Is this the end of Big Tech?

“… you have data that is not to be replicated, that has a very long duration, that effectively can serve as an asset that can foreclose competitors from entering your market.”

– Margrethe Vestager, EU Commissioner

Reposted from my account:

The US Federal Trade Commission (FTC) is suing Facebook for “illegal monopolization”, alleging that Facebook has pursued a multi-year strategy undermining competition as a way to cement its social network monopoly. The FTC points to the acquisitions of Instagram in 2012 and WhatsApp in 2014 as key examples of this strategy, acquisitions that the FTC itself waved through at the time. But these are potentially just the tip of the iceberg. There is the very real possibility that the suit will end with the ruling that Facebook divest itself of Instagram and WhatsApp, thereby creating two new competitors and major digital players.

So, what has Facebook been doing? And what are the implications of the FTC suit?

The best account of Facebook’s strategies and practices is the Investigation of Competition in Digital Markets report released in early October this year by the US Congressional Subcommittee on Antitrust, Commercial and Administrative Law. Facebook is the dominant global social network with over 2.7 billion “monthly active users”: it made revenues of US$70 billion last year, almost all of which came from online advertising. According to the Congressional report, “Facebook has held an unassailable position in the social network market for nearly a decade, demonstrating its monopoly power”. Much of this monopoly power comes from the network effects that attract increasing numbers of people to Facebook, but there are other strategies Facebook is alleged to have pursued too. These include: using its data assets and centrality as a digital platform to identify potential competitors; acquisitions of potential competitors like Instagram and WhatsApp; using its platform policies to undermine potential competitors by selectively cutting off access to its platform; and attempting to clone competing products and services, like Snapchat Stories.

As to the implications of the suit, I can think of at least three outcomes worth considering.

First, nothing much happens. Facebook contests the suit and wins, either easily or after making some concessions. Life goes on, not quite as normal since this outcome would likely embolden all Big Tech firms to continue doing what they’re doing now.

The second and third outcomes are more interesting.

Second, the FTC suit adds to the already ongoing actions being pursued against Big Tech around the world: for example, by Competition Bureau Canada`s investigation of Amazon, the US Department of Justice’s case against Google, and the EU’s proposed Digital Services Act. As a result, momentum behind improving privacy and personal data rights keeps growing, which could stymie the rampant collection and use of personal data by Big Tech if the FTC wins its suit. New regulations could undermine Big Tech’s current business models, both those reliant on targeted advertising — like Facebook and Google — and those dependent on control over platform enclaves — like Apple or Amazon. They’d all need to find new ways to make money other than exploit our personal data through various forms of digital rentiership.

Third, the break-up of Facebook accelerates the growing crisis in online advertising highlighted by Tim Hwang in his book Subprime Attention Crisis. This is the most worrying outcome because it has the most potential to destabilize our economies, and yet it’s the least understood at present. To do so necessitates unpacking how Facebook makes money. To start, Facebook contests the claim that it’s a social network monopoly by arguing that it operates in the ‘attention market’ and competes against all applications — from Candy Crush to YouTube — that try to get us to stare at a screen for hours on end. Basically, Facebook is an online advertising company in the business of buying and selling what Hwang calls “attention assets”, by which he means you and I — that is, viewers watching screens for hours on end. Big Tech firms like Facebook understand us as these ‘user’ assets: we are standardized as “viewable impressions” so that we can be made measurable and legible as something valuable (e.g. ‘monthly active users’), something that generates future streams of income for them. According to Hwang, though, online advertising is entering a crisis phase: the real value of online ad space is increasingly opaque; the effectiveness of online advertising is increasingly unclear; the online ad market has concentrated with the introduction of intermediaries like Facebook and Google, leading to distortions in the market; and, most important of all, our attention is declining and click-through rates on online ads have fallen below 1 percent. Consequently, the value of online advertising is falling, so adding two more competitors — Instagram and WhatsApp — to the mix may tip things over the edge.

We could, then, witness the end of Big Tech as the defining political-economic institution of our age if either of the two latter scenarios play out the way I think they will.

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