Google and Facebook are monopolies. Does it matter? [audio]
innovationforallcast.com
innovationforallcast.com
Traditional monopolies "control supply of a good or service, and where the entry of new producers is prevented or highly restricted."
In this case, the supply of a good or service (social networking, webpage indexing and searching) are not controlled by Facebook and Google because they aren't finite resources. Anyone can index the web and anyone can build a social network and Google/Facebook aren't going to crush you with lawsuits or some other nefarious tactic to maintain their position (AFAIK). Entry of new producers of these services is not prevented or highly restricted. New social networks and search engines pop up all the time.
What Facebook and Google have is massive, large scale user loyalty. Despite alternatives existing (Bing, Mastadon, DuckDuckGo, Myspace, etc.), users are voluntarily choosing to use Google and Facebook. This is not a monopoly, IMO.
I think we need a new term for this situation.
I suspect that my increasing dissatisfaction with Google as a search engine may be a byproduct of the arms race against spammers; maybe it doesn't easily find good niche content the way I remember it doing 10 years ago because the signals of 10 years ago are too easily gamed. If that's true, then no new search engine is ever going to be as impressive as Google was when it first arrived. Similar to how no new antibiotic is going to be as impressive as penicillin originally was. The pathogenic elements have evolved too much resistance to permit the same "miracle product" experience again.
A monopoly (in my mind) would be more like Comcast. Since they've lobbied for laws in a lot of places that make it extremely hard to dig up the ground and put in new telecomm infrastructure, they completely control the supply of terrestrial internet service and there are literally no other ISP choices in many places. Thus, your only alternatives are non-terrestrial ISPs (LTE, satellite, etc).
I'm not sure about that distinction. Users prefer something about YouTube compared to it's competitors. That's merit, even if it's not the particular merits that content creators would prefer.
That something is the vast amount of copyrighted content...
It's a ratchet.
It's quite a broken concept of merit. It's the kind of concept of "merit" where an offering with superior content and UX could come along, but it wouldn't matter because of network effects.
The fact that so many content creators so badly want a different platform than YouTube to come into being (or for YouTube to change their practices) but can't afford to move -- this circumstance is very telling. Likewise the number of users who despise Facebook, but can't afford to leave.
Which is why a big service like YouTube can't just walk in and steal their thunder. Kind of proving the point that critical mass in internet technologies is a type of good or "moat" that could, in some views, count as a monopoly.
However, it took many years to get here and most people probably can't afford to compete without net neutrality.
Sure it's not YouTube (yet), but it's nothing to sneeze at either.
> many video producers are extremely unhappy using youtube
YouTube basically created an entire new market around video production. If it weren't for YouTube (or a similarly popular service), I'd hazard a guess that many of those video production jobs simply wouldn't exist.
It's hard to complain about a market with a too-big-player when the player basically created the entire market.
[1] https://www.reuters.com/article/us-iac-interactive-vimeo/iac...
It might not be prevented or restricted in the traditional sense, but the barrier to relevant market share has become nearly impossible to cross. The alternatives you cite, besides maybe DDG, aren't serious contenders to Google or Facebook.
Now, perhaps they would be if people paid to use those services, then they'd be more likely to pick and choose between the selection because they're going to want to pay for the right one for them, not necessarily the one that everyone else is using. But because the internet is largely ad-funded, hence nobody has to pay for most immaterial things, they're free to flock to wherever the crowd may be. That's why it's particularly bad that Facebook and Google are such "monopolies", even if the word doesn't exactly fit the situation. To compete with these services, you can't just appeal to a person's sensibilities within a market. DDG might be an exception, but it hasn't been around long enough for us to tell whether it's just a fad or will be quickly stamped out by something else.
If some search engine came and produced vastly superior results to Google, people would absolutely switch. That's how Google came to power in the first place: their results were just better.
Not sure what we can be expected to do. Split up Facebook and everyone will eventually flock to 1 maybe two services. Split up Google and you take away the majority of "free to use" apps because those are dependent on Google's advertising.
True, although that's unlikely to happen any time soon. (then again, how can we really predict any of this)
> That's how Google came to power in the first place: their results were just better.
That was also back when the barrier to entry was much lower, and there was a lot of low-hanging fruit for Google to pick both in search and other areas.
Let's say that someone today manages to get enough money and talent to build something that is at least equivalent to Google: I think people will overwhelmingly stick with Google because of the brand recognition and because "everyone else uses it." As both services would be free to use, there's nothing to force people to closely consider what merits their dollars will be spent on. Google could be highly censored and totally corrupt in other ways, but people will continue to use it because, as their wallets aren't being punished or used for nefarious purposes, they'll be willing to put up with seemingly benign abuse that they feel they have no part in perpetuating.
This is one reason why, even though I am not against advertising in and of itself, I despise what the state of digital advertising has done to the web and the world depending on it. And, as you stated, Google's advertising platform enables them to have many tentacles without the inherent need to own other companies; instead, they can have individuals businesses they don't own depend on their applications funded by ad revenue, making it a tremendously difficult choice for policy makers to split them up.
In that sense, you should worry about monopolies on OSes or rail routes, which have those kinds network/lockin effects, not search engines or (as was in the news recently) retail sales of organic foods (where it's easy for numerous grocery stores to enter the market if they wish)[2].
[1] https://news.ycombinator.com/item?id=18394628
[2] http://www.washingtonpost.com/wp-dyn/content/article/2007/08...
It is monstrously hard to offer alternatives. The barrier to entry is the massive engineering effort to compete.
Google is not just a search engine. It is an email server and client, a calendar, an online office suite, a cloud provider, a mobile platform, and I can go on listing things to fill up several pages of what Google is.
Even if DuckDuckGo is a better search engine, it offers 1% of the feature set and can't compete. The engineering effort needed for it to compete effectively is astronomical. Imagine what it would take to build out all of those Google services that are tightly integrated and not just build them out (like Microsoft), but build them out well. That is the barrier to entry.
In my mind search, email, calendar, cloud, drive are all separate services. Just because I use Google Search doesn't mean I use google drive and gmail. In fact, I use Microsoft's OneDrive most of the time instead of Google Drive, and I don't use Calendar at all (much prefer Outlook).
You do not have to build out that entire list to compete with Google - you can build and compete with a superior version of just one. Even indie developers can (and do - successfully) compete with services like Calendar.
Example: now that Google says that they don't mine email / calendar / docs data for ads, that means they don't make direct revenue from those services - unless a user pays for them directly a la G Suite or Google Drive pricing. Therefore Google leverages strong market share and revenue from Search to invest in these services to bundle them and offer them for free.
In theory any other company can build individual blocks, but most likely could not (1) offer them for free, nor (2) address the switching cost that a user of Google's services does not have (i.e. having multiple tabs or different applications opened to use email + calendar + files + etc.) If this wasn't a technology company, but like a p&g company, hypothetically, this would be clear cut monopolistic behavior.
That said, it's a thorny issue and I could see both sides, and the technology market landscape necessitates an analysis of our definitions of monopoly / market share / competition, etc.
- Matthew Hindman, "The Internet Trap", 2018 (p. 174)
The last sentence of the quote is false; only a small fraction of that money was spent on "building the search engine". Again, the relevant point is whether you can offer an alternative, which MS (and several others) have done with a fraction of that $12 billion. If it's difficult to offer something better because the top provider is legitimately the best at it, that's not the worrisome monopoly we should worry about.
Imagine the comparable investment to make a different OS that runs MS Word and getting a home user to use it instead of Windows/Word. Or running an alternate rail line from San Jose to San Francisco.
2. How can we know that the only reason Google can keep being the best out of incumbents is because of past network value. e.g. if a competitor had access to the same amount of historical sea h data as Google, could they use it in a better way?
Monopolies are predominantly, in anti-trust law, judged by market (pricing) power, not raw market percentage. This directly relates to whether there is effective competition in the market—which may be slightly different than your question of whether buyers can switch to an alternative; it is more whether the alternative(s) are empirically substitutes rather than parallel non-substituting markets, whether or not buyers are able to switch.
In theory sure. In practice, explain the Whole Foods/Wild Oats case, in which Trader Joe's/Albertson's/etc could start carrying the goods overnight.
>This directly relates to whether there is effective competition in the market—which may be slightly different than your question of whether buyers can switch to an alternative; it is more whether the alternative(s) are empirically substitutes rather than parallel non-substituting markets, whether or not buyers are able to switch.
My point is that there can be "effective competition" even if there are zero competitors at the moment; what matters is whether someone could come online and compete away the excessive profits, so you can't just look at the current competitors.
That's the point of toy example: there is zero alternative to me for SilasX-labor. You should not thereby conclude that there is "ineffective competition".
The whole point of the network effect, is that there can be more than zero competitors who even have a superior product, and it really doesn't matter.
In fact, you can have "competition" while having all the substance of the monopoly. For example, if there are eight competitors with equal marketshare, but it's impossible for anyone new to enter the market, those eight can easily conspire to charge monopoly profits, despite each one's "small" market share.
That's a distortion. It's more like, lots of people are dissatisfied, but all of the alternatives are economic/network-effect suicide. It's more like people living and working in the crappy mining town, because the only alternatives are like living as a hobo in the woods.
Toy example: if everyone demands at least $30/pound for some risky kind of coal mining, because it's such a pain to do and they'd rather a) rest or b) do easier work at any lower price ... that doesn't mean coal miners are colluding or that coal mining is a monopoly.
In that case, if you want a $29/pound alternative, your desire is economically unrealistic.
If there's a single coal miner that does it for $29/pound -- and is thus the most efficient one -- that miner will dominate the (tiny, niche) market. But it would not rightly be called a "monopoly", but "a single provider who is legitimately better and would lose business if he started to falter".
Telling me that someone currently dominates a market does not prove monopoly power.
I can picture a scenario where some sites have an insurmountable advantage because of compromised network neutrality. I'm very sure that in that case, the winners would be crowing about how, "the market has spoken," when the reality is that the market is broken.
> In theory sure. In practice, explain the Whole Foods/Wild Oats case
Pricing power explains that. Pricing power occurs when price increases from one market player do not result in losing business to a competitor; the fact that other players could in principle choose to enter the market and unbermine that pricing power is not an argument against the existence of pricing power.
> Trader Joe's/Albertson's/etc could start carrying the goods overnight.
But, whatever one might argue they could do, they didn't in places Wild Oats or Whole Foods were alone in the segment, with price competition occurring where one of the two opened stores where the other already operated, and avoiding that price competition being documented as Whole Foods own analysis of and CEO’s motivation for the deal.
> My point is that there can be "effective competition" even if there are zero competitors at the moment
Which is false. There can be speculative, potential future competition, but that's not what anti-trust law cares about, for good reason.
The counterfactual possibility, of entrants eating excess profits, is exactly what keeps businesses from charging those excess profits! The fact that no one currently judges them to be excess profits means the existing players are not really earning monopoly profits, properly considered.
See the coal mining example from the other thread: https://news.ycombinator.com/item?id=18469312
Too the extent that's true, yes, there is no pricing power; it was not true in the case you cited, where the dynamics of price competition in local markets showed that, in fact, the speculative possibility you claim existed did not prevent Wild Oats or Whole Foods from charging monopoly rents in places where the other was not present, even though one might argue that other grocers could have chosen to sell similar products with little barrier to entry, but the entry, e.g., of WF into a Wild Oats market did result in price competition. Which internal emails showed was specifically known to Whole Foods and cited by their CEO as a reason for the buyout.
Pricing power explains perfectly the example you asked about.
It's just not a good argument, nor does it refute that this "counterfactual competition" does, normally, in practice, keep vendors from charging excess profit margins; nor does it contradict the long history of sellers entering abandoned markets thinking they'll be the only one, only to face competition shortly thereafter.
No, it doesn't, because antitrust monopolies aren't defined exclusively over an infinite future time horizon; while simple economic models often only consider that, all useful economic models and regulations consider shorter-term effects, as well, or exclusively (“In the long run, we’re all dead”, after all.)
I suppose you could make the argument that fb/google are monopolies because the advertisers have to go through them to reach us. It isn't clear to me though that this is the problem we actually want to solve. This leads me to believe that anti monopoly laws might not be the correct tools for dealing with these companies.
There is an exchange for value between Google (FB, etc.) and consumers; the fact that it's an in-kind exchange rather than money doesn't prevent anti-trust analysis from being applied.
There's also the possibility of monopoly in some advertising segment, sure.
I suppose then the anti trust argument would be that they are able to 'ask' for too much private data. It seems to me a first step would be gaining price transparency. Who is the cheapest (asks for the less data).
Actually if your theory holds water, isn't there scope to argue that the consideration (your data) isn't properly defined in the contract, and keeps changing (via defaults, and technological progress). Could then this not then be dealt with via contract law and consumer protections?
Is there a term for when a new entry can be easily killed if the other party simply decides to duplicate their product/service/offering? Google and FB do not prevent entry, but they sure can kill new entrants easily with funding. See Instagram implementing 'Stories' which killed Vine. See Twitter Periscope killing Merekat, etc.....
Well Courts have ruled the NFL is a monopoly...but there is no control over new entities organizing and playing football games (i.e. not prevented or highly controlled).
It was good old Donald Trump who lead the effort to change the season and compete directly with NFL by changing the season to Fall. Of course the USFL went bankrupt and Trump sued including a claim anti-trust/monopoly. The Court famously agreed NFL was in fact a monopoly but awarded Trump damages in the amount of $1.
While Google and Facebook don't control a finite resource in the traditional sense, they do in the sense of mindshare, which is absolutely a finite resource.
Maybe but you're also almost certainly going to be acquired by them.
For me, the reason they have such power in the marketplace is because they have the historical data on all these users. "Lock-in" can be overcome. Technical capabilities can be bettered by other companies, but when it comes to training sets, it's hard to start late...
>What Facebook and Google have is massive, large scale user loyalty.
Google has effective control of web standards.
Edit: Also, the podcast directly addresses your comment. In fact, that's what it is about.
You can chose not to ever fly on an airplane. According to the logic above, it's just a convenience. Nevertheless, people generally don't dismiss issues with air travel by saying that you can just chose to drive.
In reality, a lot of the systems you think are essential to your day-to-day life are technically opt-in. Except you cannot opt-out without cutting yourself off from the society.
Also, societies are not established by armies. They are established by social conventions with enough clout to become self-sustaining.
The Internet was originally established in a way that was very different from the current version of an offline society with its hyper-centralization and authorities. But the consolidation of services and infrastructure significantly changed that model.
Most, if not all, websites will block your bot after a couple of request even if it respects robots.txt.
Also they seem to have different rules for GoogleBot and different for yours.
Social requires network effects. Even Google with massive resources at its disposition could not compete with Facebook.
Now, from the advertisers’ PoV, Google is a essentially a monopoly in search, but not so much from and end user’s perspective.
Maybe the term should be "network monopoly" where the network effect is the mechanism by which they restrict the entry of competitors? That's very much true for social media companies.
Monopolies are extreme examples of lack of competition in a market. One way non-competitive market equilibriums occur are when barriers to entry for potential competitors rises.
For Facebook and Google, the market externality that contributes to their monopoly-like market power is known as the Network effect (https://en.wikipedia.org/wiki/Network_effect). This effect was first observed with the rise of the Bell System which ultimately required anti-monopoly intervention (https://en.wikipedia.org/wiki/Breakup_of_the_Bell_System).
For Facebook, the network externality is a bit more straightforward since it is a first order effect in that new users looking to adopt or join a social network choose to join the one which has the most other users they are interested in (typically friends, but could also be public figures). This tendency becomes a self-reinforcing trend as more and more users join the single largest network. This dominance in users attracts advertisers which are the primary source of revenue for Companies whose primary product is a social network.
For Google, it's also an information play. The more users they can have an interaction with the more data they can scrape to feed their advertising engines. Once again, advertisers are incentivised to pay the best/biggest data troves which gives Google the ability to invest even more in providing and improving services to attract users. Which again, becomes a self-reinforcing cycle.
I wouldn't say that user loyalty/user's reticence for change is not a contributing factor, I think it is; I just don't think it would be correct to say Google and Facebook aren't the beneficiaries of monopoly-like market equilibriums. It's a stretch to call them true monopolies (actual singular market suppliers), but their market control and power are rapidly approaching, if not already equal to or greater than, that of historical examples of monopolies and targets of anti-trust legislation.
Also, in google and facebooks case the "consumers" are the product and the advertisers are the buyers.
I think this is the sticking point. A lot of the time this loyalty is not real. Many people would happily move elsewhere if the service was as good or better. The trouble is, every other alternative is basically doing the same thing as Google and FB, so there's little incentive to move.
However, it's clear that a monopolizing aspect exists because for every email I write, there is (probably) a very high chance that google will read it, because it ends up on their servers.
For every website I visit (if I disable uBlock, of course), there is a very high chance that I'll be subjected to FB tracking.
So, although these companies are not a 'classical' monopoly, I think it's fair to state that they are definitely monopolizing our usage of the internet. The real problem is that all the other 'wannabe' alternatives aren't all that much better, with (perhaps) the exception of the Search Engine space (ddg, startpage).
This isn't the 90s where anyone can crawl the web without countermeasures.
"Traditionally," crossing over a farmer's land entitled the farmer to extract a fee from you, no matter what altitude you crossed over at. The law had to change once the technological reality changed.
In this case, the supply of a good or service (social networking, webpage indexing and searching) are not controlled by Facebook and Google
I think this is a bit of a sham. As you observe, the mere existence of website pages isn't worth anything by itself.
What Facebook and Google have is massive, large scale user loyalty.
Human attention, on timescales measured in hours or days, is still a finite resource. Human attention, measured on a per-capita basis is still a finite resource. If you just call it "loyalty" and make some kind of claim of market sacredness to your hard earned spoils, you're just obfuscating the finite nature of the resource the actual product is based on.
Despite alternatives existing (Bing, Mastadon, DuckDuckGo, Myspace, etc.), users are voluntarily choosing to use Google and Facebook. This is not a monopoly, IMO.
You're actually just begging for a special exception for network effect based monopolies.
Google and Facebook both want to be publishers when it suits them, and common carriers when it suits them, and both have shown, I think we can all agree, a propensity to be evil. I think it's telling that Google retired, "Don't be evil."
I think Google is worse in that regard since they are so much more pervasive. It's easy enough to permanently opt out of Facebook, but to avoid using Google is difficult, if not impossible.
The other question is that do these companies allow for competition, not that they are necessarily explicitly preventing competition (although they may be), but whether or not they are so successful and have so much of a market share that it is literally impossible to compete with them, and again, I think the answer is yes. We see new competitors for Facebook on almost a weekly basis, and none of them ever get anywhere, not because of whether or not they are any good, but the fact that they can't compete because pretty much everyone who isn't actively boycotting Facebook is on Facebook (including me).
As far as Google goes, the best we can hope for the is someone to be able to compete with them in one particular area, and even that would be tough because Google, like Microsoft or Apple, can throw so much money at a project that it can succeed as a loss leader by simply outlasting any would-be competitor.
Sincere question - why? Aren't there alternatives to all google services? I have not opted out of using Google services, so I'm genuinely curious. Everything I can think of has an easy alternative to use.
These companies buy potential disruptors at inflated prices. Sometimes they shut the disruptor down to maintain the status quo; sometimes they guide the disruptor to create a new market. In either case, it creates a positive feedback mechanism that increases their influence and further entrenches the parent company in their customers' lives.
As a market (and governed society) we need to decide if this is something that we want or not. It may be too late for pure market pressure to stop this behavior, leaving it to regulators. Or we can decide it's acceptable and let it go for the benefit of the innovations that these companies create.
I don't know if monopoly is the right word for this, but it's something and it does matter.
- #5: Facebook reportedly discredited critics by linking them to George Soros (https://news.ycombinator.com/item?id=18460406)
- #10: Facebook’s weapon amid chaos and controversy: misdirection (https://news.ycombinator.com/item?id=18460962)
Time for a bunch of people with no competition law or economics background to get upset over the term 'monopoly'.
Abuse of dominant market position is the most accurate developed term of art to describe what these firms do. But the devil is in the details - the treatment, definition and remedies associated with the offense are fairly arcande, and seemingly innocuous terms can make or break the entire framework.
Here's the EU's brief blurb on the issue:
http://ec.europa.eu/competition/consumers/abuse_en.html http://ec.europa.eu/competition/antitrust/overview_en.html
This is, however, just the basic 101 theory. The reality is a lot less rosy. In actuality, almost every level of the pro-competitive state regulatory framework is subverted, and that's by design. A state benefits from corporations that abuse their dominant market position and act anticompetitively if the harm suffered is less than the benefits. For instance, if the harm is primarily suffered in foreign markets, or by a different financial class, etc.
This is without even considering google dorks, possibly one of the most powerful tools infosec researchers (or even average people) have to refine queries.
In the case of Facebook, it offers the best product because its product is really people (the whole "you-are-the-product" issue). Facebook has the most people, therefore the best product.
Offering the best product is not a monopoly. Don't forget that MySpace was "the" social network before Facebook, but was displaced. These are not necessary traditional monopolies, and therefore should receive consideration on how they should be treated.
I use DuckDuckGo for search & Twitter for social media. I find discovering new things/People on Twitter more interesting than the sclerotic family/friends stuff on Facebook.
Then Microsoft was the unbreakable monopolist that would rule the computer industry forever.
Now it's apparently FAANG.
Just the fact that we have five monopolists should be enough to show thinking people that it's not a monopoly situation, if history isn't convincing enough.
If Microsoft controller browsers, would Facebook and Google and Amazon and Netflix have had the neutral ground on which to grow and thrive?
The context is monopoly power, market failures, unfair competition and antitrust law.
Networked plaform technologies are very different from traditional monopolies: zero price, increasing returns, imperfect competition, spillovers everything is very different
Google and Facebook have taken full advantage of this new definition. They provide their products for free, acquire competitors without a peep from the FCC (Waze, Instagram, WhatsApp), invest heavily in corporate lobbyists, and have the fastest connections by colocating their data centers and building fiber optic cables. How can a new competitor be expected to lay undersea fiber optic cables?
[0] Tim Wu, "The Curse of Bigness: Antitrust in the New Gilded Age", 2018
Thanks to GDPR, you’ll probably never see a fb competitor emerge in Europe for example.
As for FB itself, once upon a time Hi5 and MySpace were all that matter for social networking.
Also many European social networking sites like Xing are doing pretty ok, in spite of GDPR.
A tall person may not appreciate flood waters, but a short person appreciates them even less.
There is no place in the private sector for wannabe universities. We have real universities for that. Greed and knowledge do not mix.
They could also not disappear. Is being a monopoly forever really a big deal?
> they have produced so much for the world of technology
As did and do so many others. What of what they made could not have been made with ethical behavior, or more competition?
> they have produced so much for the world of technology [..] This whole monopoly business is so overplayed.
Nobody said a monopoly cannot have any positive effect besides the negative ones. Refuting one argument, and one that nobody even makes, doesn't prove that anything is "completely hyped". That would require not just refuting one actual argument, but all of them, hence "completely".
How would you compare it with the opportunity costs, with "what could have been instead?" We usually consider that zero, because it can't be simply measured. That doesn't mean there wouldn't have been anything, or just more Microsoft and IBM, so to speak. It's like weighing two things against each other, and the one scale is welded to the frame.
Insofar competition leads to innovation, your one argument [for a monopoly being good] kinda backfires. They did that with barely having to try; imagine what they could do if they did have to try.