The increasing censorship by the tech monopolies is, reasonably enough, raising fears about attacks on free speech. Facebook’s ban on Australians’ finding or sharing news on its site has exposed the intense bullying, although in many ways this is a battle over who gets advertising revenue between News Corp and Facebook with the Federal government caught in the middle. Facebook is not interested in news; it is an advertising company.
What has been less noticed is that social media companies are adopting a strategy that may go down in history as among the worst corporate mistakes ever. Google and Facebook are, respectively, the fifth and sixth most valuable companies in the world. On the way up they were exceptionally innovative; so effective at providing better value to advertisers that they destroyed much of the world’s mainstream media industry by capturing over half of the world’s advertising revenue.
But they are now monopolies and, like all monopolies, they no longer see their main interest as serving customers but rather to capture governments in order to protect their market dominance. When Mark Zuckerberg donated $US400 million to ‘help’ local election offices in the recent US election, the commercial rationale was unmistakable.
What most troubles monopolies is the threat of being broken up with anti-trust laws (which exist in the United States, unlike Australia). Google is being targeted with three anti-trust cases, including one filed by 40 US state Attorneys General last December. US states and countries are starting to legislate against the censorship. Other threats are the potential removal of Section 230, which protects the social media monopolies from civil liability as publishers. There are also moves to decentralise social media to give users more control over their own data.
Seventy five million Republicans voted for Trump, and according to polling three quarters of them believe the election was subject to widespread fraud, as do many independent voters. Yet if they try to discuss that on social media, they are at risk of being silenced.
It represents a massive opportunity to citizen Donald Trump — always more a business person than politician — is set to take advantage. Trump’s plans seem to be well advanced and there would be a strong commercial logic. The biggest barrier to entry in the digital media space is not so much technology as marketing, which is what Facebook and Google excelled at. Marketing is labour intensive and small competitors lack the funds to compete.
'They are brutally telling users what they can, and cannot, say. They are also trying to shape what users think using sinister surveillance and Artificial Intelligence techniques that are as opaque as they are unaccountable.'
With Trump, however, marketing costs would be much lower. He already appeals to 75-100 million supporters who are being told they are not wanted and is globally recognised for his so-called ‘populism’, which is to say he is very popular. It is hard to imagine that the potential market pull associated with providing an alternative to the tech oligarchy would not gain traction. It would definitely attract heavy investment.
The social media company most vulnerable is also the most aggressive. Twitter has deplatformed Trump and is removing, at a rapid rate, users it deems to be ‘contravening the terms of service’ or ‘violating community standards’. The company is valued at $US57 billion but only recorded profits in 2018. Last year, it came in with a massive $US1.4 billion loss.
Facebook and Google are less vulnerable but their high valuations assume continuous growth. The basic metric used to assess shares is the price-earnings ratio (PE). Facebook’s PE ratio is 35 and Google’s is 30, which are very high for mature companies. Roughly, it means that it will take, respectively, 35 and 30 years to pay back the value of the shares at the current level of profitability. The only way that makes any sense is to keep growing, which was already difficult enough in a saturated market. It is even harder when you deliberately turn away customers.
This is not to suggest that the social media giants will go out of business, although Twitter may get into real trouble. But very few companies, even giant monopolies, last longer than 20 years. The most common reason for failure is making strategic mistakes when market conditions change.
The social media giants are no longer just offering users the harmless opportunity to ‘stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them,’ to quote Facebook’s ‘vision statement.’ They are brutally telling users what they can, and cannot, say. They are also trying to shape what users think using sinister surveillance and Artificial Intelligence techniques that are as opaque as they are unaccountable. They have become political entities first and businesses second. The perils are obvious.
David James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.
Main image: Phone with Google and Twitter apps (Brett Jordan/Unsplash)