“The company used its data advantage to create superior market intelligence to identify nascent competitive threats and then acquire, copy, or kill these firm.” The United States Congress made this remark on Facebook after a 15-month probe into the big 4 tech companies.
This blog presents selected information from the report that might be interesting for discussion. For evidence and further elaboration, please feel free to visit the link in references.
Overview
The landscape of social networking is overwhelmingly dominated by Facebook, Inc. Top three most popular social networking apps in the United States are Facebook, Instagram and Messenger. In July 2020, the company reported 2.47 billion daily active people (DAP) on its family of products, including the aforementioned three and WhatsApp.
Monopoly Power – Barriers to Entry
Network Effects
- The compelling network effects of Facebook has protected the company from its rivalries. Instead of inter-company competitions, Facebook is more concerned with Instagram vs. Facebook and WhatsApp vs. Messenger.
- Social apps have “tipping points” at which “either everyone uses them, or no-one uses them”. The committee found particularly formidable tipping points in messaging apps. In many countries, the adoption rate of WhatsApp is either above 90% or below 10%.
Switching Costs
- Users of Facebook typically have invested time and effort in building up their profile and friend network. This include uploading photos, making posts and leaving comments. When switching to a different platform, users face the challenge of migrating all those data. Though the company publicly support data portability, users can only download their data in PDF or .zip format. Not to mention this function is hidden under layers of menus.
- Abandoning your Facebook account also means to abandon all the services linked to that account. This include Spotify
Access to Data
- Two loops that create self-reinforcing advantages. First, the user feedback loop. Large user base creates tons of data, which the company then uses to attract and incentivize users to spend more time on the app, by creating customized experience. Second, the monetization feedback loop. Revenue from targeted ads could be reinvested to attract more users.
- Facebook has collected data that is incomparable in quantity and quality. Some firms that got access to these data in 2010 experienced tremendous growth and success. Facebook’s leveraging access to its data is effectively selecting the winners and losers of the market.
Remarks
It seems apparent that Facebook, Inc has a dominating position in the social networking market. Same-side network effects and switching costs are two intrinsic characteristics of the industry that creates hardships for newcomers, and Facebook made sure they remain a barrier to keep out competition. While being a classic case of monetizing data, how the company collects and shares data is merely an ethical issue. Regulatory bodies have failed to catch up with the not-so-newly-emerged business model and witnessed the making of a global monopoly tech giant. But to be honest, if you were an American law maker, would you have intervened?
References
Click to access House-Tech-Antitrust-Report.pdf
Detailed reading:
- Usage and Reach [p.137]
- Barriers to Entry [p.141]
- Network Effects [p.141]
- Switching Costs [p.145]
- Access to Data [p.148]
Very interesting topic you are describing here. The power which big tech companies currently have is really scary.
They can completely manipulate their users using many different techniques and furthermore retain these users with for example network effects, switching costs and similar techniques..
In my opinion, these tech companies are or will be too powerful in the near future. It is good that these companies were questioned in the congress. However it appeared that most members of the congress were not too familiar with the technologies.. (Just like regular users)
If you want to learn more about the manipulation of these companies, it can be interesting to watch the Netflix documentary “The Social Dilemma”. This documentary shows an insight by industry experts on the ways in which these companies can manipulate users.