How much changes in six months.
Last year, the idea that the FANGs (Facebook, Amazon, Netflix, and Google) would look increasingly vulnerable to regulatory oversight and to the tweets of Donald Trump would be considered fantasy – or a nightmare.
Now, regulation for three of the four is a definite possibility, and for Facebook and Amazon that possibility is turning rapidly into a probability.
It is worth bearing in mind though that the FANGs are not a homogenous group and that their business models differ substantially. In that regard, the approaches to regulation are likely to differ too.
We can quickly dispose of the idea of regulation on Netflix, which is one of many pay-TV companies in the US. There is, however, a very strong argument for some sort of regulation for the other three firms.
First, Google. Most attention is focused on its YouTube platform and the hosting of inappropriate content. That is something of a side issue, although it is safe to say that YouTubes hopes of stealing large amounts of TV advertising money are faltering.
In the UK and US, the platform is apparently suffering from advertisers wariness, and the newspapers (which have a vested interest in the issue) will have plenty more stories stored up about how YouTube is showing adverts alongside inappropriate material.
But the real issue is Googles core business: Search. Google is, effectively, the new Yellow Pages. Market leaders in Yellow Pages were almost always regulated, because they had dominant market power. Yes, theoretically a customer could use another product, but it was understood that network efforts kicked in, and that the leaders had disproportionate power. Thus state officials regulated the prices.
The same should go for Googles Search. Yes, you can theoretically use Bing or Ask Jeeves, but there is a reason that Google has close to a 90 per cent share of searches in a market like Britains. Googles control is even tighter than the old Yellow Pages, because no one outside the company has access to its algorithms that determine placing.
The regulatory solution is obvious: regulate Googles pricing structure and force transparency on its algorithms.
Now onto Facebook. Again, no one forces you to use Facebook, and people do sign off. Its core business is targeting brand advertising, and so it needs a mass market audience to be valuable.
There is a very strong argument to say that Facebook should actually be a subscription-based model, where people pay a low fee per month, given it provides a useful service to individuals in the sense of keeping in touch with friends.
However, Facebook has boxed itself into a corner by saying it will be free forever, and therefore it relies on advertising.
The argument for regulating Facebook is different from Google. Facebook has for years effectively harvested consumers data to sell advertising, and its terms and conditions have been so long-winded that few know what they are signing over.
This is where regulation is likely to strike, as is happening in the UK. The question then becomes whether Facebook can sell advertising if it has less data to sell. As an oil company needs oil to sell, so a data company like Facebook needs data.
What, ironically, might finally bring Facebook low is a growing realisation among advertisers that, for many products, it is actually a poor way of spending money. Independent studies suggest media such as TV is much better at building brand awareness.
Moreover, Facebook is a platform that distributes content. That makes it no different from a TV broadcaster, which is subject to the necessary broadcasting regulation.
Facebook has, for years, avoided that responsibility, claiming that it is not a publisher as it does not produce its own content.
That argument runs hollow. What it is trying to do is get the best of both worlds: argue to advertisers that it is a media platform that has the mass reach of TV, then claim to regulators it is a “tech” company so should not be regulated.
Finally, Amazon. It is a massive ecommerce site that people find very convenient, but Trump actually has a point. In effect, Amazons business model represents a very significant transfer of money from the taxpayer to its business – in part because of the demands it places on the US Postal Service, and also because it impacts local businesses such as bookstores that do pay local taxes.
Moreover, because it decides which products are prompted to customers, it also has considerable leverage. Again, the argument is likely to be a mixture of tax reforms and more transparency over how Amazon displays products.
While it may seem as though things are getting more complex for regulators and politicians, their predecessors of the late nineteenth and twentieth centuries managed to create the necessary regulatory framework for similarly “new” industries. It should not be beyond the capacities of their successors to adapt to the new economy.
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