It’s Time to Bust the Online Trusts

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From The Wall Street Journal Editorial Page:

This week some of America’s most beloved internet companies will follow the footsteps of Big Tobacco and Wall Street in a dreaded rite of passage: the Capitol Hill perp walk. The top lawyers for Google, Facebook and Twitter will try their best to explain to the Senate Intelligence Committee how misinformation spread through their platforms in the months leading up to the 2016 election.

They are also likely to argue that the best response to their platforms’ negligence is not government regulation. If Google and Facebook are lucky, the result will be the passage of the bipartisan Honest Ads Act, which would merely require buyers of online political advertisements to reveal their identities. This is a necessary move to increase transparency, but it is not sufficient to protect the electorate from manipulation.

Focusing on the narrow question of online advertising will only distract lawmakers from the true problem: In the absence of rigorous antitrust enforcement, the consumer internet has become too concentrated in a few dominant companies, creating easy targets for bad actors.

There is a reason Congress did not have to investigate foreign meddling after the 2008 or 2012 elections. Back then the internet was still a diverse, decentralized network. Anyone could create a website or blog to satisfy the demand for popular or niche content. This older form of online community building has largely been supplanted by tools provided by the dominant players. Facebook Groups allows people to create communities without requiring much technical skill. It does, however, require a Facebook account, meaning participants have no choice but to share their identity and their data. Today, many internet services are inaccessible unless you have joined Facebook’s “community” of two billion users.

Google used to be the engine that drove the open web. In a 2004 interview, co-founder Larry Page denounced powerful intermediaries on the internet, saying that “we want you to come to Google and quickly find what you want. Then we’re happy to send you to the other sites. In fact, that’s the point. The portal strategy tries to own all of the information.”

Over time, Google’s philosophy shifted in the opposite direction, making the internet less open and pluralistic than even a few years ago. Now people are nudged to stay on Google.com. The company has committed to presenting a single “answer” to every inquiry, even ones that are subjective opinions based on sparse Google-owned content, like “best pediatrician NYC.” The result has been a decline of traffic to swaths of the web.

. . . .

Of every new dollar spent in online advertising last year, Google and Facebook captured 99 cents. Yet neither company has ever faced serious antitrust scrutiny in the U.S.

. . . .

The economics have also changed for internet startups hoping to reinvent the web. Early-stage capital has dried up, dropping more than 40% since 2015, as investors have become pessimistic that any new Googles and Facebooks will ever be capable of disrupting the deeply entrenched incumbents.

Link to the rest at The Wall Street Journal

PG will remind all that he doesn’t necessarily agree with everything he posts on TPV.

The author of the OP is vice president of public policy at Yelp, which undoubtedly views Facebook and Google as competitors.

PG thinks monopolies are a bad idea. He has also observed that government actions to resolve business problems have done more harm than good on many occasions.

Particularly when dealing with “misinformation” spreading, either through Facebook/Google or through the internet generally or through major television networks or major newspapers, PG is particularly wary of government action.

Misinformation has also been known to spread through statements and advertisements originating with politicians and major political parties.

While he’s not an expert on antitrust law, PG notes that five of the six largest publishers in the US have recently violated US antitrust laws. In concert with Apple, major publishers broke those laws by conspiring to fix prices in a manner which has been illegal in the US for over 100 years.

Big Publishing continues behavior that is similar to the behavior of other shared monopolies. For example, 99% of the publishing contracts authors sign with large publishers include exactly the same royalty rates for sales of books and licensing of ebooks. A tacit agreement exists that no major will offer to pay an author royalties of more than 25% of net income generated from the publisher’s ebook licenses through Amazon, Kobo, etc.

In this case, the violation of antitrust laws was far clearer than anything Facebook and Google have been accused of (to the best of PG’s knowledge).

However, the most significant financial punishment imposed on the Price-fix Six has been from the ebook market. Lower priced ebooks from indie authors and small publishers have taken over the ebook markets at the expense of those from major publishers.

In this case, Amazon has been a neutral market-maker, opening its digital doors to one and all, large and small, on an equal basis.

As a group, readers are voting in favor of ebooks not published by major publishers. To the best of PG’s knowledge, no government action is responsible for this consumer behavior. In fact, a very large corporation, Amazon, provided an ebook marketplace in competition with another very large corporation, Apple.

While Amazon has been very helpful in accelerating the adoption of ebooks, if Amazon hadn’t existed, PG believes one or more other market-makers would have done the same thing.

The technology for creating, selling and consuming ebooks is inherently superior to the established structure for doing the same thing with printed books. It’s an open platform that supports a far wider range of authors and satisfies a much larger population of readers at a much lower price than the paper alternatives. Bits are inherently more efficient than atoms for the distribution of information.

End of rant. PG will restrain himself for the rest of the day.