The current moment in world history is a painful one. Open societies are in crisis, and various forms of dictatorships and mafia states, exemplified by Vladimir Putin’s Russia, are on the rise. In the United States, President Donald Trump would like to establish his own mafia-style state but cannot, because the Constitution, other institutions, and a vibrant civil society won’t allow it.
Not only is the survival of open society in question; the survival of our entire civilization is at stake. The rise of leaders such as Kim Jong-un in North Korea and Trump in the US have much to do with this. Both seem willing to risk a nuclear war in order to keep themselves in power. But the root cause goes even deeper. Mankind’s ability to harness the forces of nature, both for constructive and destructive purposes, continues to grow, while our ability to govern ourselves properly fluctuates, and is now at a low ebb.
The rise and monopolistic behavior of the giant American Internet platform companies is contributing mightily to the US government’s impotence. These companies have often played an innovative and liberating role. But as Facebook and Google have grown ever more powerful, they have become obstacles to innovation, and have caused a variety of problems of which we are only now beginning to become aware.
Companies earn their profits by exploiting their environment. Mining and oil companies exploit the physical environment; social media companies exploit the social environment. This is particularly nefarious, because these companies influence how people think and behave without them even being aware of it. This interferes with the functioning of democracy and the integrity of elections.
Because Internet platform companies are networks, they enjoy rising marginal returns, which accounts for their phenomenal growth. The network effect is truly unprecedented and transformative, but it is also unsustainable. It took Facebook eight and a half years to reach a billion users, and half that time to reach the second billion. At this rate, Facebook will run out of people to convert in less than three years.
Facebook and Google effectively control over half of all digital advertising revenue. To maintain their dominance, they need to expand their networks and increase their share of users’ attention. Currently they do this by providing users with a convenient platform. The more time users spend on the platform, the more valuable they become to the companies.
Moreover, because content providers cannot avoid using the platforms and must accept whatever terms they are offered, they, too, contribute to the profits of social media companies. Indeed, the exceptional profitability of these companies is largely a function of their avoiding responsibility – and payment – for the content on their platforms.
The companies claim that they are merely distributing information. But the fact that they are near-monopoly distributors makes them public utilities and should subject them to more stringent regulation, aimed at preserving competition, innovation, and fair and open access.
Social media companies’ true customers are their advertisers. But a new business model is gradually emerging, based not only on advertising but also on selling products and services directly to users. They exploit the data they control, bundle the services they offer, and use discriminatory pricing to keep more of the benefits that they would otherwise have to share with consumers. This enhances their profitability even further, but the bundling of services and discriminatory pricing undermine the efficiency of the market economy.
Social media companies deceive their users by manipulating their attention, directing it toward their own commercial purposes, and deliberately engineering addiction to the services they provide. This can be very harmful, particularly for adolescents.