By Felicity Duncan
Facebook is 15 years old this February. Its first 15 years have been nothing short of jaw-dropping. Operating under the mantra “Move fast and break things,” the company has built an advertising juggernaut that vacuums up enormous reams of personal information about its users and deploys that data in the service of advertisers. If you’re looking to sell T-shirts to middle-income, racist, rugby-loving men in the Eastern Cape, Facebook has you covered.
But in the process, Facebook has broken things. Lots of things. Important things. Like electoral systems, which proved to be fatally vulnerable to the spread of fake news and false outrage, or health systems, as highlighted by the spread of anti-scientific anti-vaccine propaganda that has played a role renewed outbreaks of deadly childhood diseases like measles.
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Facebook has also broken our media systems. Together with Google, Facebook captures the lion’s share of digital advertising revenue. Because they control what the world’s biggest audiences see and hear, Facebook and Google can set the rules for content creators, including journalists. The result has been a hollowing out of publisher revenues and a dramatic fall in the number of news professionals. More and more of the “news” content you see is created by inexperienced and overworked people, who lack the time or experience to check facts and find balance. Some may celebrate the breaking of the “news monopoly.” But without professional journalists, who will do the work required to uncover the next state capture scandal?
Facebook has demonstrated that humans in the digital age are just as susceptible to superstition, fear, and lies as we were in the run-up to World War 2. Accused of fomenting sectarian violence in Sri Lanka, Myanmar, and India, Facebook has proven, yet again, that given a microphone (and the shield of relative anonymity), people tend to shout horrible things.
On the plus side, all of this has been fabulously profitable. Facebook’s operating margin is close to 50% and there’s no competitive threat to its dominance in sight. After all, the company has the cash to buy up any potential competitors – for reference, see the fate of Instagram and WhatsApp. In fact, Facebook uses its stranglehold on social data to identify the next big thing by keeping tabs on what other apps users are spending time on. It used that kind of data to identify Instagram’s growing popularity, with known results.
Shareholders have benefited greatly from Facebook’s monopoly social media power, although control of the organisation remains firmly in the hands of founder Mark Zuckerberg. Although he and a few other insiders hold only 18% of Facebook shares, their Class B shares wield ten times the voting power of ordinary shares, meaning they have 70% of the votes (Zuck himself has 60%).
In short, Facebook’s future looks gloriously assured. We have clearly demonstrated that our social systems have no defenses against its power. It earns margins that railway barons could only dream of, has potential competitors locked up (indeed, most potential competitors dream of being acquired by Facebook), and is very firmly in the hands of visionary founder Zuckerberg.
But that’s not the whole story.
Monopolies like Facebook (and Google, for search) have always created problems. In the past, the problems were mostly related to price gouging and labour abuses, but as Facebook demonstrates, other negative consequences are possible.
Market fundamentalists believe that competition will eventually wipe out monopolies, but the history of capitalism shows this isn’t true. While some monopolies have indeed been eroded by competition, often from entirely new product categories, far more met their Waterloo in the drab and cheaply furnished offices of regulators.
Lawmakers broke up monopolies like the old railways and telecommunications giants (think Ma Bell). Other monopolies were allowed to persist – power generation and transmission monopolies, for example – but found themselves heavily regulated until their juicy monopoly margins vanished.
Something similar may just happen to Facebook. For example, in Germany, competition regulators have just ordered Facebook to gather less data about users from around the web. They say that the company has abused its market power to force users, who have no real social media alternatives, to allow it to collect data at will.
Facebook has argued that this is a data privacy issue, not a competition issue, and should fall under Europe’s GDPR rules (whether this is a smart legal strategy remains to be seen – Google just got hit with a $57 million fine under GDPR and the law allows for a fine of up to 4% of global turnover, which would be over $2 billion for Facebook).
Whatever happens in Germany, regulators are sniffing around Facebook more and more. It’s unlikely that any new rules will destroy the company. Instead, it may see a thousand paper cuts bleeding its margins as it is forced to give users more control and would-be competitors more access. It’s even possible that, as a natural monopoly, Facebook may end up quite highly regulated – Germany already strictly controls the spread of Nazi propaganda on the site and concerned governments elsewhere are looking to follow suit.
Overall, it looks like the next 15 years will be nothing like the last. Facebook isn’t going anywhere. But it also won’t dodge change forever.
