Yesterday must have been a tough day at work in the Facebook offices. First, Apple fired off a broadside on Facebook around issues of privacy. Then, the Federal Trade Commission and 48 Attorneys General teamed up to start antitrust proceedings against the company. They want to break up Facebook into residual parts.
There are much smarter people than me who can and will weigh in on the Facebook matter. But I will observe that this is going to be a long-drawn-out proceeding. Remember the United States v. Microsoft Corp.? That took forever — and the outcomes were nothing compared to the impact of the open-source movement and the rise of the open web.
Antitrust actions can be a good prod, but more needs to be done to create and encourage a level playing field. Fred Wilson thinks that “if we are going to “break up” these large social media platforms, I would urge elected officials and regulators to think about pushing them to move from platforms to protocols instead of just ripping them apart.” That is a good idea but is but one approach. However, like everything else, it looks back, instead of trying to be preemptive and doesn’t put together a framework befitting the changing reality of modern technologies.
Going back to Microsoft, the company whose troubles with the government have many similarities with Facebook, I would argue that they are doing what they have always done – using their market size as a moat and expanding into new markets. We don’t realize it just yet. Today, they control two major professional networks that will have as big, if not more, significant impact on society in the future — GitHub and LinkedIn. They can predict many trends about the future — work, software, and technology — from these two networks. With GitHubhub, they have a network that will allow them an edge in the developer and cloud ecosystems for years to come. And this will and can become underpinning for their Azure cloud? Is it wrong for them to use this tactic? Or is this worth an antitrust action?
I am not a lawyer or an antitrust expert, but as someone who has observed the technology industry for a long time, it seems important to note that things in the industry are speeding up. The government watchdogs need to be mindful that the time it takes from being an upstart to a giant is getting shorter and shorter.
Google was roughly 21 years. Facebook was 15 years. In 11 years, Uber became a $95 billion (in market capitalization) company. It took newly-public DoorDash just seven years from being four guys at Stanford University to become a $68 billion company with over fifty percent of the food delivery market. And the future is going to be even faster because the network effects make everything grow much faster.
What we need — and soon — is a new framework that thinks about monopolies from a more future-oriented perspective. Market share is such an industrial metric to think about in this digital age.
In a previous article for The New Yorker, I pointed out, “This loop of algorithms, infrastructure, and data is potent. Add what are called network effects to the mix, and you start to see virtual monopolies emerge almost overnight.” When it comes to Facebook, I wrote, “The more we use it, the more data we give the company, and the more it is able to control where we turn our attention.” Facebook, as a result, “thanks to this loop of algorithms, infrastructure, money, and data, is a winner-takes-all company.”
Data and network advantages are two vectors that we can and should be used to define future monopolies. I don’t remember the details precisely, but the FTC didn’t approve the Instagram or WhatsApp deals when they happened. If we had models that actively projected what things could be in three, five, and 10 years, we could have more future-forward policies. I look at our regulatory structure, and it feels trapped on a human scale. Meanwhile, the world now moves at a network scale.
In the last five years (and especially the previous 12 months), the criticality of the Internet and technology has only grown exponentially. In 2013, I wrote a piece about the inevitability of the Internet, making the case that we are in a world where technology will soon be pervasive. This post-Internet world is what is now causing a lot of anxiety and dislocation. Our society is changing drastically, but the shape it will ultimately take remains unknown.
We experienced similar dislocation when society moved into an industrial age. In a column for FastCompany, I wrote, “Just as in the Victorian age, today’s computing engine is pushing us to challenge all of our preconceptions. And similarly, the ripple effects of these changes will be felt for decades.”
I can’t help but notice the parallels between the first two decades of the twentieth and twenty-first centuries. In the former, the internal combustion engine, oil, and emergent telephone technologies compressed time and distance, causing society upheavals. It made some companies become super-sized and led to talk about antitrust actions. A century later, it all feels like deja vu. The presence of silicon, data, and network connectivity are creating a new kind of social upheaval. The only difference is that the size of the giants is even more significant. Our future could very well be radically different from our present.
That is why I find that most of our recent antitrust conversation is mostly reactive and retroactive. I would love to see the AGs propose a new, more proactive way of thinking. My view is that it is okay for these companies to continue and buy younger companies, but they should be restricted to only buying companies that enhance their core and not allowed to buy into new markets. For example, Facebook should not have been allowed to buy Instagram or WhatsApp.
By combining Instagram with its network, Facebook not only turbocharged the growth of Instagram, but it thwarted all rivals and their ambitions. It also future-proofed itself by buying a new kind of user. In an email to his head money guy, Facebook CEO Mark Zuckerberg said that “buying Instagram, Path, Foursquare, etc. now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”
To another colleague, Zuckerberg said more succinctly, “One thing about startups, though, is you can often acquire them.” By buying Instagram, Facebook was also able to future-proof itself from the shift to a visual web. Instagram eventually copied the core features of another rival, Snap, and shrunk them as a competitive threat.
This is a crucial point to understand: Data and network effects can make big wins out of even innocuous-looking acquisitions. This is a clear advantage for the likes of Facebook and a distinct disadvantage for our watchdogs. So, we need to think differently about monopolies — how we conceive them, what is permissible, and what is not allowed.
There has to be a way to prevent what we call “Big Tech” from using their pre-existing data advantage to buy a startup and quickly dominate an entirely new sector. If Instagram today were an independent company, it would be as big — if not bigger — than SNAP ($73 billion in market capitalization) or Twitter ($37 billion in market capitalization), which means it could be an effective player in a more open landscape. It would even be an active buyer of other tiny startups — as long as it didn’t stray too far from its core functions, of course. Wouldn’t that be better than what we have now?
PS: This started as a response to questions from Drew Harwell, a reporter from The Washington Post. He sought my opinions about the case. I posited to him that we are thinking about this incorrectly because it is not about Zuck. It is about societal change. Drew and his colleague Craig Timberg have an excellent piece that elaborates what experts think about the case.
PS #2: Since apologies for using “attorney generals” instead of “attorneys general.”