What Was Missing from Zuckerberg’s Call for Regulation

Executive Summary

Facebook is effectively a communications company where people send messages and they receive messages. The problem is that you only can send and receive messages within Facebook. If you want to leave, you can’t leave without taking your entire network with you. This is their monopoly moat. Successful regulation should address this specifically, not just break up the company for being too big.

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These days, it often feels like you have to declare your side before offering an opinion on almost anything. So let me state categorically that I love Facebook and have for over a decade. And that love hasn’t wavered, even as others have had their hatred for or distrust of the platform reinforced by a series of negative headlines and scandals.

So, when Mark Zuckerberg penned an op-ed for The Washington Post urging governments to regulate Facebook and other internet companies in four big areas, you could almost hear the eyes rolling. Of course, Facebook is a corporation, and it is acting in its self-interest. But in my view it was actually a positive move.

For years, I winced at how Big Tech approached regulatory matters. When they wade into policy matters, they fail to see the bigger picture — and the younger the company, the worse they are at this. The hole that Facebook has dug for itself is entirely because its leadership seemed to believe that if they stayed within the letter of the current law they wouldn’t be regulated. This is a completely naive and ahistorical view. And this view has prevented Facebook from innovating in their own policy space. Without that policy innovation, we are left with essentially nonsensical suggestions to break up Facebook — which wouldn’t actually solve any of the issues anyone has with Facebook.

Instead, what Facebook needs to understand that it was the winner in a winner-take-all contest for the social media market. Now, it is in an unassailable position and it’s eventually going to be regulated accordingly.

We’ve been here before with the last round of Big Tech companies. When we started with the large integrated monopolies, like AT&T, everybody hated them. What we did in response was to regulate in a way that addressed what was causing them to be a monopoly. In telecommunications, you could not make calls from one network to another network. Old Tech argued that to even contemplate that would be a bad thing because of quality and privacy concerns. Nonetheless, it was done, through interconnection requirements. And that meant that the network effects that gave Old Tech an unassailable monopoly dissipated. Consumers had choice and those companies moved down the list of the most hated. Essentially, we have the same issue going on with Facebook today.

Facebook is effectively a communications company where people send messages and they receive messages. The problem is that you only can send and receive messages within Facebook. If you want to leave, you can’t leave without taking your entire network with you. This is their monopoly moat. Successful regulation should address this specifically, not just break up the company for being too big.

In his op-ed, Zuckerberg proposed data portability to address this issue. Never mind that you can already take your data away from Facebook. Never mind that offering data portability is much harder for new entrants than current incumbents like Facebook. This is their proposal to deal with their monopoly. And it is as weak as it sounds because it does not take aim at the core issue: the unassailable network effects that social media generates.

I think the regulation that should be coming down the pike for Facebook is to make that industry look like the regulated industry that evolved in telecommunications. In May 2018, I outlined this in a report for The Hamilton Project at the Brookings Institution. The report examined the data portability idea Zuckerberg is now proposing and found it wanting. It argued instead that what we need is identity portability so that people can leave a social network and still be able to send and receive messages to other networks. In other words, they shouldn’t have to take the network with them if they want to switch.

There is a good case that this regulatory outcome is in Facebook’s long-term interests as well. If Facebook wants to take its cues from history, it should consider Microsoft. As Senator Elizabeth Warren has said, Microsoft was the big bad monopolist of the 1990s and antitrust law dealt with their practices. But how did it work out for them? Today, Microsoft is the most valuable company in the world, just as it was when the DOJ was hauling them into Court. Even though on many dimensions Microsoft’s position looks just as monopolistic as it did previously, it has achieved that in an environment where consumers do actually have a choice. Sure, there are still lock-in effects and various other frictions that can make switching costly, but there is a choice of operating systems, office suites, and other areas where the company competes. Microsoft has to innovate much more than it once did to keep its position, but it has worked out for them.

That’s the lesson that the rest of the Big Tech really needs to learn. They need to engage and they need to start innovating on policy. I am glad Zuckerberg is starting to discuss regulation. But if he wants to really engage, he needs to propose regulations that get to the heart of his company’s monopoly. Regulation is likely coming whether Facebook likes it or not. But the right rules might make Facebook more innovative, and even better to use than it already is.

Credit – hbr.org/


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