The case for leaving social networking in the hands of corporate giants is clear enough. They — Facebook, Twitter and others — spotted profitable opportunities to provide people with something of value and built products to fill those niches, after all. One can only imagine what might have emerged from a congressional committee convened to establish a publicly created and operated social network. It would not, in all likelihood, have been the thing to tempt teenagers away from MySpace and LiveJournal.
More important, we trust for-profit firms operating within a marketplace to allocate scarce resources to their best use. A company that was not maximizing the potential of its workers or equipment would, in a competitive market, be outbid for those workers or equipment. Or those resources would be liberated, so to speak, when competitors forces the unfit company out of business. The reason to want Facebook to be big, hungry and profitable is because its desire to exploit profit opportunities should drive it to gather together the talent and other resources to create a thing of value: nearly $500 billion in market capitalization before the recent share-price tumble.
The problem is that in the case of Facebook — and perhaps of other digital giants as well — none of the above dynamics work as the idealized marketplace of economic theory suggests they should. Facebook is in a formidable competitive position. This stems, in part, from the network effects that naturally arise in many online platforms: People want to be where everyone else is, and so first movers in any business have a huge advantage over potential competitors. Network effects do not automatically generate a monopoly. We are all on Facebook rather than Friendster, after all. But the presence of network effects means that an initial advantage — however fluky — can launch a company into rarefied air.
Facebook owes its position as much to good fortune as to good business. It became cool at precisely the moment when being online became the norm across much of the rich world, rather than the preserve of college kids and assorted nerds. The dominant social network in advanced economies was naturally well positioned to attract users in emerging markets as they came online.
Having taken a position astride the world, it has been able to protect itself against the sort of accountability the marketplace is supposed to impose. To challenge Facebook, it is not enough for a competitor simply to have a product that is better. It must be so much better that it can lure people away from the place everyone else already is; being the only member of a social network is not much fun, however snazzy the platform. It must be so much better that it can succeed even as Facebook inevitably copies its best products and strategies — and hones them, with the massive amount of user data that Facebook has but the competitor does not. And it must resist the billions of dollars that Facebook can offer, as the price of acquisition, to particularly stubborn rivals that face the risk, if they refuse, that Facebook will eventually destroy them anyway. Those are enormous hurdles for any challenger to overcome.
It is possible that there is a solution to this problem in better regulation and competition policy. It might be enough for regulators to take data privacy issues more seriously, and to work to reintroduce competition into the market for social networks: to try to nudge the market toward providing a viable alternative to the One Social Network to Rule Them All, such that the threat of user defection forced Facebook to make the user’s experience less soul sapping and less socially corrosive. Facebook could be made to disgorge previous acquisitions WhatsApp and Instagram, for example, and perhaps also to spin off its advertising business, as the Open Markets Institute, a pro-competition think tank, recently recommended.
But that alone might not do the trick. It is possible that the existence of a single, near universal network such as Facebook, even within a more competitive market, is inevitable. Social forces might invariably push one network or another forward as the digital directory of record. Facebook very much plays this role now. It helps determine who is a person within society and, correspondingly, who is not. In advance of a recent high school reunion, for example, a friend and I trolled Facebook to see what our former classmates were up to. We wondered whether those without a profile might have died. However much one might desire to leave the network after recent revelations, doing so carries real social costs.
Such a network is a true public commons, however, and one whose worth is almost entirely attributable to the users themselves: the fact that they are there, the interactions they have, and the data they generate. Very little of Facebook’s worth as a corporation is associated with its employee head count or the physical assets under its control (the value of the latter is just $14 billion). What gives Facebook its value is all of us. It is perverse, in the first place, that the monetary value generated by this commons should flow overwhelmingly to a small group of Facebook employees and shareholders. That is especially the case because Facebook’s coders and executives, in their effort to exploit their network, are quite plausibly reducing its value to society.
Of the scarce resources Facebook is controlling, the most important is our attention: the incalculable hours and mental energy allocated to the network by the 30 percent or so of humanity now using the service. Facebook’s interests in attracting and directing this attention are not aligned with those of society as a whole. It doesn’t want us to pop by for a moment to check some information or send a message, then go on our way. Its financial health depends on us sticking around, scrolling and sharing, posting and liking. It therefore structures our experience on this incredible global commons so as to keep us there. To do that, it ships us content designed to push our emotional buttons, to anger us enough to rage-share. Connection, truth or notions of time well spent have almost nothing to do with it.
Of course, grasping and holding our attention is the primary goal of just about every digital organization, The Washington Post included. Facebook is different because it is operating basic social infrastructure, which derives its unique value from the fact it is the only place where almost every other person can be found. Its effort to wring the maximum private value out of what is essentially a public space is what leads to trouble.
Facebook should be a scaffolding for social interaction: basic infrastructure. And it does not take a highflying tech giant to provide that. Indeed, it quite possibly takes some other sort of organization, with the incentives to provide a very different experience from what Facebook offers. Of course, it is very likely that people would spend far less time using a Facebook under different management. But that is precisely the point.
How to move to such a world is a difficult question. Facebook’s future might echo that of many industrial-era natural monopolies: perhaps once the network’s reckless and abusive profit opportunities are regulated away it will look much more like a basic utility, or be in need of public support to operate.
Maybe some team of innovators with a conscience will build a cooperative alternative, which finds a way to thrive amid the Facebook backlash.
Potentially, the government could adjust the rules that apply to dual class shares, which allow Zuckerberg to control the company despite owning less than 1 percent of it. That would allow other stakeholders, perhaps even the government itself, to have more of a voice in the operation of the firm.
Perhaps Facebook will find a way to save itself before that becomes necessary. Whether it does or not, we should be more aware of the extent to which tech giants have attained extraordinary valuations by monetizing what are essentially digital public squares. And we should understand that the accountability we expect markets to impose on those giants, to keep them working in society’s best interests, erodes as their power and dominance grows.
We should try to restore competition to such markets. But tech giants are increasingly in the business of providing fundamental, utility-like services. Their ownership and management, the regulation they face, and the profits and valuations they enjoy, should reflect that.
Avent is the economics columnist at The Economist and author of “The Wealth of Humans.”