Congress has been targeting tech companies for a while now with proposed laws that would strengthen antitrust regulations and prevent companies from growing too large. Recently, the House Judiciary Committee examined six different bills that each set out to protect consumers from perceived unchecked control of tech giants such as Apple, Google, and others.
A fundamental topic that Congress has grossly misjudged, however, is interoperability. One of the six bills, the “Augmenting Compatibility and Competition by Enabling Service Switching Act of 2021“or the “ACCESS Act of 2021,” mandates interoperability requirements for tech platforms. For consumers, however, mandated interoperability would result in significant harm.
Interoperability refers to the ability of technological devices and software to communicate to similar devices and software made by other manufacturers. For example, interoperability would mean an iPhone can send iMessages to an Android device.
Advocates of the ACCESS Act believe that mandating interoperability will provide consumers more choices at lower prices, since companies would not be able to charge a premium for consumers to access exclusive and proprietary services.
Interoperability would mean services offered by one company would have to be accessible to all users regardless of what brand of product they use. In practice, that would mean that Apple’s exclusive services would have to become available to its competitors to not ‘lock in’ users into Apple’s system.
Mandated interoperability will cut into many companies’ profit margins which will impact consumers by reducing investments into research and development (R&D). Apple would be much less likely to invest billions into R&D provide faster-messaging apps or higher quality audio if it did not believe these innovative products attract more consumers. Likewise, mandating that Apple makes its services interoperable with its competitors such as Samsung or Microsoft would mean that it has less of an incentive to improve these services since, at the end of the day, a consumer could buy its competitors’ products for the same experience.
Interoperability would create a cycle of companies unwilling to invest in developing the best services since they would know that any given consumer might not purchase their products to utilize these services. Under mandated interoperability, consumers could expect significantly less innovative products and services.
Losing out on the ability to keep useability of their services on their proprietary products would mean companies may have to start charging for formerly free services. iMessage is currently free to those with an Apple phone, but Apple may have to charge for it if its use would no longer guarantee a purchase of an iPhone. These ramifications, combined with the fact that the quality of products would likely decline is why Congress should think carefully before mandating interoperability.
Supporters of interoperability have been critical of tech giants’ potential to reduce competition. Congresswoman Mary Gay Scanlon (D-PA05), one of the ACCESS Act’s leading supporters, has defended interoperability requirements by raising concerns around network effects, since she views network effects as the cause of companies becoming too large.
Network effects occur when a product or services’ value to consumers is increased based on the number of users of that product. The effect is stark in the social media market. For example, each new Facebook user signs up knowing that they will be able to connect to billions of existing users easily. With startup social media such as Parler, there are very few users comparatively, and therefore each potential user has less of an incentive to sign up.
Scanlon expressed that it was concerning how network effects mean that certain companies “rise to the top.” Under the ACCESS Act, consumers would not be forced to buy from any one brand to use a popular service, and instead consumers would buy the product that offered the best value in other ways. That means that a company would not grow due to network effects.
However, Scanlon ignores the fact that major social media platforms such as Facebook have become widely adopted because they offer benefits other than just a large user base, and that the number of users is the result of offering a quality service. It is also worth noting how easy it is to switch between social media platforms, considering the usually non-existent transaction costs for signing up, and many platform services are free to consumers. Before moving forward with sweeping interoperability requirements for tech companies, Congress would benefit from examining what advantages and disadvantages consumers are presently receiving.
Americans are experiencing unprecedented innovation in the tech sector and are able to reach billions of people worldwide on social media for free under the current arrangement. If the ACCESS Act becomes law and interoperability is mandated, then the foundations for both of those advantages would crumble.