Policy & Regulation

What the FTC Needs to do to Ensure a Level Playing Field

By Cesar M Melgoza, Founder & CEO of MOXY™ social ecosystem 

When savvy investors in Silicon Valley invest, they go hard and push the market to its limits, laser-focused on market size and valuation. The pressure for growth – in audience, revenue, profits and market share – are so critical to the eventual market cap that tough decisions often cross the lines into gray areas that federal regulators question.

That’s what we’re seeing now with the Federal Trade Commission’s concerns with the small handful of tech companies dominating their space at the expense of smaller start-ups that compete in their general vicinity. These tough decisions often involve either quashing the upstart or buying them out. In the spirit of free market capitalism, competition is a welcome necessity – but when does that free market transform into an unfair trade practice? This is the fine line that federal regulators are trying – perhaps futilely – to govern in an effort to maintain a level playing field.

Most of us have 20/20 hindsight, but hardly anyone has 20/20 foresight. Although major tech companies created a bold vision necessary to secure funding for their enterprises, who knew that less than a handful of firms would completely control the advertising space, for example, which is dominated by digital media? Just three companies are responsible for two-thirds of ad spending and digital is now twice the size of traditional advertising, forecasted at $455 billion this year and still climbing rapidly.

Furthermore, the massive capitalization and cash flow of these companies make it easy for them to acquire smaller businesses through either equity or cash – often making the upstarts offers they can’t refuse.

The FTC’s new chair, Lina Kahn, has started to reveal some of the next steps in the realignment process – complaints. On August 19, the FTC filed precisely that type of complaint in the U.S. District Court for D.C. claiming unfair practices of a purported monopolistic nature. 

On the one hand, consumers enjoy the services of these massive digital media companies, in large part because they are free of charge – “you pay with your eyeballs,” as the saying goes. It is common knowledge that the advertising model is partly the advertising itself but it’s primarily about access to the rich data of online consumer behavior, which appeals to brands from A to Z.

Both the massive audience size and the nearly endless fields of data and the algorithms that depend on them provide an unprecedented level of targeting precision that is primarily why valuations have reached the stratosphere. Consequently, smaller firms’ innovations are being actively stifled by the overwhelming success of platforms who reached the market earlier, and truthfully have defined exactly what that market is. Is the FTC sufficiently equipped to referee the playing field when the players created the rules themselves?

Previous relaxing of limitations on campaign contributions, thanks in part to Citizens United, encourages a brute force approach from Big Tech power players who can afford to push the right buttons. Data collection outshines innovation in order to drive revenue, so when startups can no longer keep up, their new technology is up for grabs, continuing the cannibalistic cycle.

The question is does Biden, Khan, and the FTC have the ability to stimulate and support competition in a market that today’s economy is effectively built upon? Only time will tell, but we should all keep close tabs on how this evolves not only out of a sense of fairness, but because embracing the ideals of the free market, merit and a democratic process is at the core of this nation’s credo.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.