in the digital economy at 10 a.m. on Friday at the University of Colorado Law School in Boulder.
The Senate Commerce Committee will host a hearing on “the 5G Workforce and Obstacles to Broadband Deployment” at! 0 a.m. on Wednesday.
Silicon Flatirons will host its “Technology Optimism and Pessimism” conference Feb. 9 and 10 at the University of Colorado Law School in Boulder, Colorado. Speakers include FCC Michael O’Rielly and FTC Commissioner Rohit Chopra.
Mobile World Congress takes place Feb. 24 to 27 in Barcelona

WIRED IN

Twitter users are unlikely to see an edit button anytime soon, Twitter co-founder Jack Dorsey tells Wired.

PODCAST: The Russian Hacking Plan for 2020

Kremlin-directed hackers infiltrated Democratic email servers to interfere with the 2016 American election. Emboldened by their past success, new evidence indicates that they are trying again.

The New York Times