As Facebook founder Mark Zuckerberg continues his “sorry, not sorry” tour of legislators on both sides of the Atlantic, a trickle of former tech leaders have begun to distance themselves from their vast – and vastly profitable – digital creations.
The most organised example of this is the founding of the Center for Humane Technology, whose mission is to “realign technology with humanity’s best interests”. But the most interesting is a clarion call from Facebook co-founder Chris Hughes to re-examine the basic business model that makes these companies tick. It’s this model that has rocketed both Facebook and Google past the banks and oil companies that used to dominate the ranking of the world’s corporate giants to the very top of the list. And it’s turned a handful of entrepreneurs such as Zuckerberg into the wealthiest tycoons on the planet.1
And what’s that model? In one word, barter. It’s the revival of an approach to business that had almost died out in modern societies. When did you last offer the baker a chicken in exchange for a dozen bagels? Or pay the window cleaner in cabbages? Modern economies use money as the means of exchange.
There’s been little focus on the revival of the barter economy that lies at the heart of the business model of Facebook and similar companies. Since we don’t pay money to use their services, they seem to be “free”. But of course they are not. Each time we “like” something on Facebook, or check Google for the opening hours of a restaurant, we’re feeding tiny morsels of data into an enormous machine that has been brilliantly designed to turn that data into truly enormous quantities of cash.
We’re bartering our data. And while each “like” or search inquiry isn’t worth much, the aggregation of billions and billions of these data morsels means Facebook the company – despite all the recent controversies – is worth half a trillion dollars, and every year returns a profit to its investors of a staggering 30%. The company had income last year of $40,000,000,000, almost all of it from advertisements; after expenses, there was a profit of $15,000,000,000.2
The impact of this data-driven business model has been enormous, driving the growth of a handful of mega-companies. As I argued here on UnHerd, governments have entirely failed to apply traditional pro-competition policies (what in the US is called anti-trust) to prevent any single company from dominating the market.3
The cracks appearing in the digital economy's foundations
One reason for this is that the barter model is thoroughly confusing. Consumers have no idea how much they are “paying” for the service, and are far less aware of the fact that they are in the hands of a monopoly than they would be if there were only one company from which they could buy a car. Facebook looks a bit like a charity, and the idea that its ads are personalised for you can seem like it is doing you a favour. While the Cambridge Analytica scandal over how data was misused has tarnished this image (and hit the stock price), there’s no evidence it has made a long-term difference to how the company is seen and the loyalty of its more than two billion users.
As David Z. Morris pointed out recently, if competitors are to have any chance against these mammoths, governments will need to intervene. For example, Morris suggests, they could require that a portion of the data gathered by a company like Amazon be shared with its rivals. Or, as two University of Chicago professors recently argued in the New York Times, consumers could be given a property right to their own data.
Chris Hughes has a different idea, based on the idea that everyone should benefit. Writing in the The Guardian, this is how Zuckerberg’s Facebook co-founder captures the problem:
Nearly every moment of our lives, we’re producing data about ourselves that companies profit from. Our smartwatches know when we wake up, Alexa listens to our private conversations, our phones track where we go, Google knows what we email and search, Facebook knows what we share with friends, and our loyalty cards remember what we buy. We share all this data about ourselves because we like the services these companies provide, and business leaders tell us we must to make it possible for those services to be cheap or free…
Just like many other business leaders, Mark Zuckerberg describes this as a win-win – people stay in touch with friends and family more often through a free service, and businesses can more efficiently spend marketing dollars to fuel corporate profits, making Facebook free to all. But one party has benefited a lot more than anyone else: Facebook shareholders.
The question, therefore, is how to share that benefit more equally. One option is to clarify in law that we own our own data, and have a system of “data brokers” to sell it to the highest bidder. Another, which Hughes favours, is by taxing the use of data by these companies, and sharing the revenues among people whose data has been harvested. There’s a parallel, he suggests, in the US state of Alaska, where a portion of oil company taxes fund an annual payment of $1,500 to every resident.
It's time to rein in the reckless monopolies
Hughes’ proposal is a creative solution, and before the companies start to complain about an additional tax burden they need to be reminded that neither Facebook nor Google invented the internet, or GPS (the basis of location services), or much else in the architecture that undergirds their business models and their enormous profitability. That technology was developed courtesy of the U.S. government.
What’s more, Google did not even invent the famous Google algorithm that enabled it to beat out early competitors in the search business. Its founders Larry Page and Sergei Brin did the work while they were students, funded by a US government grant.
It was public risk and public investment that got Silicon Valley and its megafauna going on their huge profits. Now the giants are hoovering up our data and turning it into cash, it’s time to take a long hard look at ways to re-structure our relationship with them.4