The social media giants (Facebook, Twitter, Google) have grown quickly. That’s great! This new tech has created a new economy in which “users” (that’s you and me) provide “data” (about us) that gets turned into a “product” (mostly targeted ads) that are sold to “customers” (the people who pay money).
The problem with this new economy is that there seems to be an unlimited “economy of scale.” That’s the term economists use to describe a situation where bigger is better. If I open a “Mom and Pop” convenience store, I can only shelve so many items. If you’re looking for something I don’t have, you’ll drive right past my store to the box store on the strip mall. The big box store can buy in bulk, offer discounts, and run ads. That means that even if Mom and Pop have the item on their shelves, many of their neighbors will drive right past them to get the same thing cheaper elsewhere. That’s not a bad thing for the consumer–it’s just how “economies of scale” work.
Targeted ads seem to have unlimited economies of scale. The more “users” I have in my system, the more ads I can sell. The more data I have on each user, the more effective those ads become. A “Mom and Pop” social media platform may be able to reach their little community, but the social media giants can reach the same users even better. Here at Storybook Farm, we raise heritage chickens and mini-Nubian dairy goats. We are active members of a number of online groups for goat and chicken people. If you wanted to sell me a better frost-free chicken waterer, you could place an ad at “BackYardChickens.com” and you might reach catch my attention. It’s possible that I would see the ad and remember it a few months later when the weather gets cold. But it’s easier, faster, and cheaper to buy a Google ad for anybody searching for “frost chicken water.” That ad will pop up as soon as I go shopping. Mom and Pop can’t compete with the big boys.
That’s not bad for the user! If I want a frost-free chicken waterer, I want it when I need it. I’m happy to have a social media giant collect the data and make money on the process.
There is a problem with such economies of scale, however. They can stifle competition. Once Google owns the search engine market, it’s hard for a direct competitor like “DuckDuckGo.com” to break in. That’s why a lot of new entries to the social media market offer something different. That’s called “innovation,” and that’s great! But that hasn’t quite worked out as planned.
Social media success has enabled the social media giants to gobble up their competition. Facebook became successful and people couldn’t compete with it directly, so they invented WhatsApp, Instagram, and a host of other products which Facebook then acquired. Google became successful so people invented YouTube, Picasa, Blogger, and a host of others that Google gobbled up. Twitter became successful so people invented Periscope, Twitpic, etc. Twitter owns them now.
The social media giants consume their competition because they use their ever-expanding data set to sell their products. A tiny code-sharing app (if such a thing exists) might serve a tiny group of geeks; but link that up to Facebook’s data on who is learning to code in Python and you can multiply the value of that app. A company worth $1 million a year without Google’s gigantic database could be worth $5 million the minute Google acquires it. It’s hard to create competition to the big companies when the economics reward the big guys every time.
With great power comes great responsibility. Facebook got into hot water in the 2016 election. Twitter and Google have been subject to conservative criticism over claims that they are censoring conservative speech. These new companies benefit from a special provision in the Communications Decency Act which allows them to censor constitutionally protected speech without liability. Big media could hack the 2020 election if they want to.
The bottom line is this: the unlimited economies of scale in social media are good for people who want to buy frost-free chicken waterers but they may not be good for America. Section 230 currently allows Twitter, Facebook, and Google to censor political speech and silence political voices. It’s time to limit their economic power in order to protect our political process.