Should We Be Afraid of Apple, Google and Facebook?

Tim Wu, the Columbia law professor who coined the term “net neutrality,” is not someone to be dismissed lightly, especially when it comes to communications and media trends. In his recent book The Master Switch: The Rise and Fall of Information Empires — and in a related piece in the Wall Street Journal — Wu argues that just as AT&T was a monopoly during an earlier phase of communications history, companies like Google, Facebook and Apple now have what he calls “information monopolies” that could be just as damaging to our society. But does he present a convincing case that this is true? Not really.

In his WSJ op-ed piece, Wu asks: “how hard would it be to go a week without Google? Or, to up the ante, without Facebook, Amazon, Skype, Twitter, Apple, eBay and Google?” Just for the record, I routinely go days without using Amazon, Skype or eBay and haven’t noticed any problems, and I spend most of my time online. In any case, Wu says doing without Google and Amazon would be inconvenient, but:

Forgoing Facebook or Twitter means giving up whole categories of activity. For most of us, avoiding the Internet’s dominant firms would be a lot harder than bypassing Starbucks, Wal-Mart or other companies that dominate some corner of what was once called the real world.

What is a monopoly?

The author goes on to argue that despite the Internet’s reputation for encouraging freedom, it looks “increasingly like a Monopoly board” with most of the major sectors controlled by “one dominant company or an oligopoly.” According to Wu, search is “owned” by Google, while Facebook owns social networking, eBay rules auctions, Apple “dominates online content delivery” and Amazon owns online retail. But as more than one person has pointed out, none of these examples — with the possible exception of Google and search — meets any kind of real test of the term monopoly.

Tim Wu

It’s not clear what Wu even means by saying that Apple has a monopoly on “online content delivery,” although he seems to be referring to iTunes and the control the company exerts over distribution of music, movies, books, magazines and so on, either directly or via its mobile apps. But that doesn’t really qualify as a monopoly either; record labels, movie studios, newspapers and other content companies are free to distribute their content in other ways and still reach the same audience (or an even broader one), using the web and other services.

Google probably comes the closest to a classic definition of a monopoly — not so much on the search side, but when it comes to advertising and particularly search-related advertising, where the company clearly has a dominant position. As a result, Google has already come under scrutiny for acquisitions such as the purchase of the mobile advertising service AdMob (which got cleared after Apple bought Quattro Wireless) and others have recommended that regulators investigate the proposed purchase of the travel-information service ITA as well. But even so, arguing that Google is a monopoly is not a slam dunk.

Facebook and Apple don’t qualify

Facebook and Apple, meanwhile, don’t really fit any definition of monopoly, unless you broaden the word to mean “a really big company with products that a lot of people use.” It may be true that Facebook doesn’t make it easy for certain kinds of data to be exported from within its walled garden — something recently criticized by the father of the web himself, Sir Tim Berners-Lee — but that doesn’t really make it a monopoly. If Facebook is a monopoly, then Friendster and Myspace could just as easily have been accused of being monopolies when they were top dogs in the social-networking space. Instead, they are proof of just how fragile such a position is.

Facebook seemed like an also-ran just a few years ago — similar to Friendster and Myspace, but without as many features. Now it’s valued at more than $ 33 billion and is feared by everyone. Could it be the next Microsoft, and therefore deserving of our criticism for being a quasi-monopoly? Perhaps, but that case has yet to be made. And look at Twitter: in just three years, it has gone from being a quirky toy used primarily by geeks to a digital-age communications network used by hundreds of millions of people as a real-time news medium, and has a theoretical market value of more than $ 3 billion.

Wu argues that while they may not be strictly defined as monopolies, these companies are large enough and have integrated themselves into our lives in such a way that they might as well be monopolies. The risk with this argument, of course, is that governments tend to take a dim view of monopolies, whether metaphorical or otherwise, and talking about Google or Facebook in those terms could make it even more appealing for regulators and politicians to get involved in legislating technology markets and services — which is rarely a good thing.

The network effect works both ways

In his WSJ piece, Wu says he believes the Internet is more prone to monopolistic behavior because “a single firm can dominate the market if the product becomes more valuable to each user as the number of users rises. Such networks have a natural tendency to grow, and that growth leads to dominance.” But what Wu is describing — the so-called “network effect”– is a double-edged sword. Just as it built the former empires of Friendster and Myspace and AOL, it just as efficiently dismantled them when a better (or at least more popular) network came along.

Should we be aware that Apple is trying to control too much? Undoubtedly. And we should also be vigilant when networks like Facebook try to control too much of our information, as Tim Berners-Lee advocates. But Wu seems to want to draw a comparison between AT&T’s control over telecommunications and companies like Google and Facebook, and the analogy just doesn’t work. There are too many variables now, and the ubiquity of the web arguably makes monopolies more difficult to maintain, not less.

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