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Are tech giants economically viable in a competition-orientated world?

Updated: Jan 20, 2021

"There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on." - Mark Zuckerberg

 

Debate rages in both the EU and US as to whether the tech giants are economically viable in the context of economies favouring competition and efficiency. Some argue that these firms are invaluable given the network effects they create, and the economies of scale they can exploit in their ruthless search for innovation. However, others aren’t so optimistic. Concerts over data usage have plagued narrative and dented the credibility of firms like Facebook, still reeling from the Cambridge Analytica scandal. A minor insight into the future and low-level economic analysis may provide some objective conversation in an era of disinformation and opinionation.


The principal argument in favour of tech giants like Facebook is that they arguably demand (and are ascribed) natural monopoly status. This effectively means that fragmentation of the market in the name of competition is illogical; high fixed costs and an idea so idiosyncratic it is to some extent unreplicable means that there simply isn't ample reason to include other firms in such an environment. This status is granted by governments, for example British Rail: what would the point in laying an additional set of tracks for trains to run on? The governments seemingly unaligned response to tech firms poses some interesting questions. Are they worried about their authority being undermined by firms who have more information about their citizens than the very state that governs them? Potentially.


The most potent of pro-facebook arguments is that they possess extraordinary, if not dangerous, network effects. The cost to the consumer of joining the site is zilch, providing a great incentive for individuals to register even if they don't wind up using the account; they own a facebook account and obtain no sunk costs in the process. Furthermore, the cost to Facebook of an additional user is infinitesimally small, almost a marginal cost of zero. They are able to sustain a growing population of globalisation-hungry generations. As the world becomes more fragmented thanks to lower travel costs and increased foreign direct investment from private firms, individuals inevitably leave friends and family behind. Very sad. But with the network a firm like Facebook creates, not only can such indivuals become interactive online with new friends, they retain and nurture bonds with those left behind. What other social media sites provide a similar experience (Twitter etc. are tech giants so for the purpose of argument they can be safely put aside)? It would take a painful amount of time to get networks up on a sufficient scale to provide efficient communication between continents only for the end result to be the revinvention of the wheel.


For any movie buffs out there, you may recall Eduardo Saverin (played by Spiderman) describing Facebook as a means of putting the social experience of college online. The natural progression from that was of course putting the entire social experience of life online (and global domination, whilst they were at it). This is what makes big tech such a valuable asset when it comes to the enrichment of the masses; you are the gatekeeper and the hopeful entree at the same time. Dynamic networks of millions, if not billions. At a relatively small social cost, there is a huge social benefit to be had. Logging into your facebook account does not contribute to planetary degradation on a marginal scale, but catching a flight to visit your friend living in Haiti does. Why not spare the planet some beating whilst we're at keeping in touch with loved ones. So many benefits accrue to consumers, and yet so do to Facebook. So much for the neoliberal capitalist economy being a zero-sum game eh? Well.


Concerns recently have risen as to the mischief firms like Facebook are up to when it comes to handling of user data. Luckily, events such as the Cambridge Analytica scandal have restored such faith into data collection and distibution mediums! Ultimately, the more personal data firms collect, the more sway they potentially have over a populus obsessed with politics, consumerism, and the lives of others. In a world that commidifies everything from animals to spectrums for broadcasting, it is not too surprising that eventually, interested firms would come calling.


Personal data is usually most valuable to firms involved in marketing and advertisement; understanding social trends and what consumers are implicitly asking for is their job to some degree (assuming they are a market-orientated firm). From understanding the behaviour of demographics they can segment markets, making their advertising budgets moer efficiently used; your grandmother is unlikely to be interested in the latest piece of virtual reality technology, so marketing it to her is a waste of valuable resources. But, where is the line drawn?


Since the beginning of the 2010s, we have seen a new form of politics emerge: smear politics. Politicians seem to have made bureaucratic process a secondary concern; win at all costs is the new rhetoric. This involves ever more cunning and morally questionable practices being implemented, from insulting your opposition about his late son, or applying personal user information into voter targeting. This is one primary concern to many legislaters; where is the line drawn between private information and information that can be sold to private firms and political parties, all without the consent of the individual. Given the scale of tech giants and their ruthless efficiency in collecting data, they become the titanic gatekeepers to market and political dominance. Why should they have such power? Governements arguably shouldn't even have that power. Those concerned with a surveillance state area perhaps unaware of the incognito figure looming over their shoulder.


Whilst I offer simplified and understated account, it seems like these concerns are brought up time and again when it comes to the viability of such firms. Perhaps it seems legislaters will have a more direct focus on the prevention of horizontal integration of firms such as Facebook and the pursuit of market dominance; they acquired both Whatsapp and Instagram. Different demographics are more or less likely to use each service, meaning that the data they collect can become increasingly specialised and as a result, valuable. An era of private commodification has begun.

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