Understanding Facebook's Monopoly: Page 2

Anti-trust regulators are living in the past. Here's why Facebook is technology's number-one monopoly.
Posted November 28, 2012

Mike Elgan

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For one thing, Facebook's dominant position comes from network effects, rather than exclusive access to markets or resources. For another, the Facebook "user" isn't the "customer." The advertiser is the customer, and the user is technically the product. (If you want to understand this, just think about who pays Facebook and what they pay for.)

Still, let's strip away all the mumbo jumbo and look at the reality of what Facebook is currently getting away with.

First, Facebook's "monopoly on everybody" means the company is in the position to abuse users without losing them.

When I tell family and friends all the different ways Facebook is working against them with privacy and other abuses, and that other services are available that don't do this, they say they know and understand all that -- but will stick with Facebook because that's where everybody is.

Second, Facebook's "monopoly on everybody" forces competitors to actively contribute to Facebook's continued and growing dominance. If you're a competitive social network not backed by a giant company, you have to support Facebook or go out of business. Small social networks like Instagram (now gobbled up by Facebook), SquareSpace or any new social service coming online absolutely must support Facebook or face extinction. But by supporting Facebook, they increase their competitor's dominance.

And third, Facebook's "monopoly on everybody" un-levels the playing field and represents a barrier to entry to new competitors.

A new social network can enter the market and be demonstrably superior in every possible way, and it still has zero chance against Facebook precisely because people don't choose all-purpose networks based on the relative virtues of the products.

It doesn't matter if a competitor is better than Facebook, Facebook wins because it has a "monopoly on everybody."

What Should Regulators Do?

So what am I proposing here? I'm saying that, first and foremost, anti-trust legislation needs to be updated to include this new kind of monopoly.

That would mean that Facebook users should be subject to special protections against Facebook violations of privacy. Anti-trust legislators need to investigate, for example, EdgeRank-gate -- the shell game Facebook is playing whereby it systematically blocks status updates from reaching the people who signed up to receive those updates on the one hand, then offers to deliver them for a price on the other hand.

They need to look into Facebook's recent email switcheroo, whereby they replaced users' email address in contacts with an @facebook.com address without user permission.

They need to probe Facebook's use of social ads, which make users appear to promote or advocate products or services when they had no intention of being co-opted in that way.

These are just examples of areas for investigation.

In fact, a great place for anti-trust regulators to start would be a special Wikipedia page set up expressly to list the many criticism people have leveled against the company. (Some of these are bogus, or mere sour grapes. But some of them could be considered serious in the light of consumer protection.)

I'm not saying that Facebook should be nationalized, or over-regulated. I'm just saying that Facebook represents a new and historically unique kind of monopoly that lawmakers need to quickly understand and deal with, instead of going after non-monopolies who sell products in free markets on a level playing field.

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