Monopoly Is Not the Problem with Facebook
April 12, 2018
As Facebook is called to task for not preventing the Russians from using its platform against the United States, some have raised the question as to whether it is a monopoly and whether the solution to the problem is to break it up, as was done to Standard Oil or AT&T. The European Union, perturbed by the dominance of U.S. companies, is also looking at anticompetitiveness. (China’s solution is simply to block foreign competition and prevent U.S. companies from operating in China). Approaching the problem of Russian use of social media to achieve coercive effects as a competitiveness and antitrust issue misses the point, however.
Having four Facebooks that operated exactly as Facebook operates now would change nothing. Size is not the issue. How Facebook operates with regard to content and authorship needs to change if we are to avoid another Russian debacle. The core of these changes is to finish the long-standing argument made by many internet companies that they are just a platform, they bear no responsibility for what their users post, and in any case, we wouldn’t want them to be censors. The more extreme privacy advocates also take this position that free speech online should be completely untrammeled.
The rest of the world finds this argument ridiculous. Restrictions on hate speech, jihadist propaganda, child pornography, and cyber bullying have widespread support. Countries, and even the United States, are experimenting with internet regulation. Companies are being compelled by law and regulation to take responsibility for what they host. This is more important than size and can be done in ways that are completely compatible with freedom of expression and without affecting citizens’ political rights. Does anyone seriously argue that Germany, which has imposed restrictions on hate speech, is not a democracy?
Economists know about “substitute goods.” When you can’t buy pasta, you buy rice. If a consumer can’t use Facebook, he can use LinkedIn, Twitter, a Google service, or even WeChat, the giant Chinese social media platform. What each offers is connectivity to a social network. A consumer may prefer Facebook or argue that all their friends are on Facebook, and they have no choice. But that is like arguing that you will only eat potatoes, and there are no other substitutes. This is preference, not monopoly. Some other networks even allow you to connect to Facebook. It’s not perfect, but it’s not a monopoly.
When Facebook’s CEO said that it didn’t feel like monopoly, he was right. Consumer preferences are fickle, and some younger users are beginning to say that Facebook is for their parents. Instagram and Snapchat appeal to these users. Facebook’s response was to buy Instagram (a strategy that other big information technology companies use—buy the start-up before it becomes a competitor), and it is this pattern of buying up competitors (accompanied by regulatory somnolence) that deserves attention rather than dismantling the company.
It’s not even what Facebook does with your data. People were shocked—shocked—to learn that in exchange for giving them a free service, Facebook used their data for commercial purposes. This has been going on for about 20 years and is the business model of the internet. No other business model works as well. Very early on, other direct payment models were considered (every time you visited a website you would pay a fraction of a cent, for example, to cover the costs), but they were clumsy and consumers quickly became used to the idea that things on the internet were “free.” This expectation would be hard to change.
Interfering with the data-for-services exchange holds unexpected risk. When the Europeans created stricter privacy regulations in the 1995 Data Protection Directive, it contributed significantly to the demise of the European internet industry. Privacy protection is one reason why there are no EU competitors to Google, Facebook, or others. We can argue that the terms of trade in data for services are unfair to consumers or that there should be more transparency, but how we regulate data can increase the cost of advertising (and consumer prices) and perhaps put start-ups or smaller companies at a disadvantage.
Facebook (and Google) do hold dominant shares of advertising revenue, but this is because their data-driven approach to targeted ads makes advertising significantly more effective. By assembling masses of data on individuals, they offer advertisers a better service than traditional competitors. (Google’s android system for phones tracks location and even altitude, which it can then map to a database of millions of stores around the world.) Some find this level of commercial surveillance creepy, but few reject the services they get in exchange for accepting it. If you doubt this, look at the permission you have granted to apps installed on your phone to access your personal data and then decide if you will uninstall them. (The exception to this is the growing use of “ad blockers” as a defense against relentless commercials.)
Facebook was playing by the original rulebook; that’s what needs to change. What we are seeing is the collapse of the millennial ideology that shaped the internet. This ideology, encapsulated in the 1998 Green Paper, held that the internet should be an untrammeled and unregulated space. The Green Paper was focused largely on the management of the Domain Name System and drew on the experience of telecom deregulation. Laissez-faire was the right approach to accelerate the growth of a fledging industry, but we are in different times now and the industry is no longer a fledgling.
One of the effects of the internet is “disintermediation,” removing layers of oversight and review between author and audience. There are benefits to this, but also risk when it comes to giant platforms. The answer to the Facebook problem is not to dismantle the company but to require it to accept responsibility for what it hosts, “reintermediation,” if you will. Traditional news outlets have hundreds of editors to mediate content. Now that Facebook is where people get their news, it needs to accept responsibility and hire editors as well. Being big is not the problem, and breakup is not the fix.
James Andrew Lewis is a senior vice president at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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