Who’s Afraid of Apple, Google, Facebook?

Timothy Wu says we should be alarmed by the monopoly powers accumulated by Apple, Google, Facebook, Amazon, Skype, Twitter, Apple, and eBay. Why he’s wrong

Timothy Wu, the Columbia University 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 such as Google, Facebook, and Apple now hold what he calls “information monopolies” that could be just as damaging to our society.

Does he present a convincing case that this is true? Not really.

In his Journal 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. I spend most of my time online. In any case, Wu says doing without Google and Amazon would be inconvenient. He goes on to say:

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 Constitutes 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 Adam Thierer has pointed out (so has Mike Masnick, among others), none of these examples—with the possible exception of Google and search—meets any kind of serious test of the term monopoly.

It’s not clear what Wu even means by saying that Apple has a monopoly on “online content delivery.” 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 to still reach the same audience (or an even broader one), using the Web and other services.

Google probably comes closest to a classic definition of a monopoly. Not so much on the search side, but as it might apply to advertising—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). Others have recommended that regulators investigate the proposed purchase of the travel-information service ITA as well. Even so, arguing that Google is a monopoly is no slam dunk.

How Would Facebook and Apple Qualify?

Facebook and Apple, meanwhile, don’t really fit any definition of monopoly, unless you broaden the definition 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, Sir Tim Berners-Lee—but that doesn’t make it a monopoly. If Facebook were a monopoly, Friendster and MySpace could just as easily have been accused of being monopolies when they were top dogs in social networking. Today, they offer proof of the fragility of such a position.

Facebook seemed like an also-ran just a few years ago—similar to Friendster and Myspace, but with fewer features. Now it’s valued at more than $33 billion and 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. 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; it 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—rarely a good thing.

“Network Effect” Builds and Destroys

In his Journal 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.” 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 beware that Apple is trying to control too much? Undoubtedly. Need we also be vigilant when networks such as Facebook try to control too much of our information, as Berners-Lee advocates? Sure. Wu, however, seems to want to draw a comparison between AT&T’s longtime control over telecommunications and the power of companies such as Google and Facebook. The analogy just doesn’t work. There are still too many variables and the ubiquity of the Web arguably makes monopolies more difficult to maintain, not less.

Tags: monopoly