Battle of the Giants: Will Big Tech stay Big?
Will the future of Big Tech change forever with increased regulation and competition?
Chances are, even if you haven’t watched it, you’ve heard of “The Social Dilemma" - a Netflix documentary discussing the dangers of social media. It focused on how big social media giants like Facebook use algorithms to addict users to their platforms. If you haven’t watched it already, I highly recommend you go do so. In October, I wrote about the rapid growth of big data analytics and business intelligence. This week, I’m going to discuss how big data tech giants are facing resistance in some of their products and services.
Let’s first talk about how tech giants like Google, Facebook, and Amazon use our personal data.
Google records more information than you could possibly imagine. If you are worried that the government is microchipping you with the COVID vaccine, it may not matter because Google already knows everything about you. They record every search you make, track your location (even if you aren’t using the app), your interests, and more.
Similarly, Facebook has tracking software to follow your activities on millions of non-Facebook sites on the internet. They also collect information for non-Facebook users, broadening their huge dataset. It’s one thing to have data on you if you are a Facebook user on Facebook. Knowing information on non-Facebook sites and for non-Facebook users takes it to the next level.
As Amazon is getting more integrated into your house with Alexa and Ring, they have ample sources of personal data. Everything you say to Alexa is recorded and Amazon analyzes Ring footage. They analyze customer search histories, how long they spend on different pages, spending habits, and more.
These three companies have a similar goal when collecting data: Learn everything about a user to build an online profile about them to personalize their content, increase engagement and therefore increase revenue. With the rise of artificial intelligence, these tech giants can effectively learn anything about anyone just from their user data.
Google and Facebook’s main source of revenue is from advertising. 70% of Google’s revenue came from advertising in FY2018. Google’s AdSense program allows websites not affiliated with Google to use Google display advertising on their sites.
98% of Facebook’s FY2020 revenue came from advertising. There is a positive feedback loop at play here - Businesses put ads on Facebook -> With Facebook’s large customer base, the ads increase revenue for the business -> the business puts more ads on Facebook -> Facebook invests more of its increased revenue into improving ad engagement and acquiring customers -> more businesses come to Facebook for advertising. Theoretically, a social media platform is relatively simple. You just need to program a site where people can post. Facebook’s dominance comes from its large user base - why would someone use a different social media platform when everyone else they know is on Facebook?
Amazon builds a digital profile to personalize products andreduce friction when ordering (through One-click buying, cart remindets, etc), which increases revenue. It’s clearly worked as almost everything can be bought from Amazon now and be at your doorstep in as fast as 12 hours for some products.
Another competitive advantage these companies have is that they have the capital to acquire any competitor or leader they see. Google acquired Waze to improve its maps system (and probably got access to a lot more user data), Facebook acquired Instagram and Whatsapp. However, this rise of M&A among tech has caught the eye of many federal regulators.
Government Pressure and Regulations on tech giants in the past few years
In June 2019, the Justice Department announced that they are investigating Google for breaking antitrust laws. To clarify, antitrust laws are a set of federal and state laws that prevent monopolies to promote competition in business. Federal antitrust laws are broadly written. This gives the government a lot of flexibility to apply them to different forms of monoplogoies as innovation is rapidly changing the current market.
On October 20, 2020, “U.S. Justice Department sued Google for using anticompetitive practices to maintain its dominance over search and search advertising.” They claim that Google was blocking rivals by paying manufacturers to make Google their default search engine. Google retaliated saying that people use Google because they choose to, not because they are forced to. We’ve seen Google integrated with everything now. A majority of websites allow sign-in with Google and its broad range of services integrate well to make the user’s experience easier.
Some argue that Google has such a dominance in the online search space that they have an unfair advantage in internet advertising. They continue to acquire smaller companies to improve their advertisement business, preventing new companies from making a mark in the space. Additionally, sellers feel like they have to place ads on Google, as any other search engine likely won’t be as effective.
Regulars are most concerned concerned with Facebook’s pattern of M&A. In 2012, they acquired Instagram an in 2014 they acquired WhatsApp. Antitrust regulators argue that Facebook can’t buy these companies to eliminate competition. Facebook defends itself arguing that they have many rivals including Twitter, Snapchat, Apple, Google, Skype, Amazon and more. However, regulators continued with their conviction. In 2019, the FTC fined Facebook $5 billion for privacy violations arguing that “it is illegal for a company to acquire monopoly power by engaging in conduct beyond “competiton on the merits.”
Finally, officials argue that Amazon has strategically developed a platform that people argue controls too much of the sales market as they sell both their own goods and third party goods. They argue that Amazon fees are higher because they are the only company a market share this big. They also argue that Amazon products may be higher priced than some other places, but if a seller were to sell their product through a different vendor, Amazon would stop suggesting their product. Amazon argues that their competitive advantage and growth is because of low strategies and that they are invested in helping third party sellers succeed.
A big issue about big tech rose in the 2016 election about the growing misinformation easily available on these big platforms. Democrats argue that Facebook, Google and Twitter should be monitoring their platofmrs more closely and restrict political speech more. Facebook writes on their website that they are using machine learning to detect fraud, false news, and spam accounts. Theey are developing products to make it easier for people to view multiple perspectives about what they are reading, preventing users from only getting one biased opinion. Earlier in 2020, Twitter announce that they will label all tweets that contain harmful, misleading information on the coronavirus. Twitter is also developing a badge system to quickly show users what tweets are “harmfully misleading.” Google committed $6.5 million to help fight coronavirus misinformation. The three tech giants agreed to an EU “Code of Practice on Disinformation” in 2018 where they have to submit monthly reports on the efforts they are taking to remove fake news ahead of the European Election.
Apple vs Facebook 2020
Apple and Facebook have sometimes made comments directed at each other about privacy issues, but the end of 2020 brought the biggest open clash yet. Apple announced a new privacy feature that will make it harder for apps to track you. As of right now, ou can’t opt in or opt out of getting tracekd by all the apps on your phone. A new feature of iOS 14 will require third parts apps to ask for permission to track you. Different apps may request different levels of information. For example, rather than knowing your precise location, these apps may not only be able to access your general location.
In response, Facebook decided to retailiate publically. They made a page on their site specifically responding to Apple’s changing policy. It headlines:
Small businesses deserve to be heard.
Apple’s latest update threatens the personalized ads that millions of small businesses rely on to find and reach customers. We’re giving small business owners a place to speak their mind.
It allows small business owners to share how they feel Facebook’s personalized ads are crucial to their success, especially when the COVID-19 pandemic significantly reduced sales. They also took out a full page in the New York Times, Wall Street Journal, and Financial Times “to declare that it was ‘standing up to Apple.’” (NYT)
While Facebook said that it was supporting small businesses, Apple argued that it was standing up for users “who should know when their data is being collected and shared across other apps and websites.” They argue staying that Facebook didn’t need to stop advertising, they just needed to give users a choice. One thing to think about here, is that there are to ways to control privacy. One way would be to allow users to opt out of tracking and the other way is to have users opt into tracking. It’s likely that less users would opt into tracking than choose to opt out, which could significantly reduce the number of users that are actually providing data.
Further, Facebook agreed to provide information in an antitrust suit against Apple, where Epic Gamers criticizes Apple’s policies. Apple has rejected Facebook’s attempts to become more integrated on Apple devices. They tried to bypass the iPhone App Store when developing an app that paid users $20 if they allowed the app to track a user’s activity. Facebook also tried releasing A Facebok Gaming App as a substitute to the App Store, which was also shut down. Is Apple guilty of breaking antitrust laws?
Analysts said the change would probably have a limited impact on Facebook’s main ad business, as it already knows plenty about its users’ interests from their activity on Facebook and Instagram. But they said it could hurt Facebook’s efforts to sell ads in other places around the internet. Facebook’s enormous trove of user data is also one of its most valuable assets.
What’s the solution? If this continues to blow up, does Apple just ban Facebook from iPhones? Does Facebook stop supporting its platform on iPhones? This can’t happen as both companies are crucial to each others’ revenue stream. They must come up with some middle ground where both companies aren’t hurting each other.
Australia’s New Media Law
“Australia has passed a world-first law aimed at making Google and Facebook pay for news content on their platforms” (BBC News). Headlines brought through Globally as Australia looks to change something which has remained static in our internet for years. It’s not surprising to hear that US tech giants opposed this when it was first introduced.
Let’s first understand what the news ban includes. Right now, most news organizations publish their content for free on Google or Facebook. Only a few such as the NYT or WSJ have the privilege to make their content subscription based. If a smaller news organization makes their content paid, they won’t get any views as users will go to a free source, killing the business. The ban is looking to change that and incentivizes tech giants to negotiate payments with news organizations for content. If the tech companies fail to do so, an independent arbitrator can set the price that tech companies have to pay domestic media.
Google threatened to remove its search engines from Australia, something which seemed plausible at first. In 2014, Google removed Google News from Spain when the Spanish government passed copyright law forcing tech companies to pay publishers for headlines and news. Additionaly, Australia only accounts for 2.5% of Google’s revenue so it wouldn’t have a huge impact to the bottom line. However, they didn’t end up doing this and negotiated deals with a few Australian media companies. Facebook immediately banned Australian content on its platform but promised to reverse it and sign more deals with the news industry. According to BBC, “Both firms have also committed to spending $1bn each in the news industry globally over the next three years.”
While this may seem like a large play by government regulators to attach big tech, many others criticize the new law. Google says that only 2% of its searches in Australia are news related. Therefore a restrictions on news has no significant effect on how much time people spend on Google or Facebook. Additionally, while this provides a more equal balance of power for some of the larger media companies, the small media companies are left to suffer. Many outlets would be too small to be eligible for payment and wouldn’t be table to compete with the large news corporations receiving significant money from big tech companies.
But what are the big implications of this? 1) It created percent for other countries to implement similar regulation. This may significantly reduce the monopoly power that Google and Facebook have over news and information across the world; 2) While the law begins by just trying to make Google and Facebook pay for news content, does this create the opportunity for regulators to make big tech pay for everything else they present too?
Bottom Line
We observe that regulators world wide are cracking down on big tech. Big tech giants are also going after each other. It seems the main questions all revolve around data privacy, freedom of expression and antitrust regulation. Let’s see how these next few years play out and how some of the world’s largest companies evolve.
Sources
https://www.wsj.com/articles/the-government-vs-big-tech-arguments-each-side-could-make-11568031427
https://www.nytimes.com/interactive/2020/technology/tech-investigations.html
https://www.washingtonpost.com/technology/2020/10/28/twitter-facebook-google-senate-hearing-live-updates/
https://www.bbc.com/news/world-australia-56163550
https://www.cnet.com/news/googles-fight-in-australia-could-change-the-future-of-media/
https://www.nytimes.com/2021/02/17/business/media/australia-google-pay-for-news.html
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