Are Facebook and Google monopolies?

With Facebook’s recent acquisition of Instagram and Google’s earlier acquisition of YouTube,  this question is becoming critical: What is an internet monopoly?

Anti-Google AdLars Plougmann

A 2007 advertisement from questioning Google’s large marketshare in Internet search.

In the social networking world, Facebook has become far and away the dominant company. While sites such as Myspace still occupy niches and organizations like Twitter hold an orthogonal space, almost all social media traffic goes through Facebook in one way or another.

What Facebook has done for social networks Google is in the process of doing for search engines. After a long struggle, Google is on the verge of completing its final conquest over its last remaining competitors, Bing and Yahoo. Your kids may no longer remember names like Lycos, Dogpile, or AltaVista, and soon, neither will you.

For some reason, this has not caused a great deal of alarm, but the scope of domination of companies like Facebook and Google is frightening when put into real world analogies. Imagine if 90 percent of the cars in America were Toyotas. That’s the kind of market share that Facebook and Google hold over the rest of the Internet. If any corporation making physical products held that sort of control, it would have been busted a long time ago.

Perhaps the reason why this has not yet happened has to do with the relatively innocuous natures of these websites. They don’t (appear to) sell anything, so it’s difficult to label them as gougers or volley at them other epithets often given to more obviously nefarious monopolists. They’re not ripping me off, so what do I care that they own almost everything?

Do not mistake the invisibility of the gouging for its lack of existence, however. Facebook and Google both use systems of advertising that operate on a cost per click basis. The price of an ad click is driven by a bidding system. Instead of all consumers paying the same price, each consumer pays the maximum he is willing to pay to advertise — by definition what happens in a monopolistic system.

The story gets even worse when you consider the vertical integration practices that both companies are beginning to adopt. Google’s expansion into online content creation, e-mail, and browsers are quickly making it very difficult to avoid the company’s long reach anywhere on the Internet — and indeed off of it, as well. This form of over-streamlining and over-diversification is exactly the sort of actions that got Microsoft into trouble; there is no reason why Google should be able to avoid a similar fate.

The nature of forcing out the competition is also different on the Internet. While in the real world production and quality control are, at times, independent of branding, the less tangible nature of intellectual property reduces the relative difficulty of catching up in the first two categories. Because brand recognition is so disproportionately powerful online, the simple existence of a monolithic entity is often enough to discourage entry of other competitors into the market. While in the short run this means the product being made is more polished in an effort to keep newer, better ideas with less polish from being viewed as competitive, in the long run it results in a net damper on innovation and creativity.

From this economic perspective, it seems clear that Facebook and Google’s monopolies need to be busted, but any form of action against them must have well-defined legal motivations and authority, as well. Perhaps the reason why these monopolies are not feared is simply due to a lack of understanding about what exactly owning something on the Internet means. More, as the Internet is in some sense a fundamentally international entity, it is not clear what nation’s laws with regard to monopolies and market competitiveness should apply; for a related example, one need look no further than Wikileaks and Julian Assange. Indeed, even if a specific referent set of laws were to be selected, online intellectual property law is changing quickly, making precise statements very hard to concretely formulate.

Despite these difficulties, however, action must be taken. Make no mistake: Companies like Facebook and Google are approaching monopoly status. If we want to keep the internet from resembling America in the 1920’s, regulations are needed to curb this development.