Why Silicon Valley Should Fear Europe’s Competition Chief

Margrethe Vestager, the European commissioner for competition, is surely the most feared person in Silicon Valley. She fined Apple $15 billion for tax avoidance. She brought forward multiple antitrust investigations against Google. Just before arriving in the US this week, she announced that she had started to take a keen interest in Amazon.

I sat down with her for WIRED and for CBS to discuss all of these issues, as well as recent comments by Brian Acton, the founder of WhatsApp, that he had been coached by Facebook to dissemble when meeting with Vestager’s team. Here is the full transcript of our conversation, as well as a video showing her sharp, thorough responses. Unlike many politicians, she actually listens, responds to critiques, and truly understands how technology works. And that, of course, may be yet another reason for Silicon Valley to worry about her.

Nicholas Thompson: So in the American press you’ve been hailed as a hero. I’m going to read a couple headlines: “The Eurocrat Who Makes Corporate America Tremble.” “The Woman Who Is Reining in America’s Technology Giants.” So let’s start. These technology giants have created these products we use all the time. Tell me why they need to be reined in?

Margrethe Vestager: Well they don’t, of course, as such. We are only dealing with companies who break European competition law. Because my task is to make sure that consumers are not harmed, that they can enjoy choice, affordable prices, innovation in the marketplace.

NT: But you are the one regulator in the world who has actually brought multiple enforcement actions against the major technology companies: against Apple for their taxes, you’ve just got several investigations into Google. What is it that you were trying to change about them?

MV: Well, one of the things one shouldn’t misunderstand about Europe is that you’re more than welcome to be successful. We don’t look at your flack, we look at what you bring. And if what you bring to the marketplace is something that people like, you are more than welcome. But the thing is that with success also comes responsibility. Because obviously if you hold like 90 percent of the marketplace, the two next competitors, well, they’re the smaller guy. So you cannot misuse your sort of dominance, your dominant position, in the marketplace. And this has been the issue here in the two Google cases. We have seen a misuse of success to deny others the chance to compete against you.

NT: So your view isn’t so much that there is something fundamentally wrong with the way tech has become structured, the way the tech industry works right now, it’s more that there are specific cases of specific violators and specific European laws?

MV: Well, and then at the same time I work very closely with colleagues who have the responsibility of regulating the economy as we see it because these are formative years. We’re in a revolutionary status. Things are changing. They’re changing fast. Now we form not only the next economy, but also the next society. And this is why what I do sort of complements what colleagues do in order to secure a right to privacy—that you own your data, that you have the right of portability to take them from one provider to the next. But also colleagues to say, well we need transparency in these new business relations because you have the giants, and then you have the small guy who’s doing business via the giants.

NT: That’s a very interesting answer which gets at a little bit of my previous question which is, if you saw an equal problem in competition in, let’s say, pharmaceuticals and one in technology, you would feel more of an obligation to try to fix the competition problem in the tech industry because it will play such an important role in the future?

MV: Well, we have made anything that has to do with with data and digitalization one of our priorities exactly because of these sort of formative forces. Because if you look at pharma—we’ve had a number of pharma cases. We still have ongoing pharma cases: pay for delay cases where the generics doesn’t reach the marketplace, excessive pricing cases that are still open. But here we have the regulation in place. We have a lot of regulation to make sure that drugs are safe, that they are tested, that we know how that works. It’s already sort of a controlled marketplace so to speak. Go compete, but within this framework. And when it comes to the digital side of the economy, that is still much more fluid. And this is why these formative years become so important for us as citizens and us as customers to enjoy the full benefits of a completely new economy and new ways of doing business.

NT: I understand that these are formative years, these are hugely important industries. Do you also feel like there is something structurally broken in the technology industry that requires you to weigh in a little more heavily on that industry than you would others?

MV: Well that’s that’s difficult to answer. I think maybe you can say that something is structurally newly created, because the number of old business models, they are broken. They are suffering, they are trying to make their business viable in a new economy. But the thing is that when you have economies of scale to this degree—because of network effects, marginal cost approaches zero—there are new ways of doing business that we have to understand in full. Both data as a resource, as an input, as the starting point for all innovation, as a barrier to entry. This we have to understand. Not because something is broken, but because something new is being created.

NT: Two of those things you just mentioned—marginal cost approaching zero and network effects—can lead to monopoly situations, which would suggest maybe there’s something not structurally broken but a structural imperative for a regulator to weigh in. So a lot has changed in the tech industry in the last year. You’ve seen the tech executives making apologies, coming before Congress, you’ve seen them changing their products to deal with addiction. Do you feel like the tech industry, and by that I mean the American giants, do you feel like they’re doing better now than they were a year ago for consumers?

MV: Well I think it’s very difficult to talk about them as one, right, because they are different. They have different cultures, they have different aims. They’re also doing differently. For instance we have had an Amazon case that we settled about innovation in eBooks, because Amazon had taken some things that are very restrictive contractual clauses not to allow other people to have full benefit of new innovations, so that we settled and we worked very closely with Amazon in order to do that. Then we had the Google cases, where my predecessor could not settle it, which would have solved the case much more quickly than we’ve been able to do. So there’s a lot of differences here. It’s not the same thing.

NT: So do you think that the US regulators will start being more active in the future? From what we’ve seen in the last year, they do seem to be doing more. They are calling people to Capitol Hill, but it also still seems like the only person actually bringing actions is you. Do you think you’ll be less alone in the pool soon?

MV: Well of course that remains to be seen, because there are differences between the US market and the European market. We’ve had a lot of very active complainants because the European market is very attractive, obviously. So of course it’s difficult to say but of course we’re trying to inspire it.

Regulating Algorithms

NT: Let me ask about something that is going make your job a little more complicated, which is artificial intelligence. So a lot of the decisions that the major tech companies make will be based on AI algorithms and, in fact, often on algorithms that they don’t understand. Amazon won’t know exactly why something has been recommended or why its product works the way it will. Does that make your job harder?

MV: Well, of course it’s challenging. So it sort of asks a number of questions back to us. What will we demand from companies doing business with algorithms? That they should remember to send them to law school before they let them loose, so that they know, well how do I compete. Maybe we should have our own algorithms out there to police some of the markets if we get a concern.

NT: So what courses should the algorithms take in law school?

MV: Competition law! That’s the first. That’s the basis.

NT: So I work at a major tech company and I say, look, we vetted our algorithms. We made sure that there would be no violations of competition law, discrimination law, all of these things, but we still don’t know what exactly they did. Is that OK with you?

MV: Well it’s your algorithm, so it’s your responsibility.

NT: So you’re responsible for the outcome?

MV: Yes.

NT: And you think, how will you as somebody who researches this, how will you learn and understand exactly how they’re working?

MV: Well I think, to some degree, that’s still what we are trying to figure out. We have placed a study with insightful people to say, how can we use algorithms in order to understand and inform what is going on? I have three special advisers that I have tasked—one is very knowledgeable in economics, one in competition law, one in tech—to say, “Do we need new tools in order to be able to enforce competition law when things are changing?” And, of course, we have asked stakeholders, because this can never, ever be our way of thinking. You need to interact with people and this is why we’ve asked people to come to us to give us their opinion.

NT: And what is your framework for how competition law should work and what it should prioritize? In the United States, antitrust policy is based on consumer harm and that’s based on pricing. And your approach has been much broader, and general amount of competition weighs into it, it seems like data collection perhaps even labor rights play into your philosophy of competition law. What are the different elements and how much do they matter?

MV: Well, no, labor law doesn’t come into what we do. Of course, labor means a lots to us as Europeans, that you have a fair bargain. But this is not for me. This is for others because we try to keep a focus on exactly consumer harm, but we have a view of that to be, of course, prices, because for many, many people of course price is very important; you may not have that much of a budget. Second, you still want choice. One thing is that it’s a bargain, but if it’s only in black, not much color there. And third, but definitely not as a minor thing you would want innovation, you would want new things to happen in the market. And you know you see the car cartel investigation that we just opened. It’s not about price fixing, it’s not about you take the northern part of the market, I take the southern part of the market. It’s about holding back on innovation. We have this concern that they may have agreed to not use the best possible technology, not to challenge one another to innovate on emissions to make sure that we have cleaner cars.

NT: But in all those different categories, on pricing you can’t really fault the tech companies, because the prices are quite low. On consumer harm you can certainly fault them for violating privacy. The most interesting one to me though is innovation, because it’s hard to say that Google hasn’t been massively innovative in 1,000 ways, it’s hard to say that Amazon, Facebook, Apple, many of the companies that you’ve taken a very close look at are not innovative companies. Is the idea that with more competition they would be more innovative?

MV: Competition is one of the most important drivers of innovation. What we see in the Android case is a decade ago, smartphones were just about to take off. Google realized that, oh wow, desktop search will be a thing of the past, at least it will shrink. Search on the go, mobile search, that is the future. So what we found in our case work is that they bought Android, excellent open source, the code is available. But the thing is that for a phone manufacturer, you need the Play store, because with that Play store people cannot get any apps. Then Google said okay fine you can have the Play store if you take Chrome and Search as well. And second we will pay you exclusively to install Chrome and Google Search. And thirdly, if you do anything else, you will lose all the payments and you cannot use our products anymore. So they sort of tie it in, Android, for no one else to be able to innovate on the code. For no one else to be able to say to a phone manufacturer, would you carry my new search app? Would you carry my new browser in order for me to present my product to consumers? That couldn’t happen. And if you cannot get to the consumer, you cannot invest in innovation.

NT: Right and so it created this fascinating case where Google builds Android, this fabulously innovative thing that they spend billions of dollars building, and then they give it away for free. How could one criticize them for that? But as the layer on top of that what you said—

MV: Oh, yes, we would never criticize the business model. This is not a decision on the business model. This is a decision about what comes on top of that. Because open source, that’s great. I think anyone would agree on that. But the thing is that if open source is being controlled by what you put on top of it, well then basically you sort of say, well this were to be the most sort of innovative starting point, it has turned out to be the opposite.

NT: Right. Let’s talk about some specific cases, I want to ask you about some things that are in the news this week. So the first is, I don’t know if you saw, so Brian Acton, one of the founders of WhatsApp, gave an interview today and he explains after the acquisition—after Facebook acquired WhatsApp—he describes a meeting with European regulators. And he says, “I was coached to explain that will be really difficult to merge or blend the data from the two systems.” So he said that Facebook coached him to say you could not merge WhatsApp and Facebook data as a way to help them get the acquisition through. How do you respond to that?

MV: Well that, exactly that question was answered with a fine of 110 million euros [$128 million].

NT: But to know not only that they did the things that you would fine them for, but one of the people feels that he was coached to lie to you?

MV: Well I think the wording of our decision is not as explicit as that, but it was solved exactly for this being the case, that they told us that something wasn’t possible, and then it turned out that it was, indeed, possible. But the good thing for Facebook in that situation was that even though we were told that this is not possible, we tested the hypothesis anyway, to see if it were possible, would then be a very serious concern on our side. And it turned out that if it were to be possible it wouldn’t be a great concern. And that was very important because had it been a great concern, of course the entire merger would have been at risk.

NT: So was that a situation you find yourself in often? Where people from the tech company say, That’s not possible, That can’t be done. We know the code, you don’t know the code. Trust us.

MV: No, not very often. We have been doing a number of procedural cases to say to people, you know, we’ll work with you. In order for us to be able to do our job, and we want to be quick and lean and and open with you, you need to to give us correct information and inform us because otherwise, we cannot do our job. And this is why we had this Facebook case and why we had a number of other cases where people had not been open with us and transparent to say, Well this is this is the only way that we can make this happen.

Taking on Amazon

NT: So about another case, right before arriving in the US you announced that you were investigating Amazon and Amazon’s Marketplace. Explain what that is about.

MV: Well it is very, very early days. And it’s important for me to say that we have not opened an investigation, we have no decision. But we’re getting interested because we made a set inquiry of e-commerce, and this was one of the things that came back to us. We hear from more people they worry this dual role of Amazon. On the one hand, you host the little guy, you enable him to do e-commerce because you provide him with the logistics of being able to do e-commerce, which is great, because a lot of small businesses, for them it is quite a step to be able to do e-commerce. So everything is fine. The thing is that when you do that, you get a lot of data from all the little guys that you host. And part of that, of course, you use to make your services to the little guy better —always fine. But the thing is that, if you also use that data to say, “Well oh you little guys, I see there is a trend here. So now I will do your business. And since I have large scale, I can do that much cheaper than you can do.” And if that was to be the case, of course we would like to understand if that would be a competition violation.

NT: Explain the line that they have to cross. So they collect data. They have to, as you said, they have to collect lots of data to help the little guys, to help the little guys reach customers. That’s why the little guys are on this fabulous platform. There are a thousand little guys and a thousand industries. And Amazon looks at all the data. And then, partly because of that data, it makes a decision to enter one of those industries. Is that a problem? Or is it if they take out all one thousand?

MV: Well that remains to be seen. That’s what we are analyzing, this is why we’re asking questions, because it’s definitely not a given, because a set price is part of what we’re looking at. And we know that for many people, price is a very important issue. For many people, they don’t have a bucket of large sums. They really, really appreciate efficiencies that allow businesses to give you lower prices. So we have to balance things out. And the thing of course, our starting point is the fact that that Amazon has become big. Because it’s not the being big itself that’s a problem. But if you misuse your size to do something that a smaller guy couldn’t do, or makes it very difficult for the smaller guy to compete against you, then we take an issue. But, as I said, these are very early days.

NT: So the process from here will be you will investigate, you will look, you’ll see how many industries they went into, you will see how much a role that data from the little guys played in the decisions to go into those industries, you’ll see whether they undercut them on prices deliberately based on the information asymmetry, is there fair way to look at it?

MV: Well, I don’t think that you can say that, well, this is the exclusive list of things that we look at, but this is the kind of thing where we take an interest. What is actually happening in this market that has this sort of dual role, where on the one side you host, but on the other side you also yourself are in this market? And what are the dynamics when data is sort of what enables things to happen?

NT: May I ask you another thing in the news, Kevin Systrom and Mike Krieger, the founders of Instagram, just resigned on Monday night and they said they were leaving. Do you think that Facebook should have not been allowed to acquire Instagram given how similar they are?

MV: Oh that I cannot judge sort of in the back mirror now.

NT: What is your instinct?

MV: I don’t know.

NT: What would you have looked at if you had been in the role you have now?

MV: Oh, well you know one of the many things I have learned in my career is that, if there is a number of ‘ifs’ on top of one another, one shouldn’t speculate.

NT: Well I’m on my third ‘if’ here, so I understand that. Let me move to a more specific one, which is in the United States, the biggest conversation in tech has been about misinformation. Do you think that is in some ways a competition problem? Do you think that if Facebook and Twitter had more competitors, there would be potentially less misinformation? Or are they totally separate?

MV: That’s a tricky one. Of course there would be more difficulty, sort of, to target many people because, well I think that we have been lying since humans learned to speak. We’ve been manipulating each other all the way throughout history. But the new thing is, of course, the scope and the speed. This is so fast and you reach so many people very easily. And in that respect, of course if you had more outlets, if people had more different social networks that may connect, may not connect, of course people would not be sort of in the same ecosystem and that could be a good thing. And I think for anyone, that’s not a question of competition law. If it was your business that has been misused to rig an election, wouldn’t you find that to be devastating?

NT: Well yes and that would lead to the possible counter argument, that because there really are a very small number of platforms which are distributing this information, because they now all take it seriously, they can solve it seriously and they can hire 10,000 people, and they can put their best product people on this problem. Whereas if you had 15 social networks, perhaps it would be harder for all of them to counter misinformation.

MV: But the thing is that, of course there is something that you have to do as a platform because you have a responsibility. But we, as citizens, we also have to develop our skills because we have to figure out if something that we hear is too good to be true, probably is not true, but on the other hand side if things are very bad, maybe it’s not so bad either. And I think to to develop these skills, one of the good things is that we have diversity in our media, that we are being approached from from different points of view, with different ways of angling a story, in order for us to see, Well, you get a part of the story there, and another part of the story there. You cannot rely on anyone to tell you the full truth. You have to be able to make up your mind yourself.

NT: Let me ask you the same question with a different issue: privacy. Do you think that privacy is in some ways a competition issue? If there was more competition would we have stricter privacy?

MV: Well at least to some degree you can say that it may have been. The German Bundeskartellamt, their national competition authority, they’ve been looking into this area between privacy and competition law because they have this suspicion that Facebook being dominant in some areas, they have said to people it’s a take it or leave it. Either you take this privacy condition, these terms and conditions, or you cannot use it. Terms and conditions that didn’t live up to to German competition, German privacy law. So I wouldn’t exclude that it can ever happen. But it’s not directly linked, it’s like two things that you have to live up to at the same time. Privacy rules that you own your data, that you can move from one platform to another with your data, that you have the right to be forgotten. And, of course, at the same time, you have to live up to competition law issues.

NT: Right. Though I would suspect that were there more competition, they would be fighting for users. And one way to get more users to trust you more, is to offer better privacy protections.

MV: Well I think that’s a good point, that we need the market to help us enforce our rights when it comes to privacy. Because the marketplace is a great place for things to say, Well I can offer you better protection of your privacy because I have designed my service with privacy as a starting point. Or I will offer you an independent digital assistant to make sure that your settings are exactly as you want it to do, because your digital assistant will get through the terms and conditions and they will read the 20 pages in a split second.

NT: That will be marvelous.

MV: Wouldn’t that be great!

Playing the China Card

NT: One of the things that interests me the most right now is the dynamic between Western technology companies and Chinese technology companies, and clearly both are growing very quickly. Have you ever brought an action or an investigation into a Chinese technology company?

MV: No because their presence in Europe is still very limited.

NT: And do you think that is possibly going to change as they continue to grow and expand?

MV: Well it depends very much on the European consumer. If their products are liked and they grow, of course, there may be issues. If not, well that’s another matter.

NT: So there is an argument that a lot of people in the Western technology companies are making that, you know, you’ve heard Mark Zuckerberg and Eric Schmidt make variations on this argument, which is that the world is split into two spheres. There’s the Chinese technology sphere and there’s the American technology sphere. And what’s happening is that in part because the US technology sphere has been regulated so harshly, both through questions from the US government, through your actions, that the US technology spheres are going to be held back. And in China, where the companies care about privacy, but they care relatively less about privacy than the American companies, will surge ahead. And so regulation will pull the Western tech companies back while the Chinese tech companies move ahead. How do you respond to that?

MV: Well we have democracies. We have ways of designing things. We form our societies not to help tech companies, but to form societies. And this is, I think, for us, this is a very important point. That technology is serving us as citizens, as consumers, and this is why we regulate. Not because we want to hold anyone down, but because we want our societies to work.

NT: And do you have any worry, I mean you’ve talked about the power that these devices and these products have in helping democracy, in helping the way we communicate, and helping an open society, and civil society, do you have any fears that if the tools of the future are made by Chinese companies and outside of the regulatory reach of—more outside of the regulatory reach of American and Western regulators— that that will be a problem for democracy?

MV: Well the way that we have made our legislation is that if you want to be present in Europe, then you play by the European rule book. That’s the important thing for us. And that goes for everyone, because for us it’s not important what flag you’re flying, or how you’re owned. What is important is what you do on the ground with European consumers, if you respect our rules or if you don’t.

NT: Why do you think that most of the largest tech companies have come from Silicon Valley, Washington, from the United States, and from China, but not from Europe?

MV: Well I think in an amazing ecosystem was created, a thing of skills, social innovation, and capital. Sort of a lot of different competencies coming together, creating amazing products. As you said, innovation beyond belief. And that has been received very, very well. And then of course, if you have amazing products that people like, then you grow.

NT: You regularly meet a lot of different industries. What are the people from the tech industry like when you’re sitting across the table from them? Are the lobbyists softer? Do they bully more? What are they like compared to working with other industries?

MV: I don’t sense a difference. They are different people, but there are also different CEOs if you do cement, if you do telco, if you do beers, they’re all very different people. What I can sense is more if you come with a sort of consolidation in mind, or if you come with competition in mind. And that has nothing to do with tech or no tech.

NT: So, the last question, what do you think will happen, what do you hope will happen over the next couple of years with the tech giants in the tech industry? Are there trends you’re seeing now that you hope will accelerate?

MV: Well I hope that that businesses will work more together, but also be present in different marketplaces. US companies in Europe, European companies in the US and in many more markets, because I think we need the diversity for businesses to compete, to innovate so that we get the best of technology, both as consumers, but also as citizens.

NT: Great. All right thank you very much Commissioner Vestager. That was a wonderful note to end on.

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