As June rolled to a close, the European Union hit Google with a 2.4 billion-euro (about $2.75 billion) fine for manipulating the results of its internet search engine to prioritize its price-comparing service over the competition.
Google has a more than 90% share of the searches market, and 89% of surfers also use Facebook.
Economists refer to a “network effect”: In markets for traditional products, one consumer’s choice, for example, of a specific car tire, does not necessarily affect other people’s choices for that product. Competition therefore usually ensures that consumers will get the best products for the lowest price, insofar as possible.
But on social media, when one customer prefers Facebook over MySpace, it directly affects the preferences of other users. They want to be on the same social networks as their friends. Markets like these, by nature, tend to monopolism.
Historically, there have been two types of government intervention to minimize the dangers implicit in monopolistic power. The first is to regulate prices. When the train companies built up too much power in the late 19th century, the U.S. government set up the Interstate Commerce Commission and empowered it to set price caps. (The cure ultimately proved worse than the disease, but that’s another story.)
The second kind of government intervention is antitrust regulation. When in the 1920s, Standard Oil controlled 90% of all oil production in the United States, the Fed wielded its antitrust force to break the monopoly into more than 30 smaller companies. Similarly, AT&T was forced to break up 70 years later.
But traditional antitrust policy has trouble with the internet. It looks only at consumer benefits from competition, and consumers like Google and Facebook because they don’t pay a penny for their services.
What many users don’t realize is that they do pay for these services in the form of valuable information. Even those who understand the cost of use have no real choice: There is no major search engine that doesn’t save our past searches or refrain from collecting information on our activities. There is no significant social network that does not keep our preferences.
This is the cost of using these technologies. Absence of competition also means the absence of possibilities, which ultimately is the absence of freedom.
21st century solution
What can we do about it? For this 21st-century problem, we propose a 21st-century solution: to reallocate property rights through legislation, in order to create more incentives for competition.
It’s not actually a new idea. Patent law, for example, grants the rights to an invention to the company where the creative scientist works, in order to motivate companies to invest in research and development.
Similarly, in cellular communications, most countries ruled that the phone number belongs to the customer, not to the mobile operator. Redefining property rights (or in cellular argot, mobile number portability) makes it easier for customers to switch companies, spurs competition between the companies, and lowers prices to customers.
The same could be done in social media. All that has to be done is reallocate ownership of the digital contacts he creates to the user – the social graph, which in the context of the internet, is a chart depicting the personal relations of internet users. If we own our own social graphs, we can go to a Facebook competitor, let’s call it MyBook, and forward all our Facebook messages to MyBook, just as we forward phone calls.
If we can stay in touch with our Facebook friends through another social network (and we might well try), new networks will arise knowing they can attract existing Facebook customers, and the benefits of competition will be preserved.
Today Facebook provides programmable interfaces that allow access to the social graph of its customers – Facebook Connect and Graph A.P.I. Facebook controls access to these tools, and reserves the right to close them to any developer who poses a competitive risk. Very few developers seriously invest in creating alternatives, which precludes even the prospect of competition.
By ensuring access to new customers’ relationships and information, a portability law for the social graph would diminish the network effect afflicting current digital platforms, and ensure the benefits of competition.
Google and Facebook will undoubtedly throw their vast monopolistic clout into killing the idea before it hatches, but they take a risk in doing that. If their monopoly isn’t restrained through competition, it will be restrained through regulation, and experience shows that’s worse – not only for consumers, but for Google and Facebook as well.
As United Airlines discovered when dragging a passenger off a flight, the people’s tolerance of the market power of companies is diminishing. The revolution of “social graph for the people” has already begun; Congress should spearhead the revolution itself, or find itself surprised.
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