Smiley-faced monopolists: how Google, Facebook and Amazon won the world
The ever-youthful prince of Facebook, Mark Zuckerberg, told the world that he and his wife Priscilla Chan would be giving away 99 per cent of their shares to charitable causes during the course of their lifetimes.
A gesture so bold and generous: almost enough to rekindle the notion that tech billionaires were something different. A far cry from those grey and grubby bankers clutching their bonuses in so unseemly a fashion, or the brash property tycoons with exclusively located follicles and vacant consciences.
This fresh-faced 31-year-old, still high on the birth of daughter Max, his first child, said the shares, currently worth $45 billion, would go towards ‘education, curing disease and connectivity’.
Zuckerberg is one of a generation of technopreneurs who have created the fabulous success stories of Google, Facebook, Amazon et al.
Today’s digital titans are technically oligopolies – a few big players dominating the market
Companies so wild, so out-of-the-box creative, so limitless in their ambitions. Space travel, robotics, driverless cars, cryogenics – nothing is beyond the reach of their imaginings, or the power of their pockets.
They are the trendy, friendly face of capitalism. Young ‘disrupters’ who have devised platforms and devices that we cannot resist – that are not only easy and smooth to use, but in many cases free, too!
It all seems too good to be true...
And it is, if other items that have hit the headlines are anything to go by.
The digital titans are avoiding tax on an industrial scale. French police investigating an estimated $1.8 billion owed in back tax, raid the offices of Google in Paris.1 Facebook’s supposedly neutral social media services and Google’s search engine are accused of operating a political bias. Insider reports reveal harsh and exploitative working conditions within Amazon at all levels, and continued refusal to recognize unions.2, 3 Uber, the emergent poster child of the ‘sharing economy’, accused of illegal and dangerous practices, is banned in several countries.
And there is the mounting concern about monopoly power.
At the time of writing, the European Union is about to fine Alphabet (Google’s holding company) a record $3.4 billion, following a seven-year monopoly-abuse investigation. Google, which enjoys a 90-per-cent search-engine market share in Europe, will be ordered to stop manipulating search results to favour its own and its partners’ products. 4
The network effect
John D Rockefeller’s Standard Oil in the US is often cited as a classic early 20th-century example of a monopoly. Anti-trust laws were devised to break up such companies, to prevent them being the sole provider of a good or service, and to enable competition, in the interests of fairness and to the benefit of consumers and society at large.
Today’s digital titans are technically oligopolies – a few big players dominating the market. But the behaviour they are displaying is distinctly winner-takes-all monopolistic.
Already Google, Facebook and Amazon enjoy astonishing market shares. One in seven minutes spent online in the world today is spent on Facebook and the company, by seeking to supplant all website homepages, is aiming to become the gateway to the internet; Amazon not only has 67 per cent of all online book sales (print and digital) but far exceeds Walmart as the largest retailer in the US and is gearing up to dominate cloud-computing services; Google’s annual turnover is now higher than that of the world’s six biggest advertising agencies – including the mighty WPP – combined.
This may seem a bit strange – given that cyberspace was supposed to be free and open, a place for diverse players. In reality, what is happening is the colonization of the internet by a few highly successful private companies.
A closer look at the story of Google helps explain how this has come about.
In 1996, students Sergey Brin and Larry Page created an algorithm called PageRank that was to be the basis for the exceptionally strong and complex Google search engine. Soon we were all ‘Googling’, and forgetting all about Alta Vista and the rest.
Google was benefiting from the ‘network effect’: the more people use a search engine, the more valuable it becomes to all of them. And of course its makers. The monopolizing tendency is, in a sense, intrinsic.
Wired magazine’s Chris Anderson observes: ‘Monopolies are actually even more likely in networked markets like the online world. The dark side of the network effects is that the rich nodes get richer.’ 5
Google needed to become the search engine and it did. And because search is so important to our lives today, Google was able to leverage its dominance in this one area to go into another. The next stage for Google was advertising.
Enter surveillance capitalism
Before the dot.com bust put investor pressure on companies like Google, advertisers would simply select search-term pages for their displays.
Google decided to try to boost revenue by using its analytical capabilities to increase an advertisement’s relevance to users, and thus value to advertisers. To do this, it repurposed its growing cache of behavioural data (from previous searches, for example) to match it with ads.
Up to then, such data had been ignored or discarded; now this by-product proved to be the goldmine.
As Harvard Business School professor Shoshana Zuboff sees it: ‘Google is ground zero for a wholly new subspecies of capitalism in which profits derive from unilateral surveillance and modification of human behaviour. This is a new surveillance capitalism that is unimaginable outside the inscrutable high-velocity circuits of Google’s digital universe.’ 6
We are the raw material here. All the personal data that we unknowingly provide while we use the internet is incredibly valuable to those who want to predict our future habits, and nudge us in the direction that they would like. That includes companies trying to sell us things or insurance companies trying to predict our behaviour. Its profits derive primarily, ‘if not entirely, from such markets for future behaviour’.
According to Zuboff, this surveillance capitalism ‘preys on dependent populations who are neither its consumers nor its employees and are largely ignorant of its procedures’.
She sees this as profoundly undemocratic, a ‘coup from above’ which ‘challenges principles and practices for self-determination’.
Google’s surveillance power is the envy of states. But, as security expert Bruce Schneier explains, the digital titans and governments actually interact more closely than most of us realize.
The venture capitalists
Behind the digital entrepreneurs is another more shadowy group of people – venture capitalists. They have had a profoundly distorting impact on what the internet has become today.
In the early days, the British creator of the worldwide web, Tim Berners-Lee, conceived of the internet as a common resource to serve humanity. He didn’t seek to make any money out of his brilliant invention and he has stuck to his principles, fighting to keep the net open, neutral and free.
A similar idealism prevailed in some of the early internet start-ups. But most were unable to withstand the assault of megabucks. Investors poured eye-popping amounts of venture capital into fledging companies – and expected stellar results in return.
The capital value, the amount invested and the share price the companies could command when they went public, was way out of proportion to the value of the companies in terms of any revenue they could be expected to make.
Start-up entrepreneurs soon learned from their rich backers that their job was not to make their company sustainable, but to make it sellable. ‘They may have thought they were engineering a new technology,’ explains digital economics writer Douglas Rushkoff, ‘when they were actually engineering a reallocation of capital.’7
Today the digital industry is caught in this growth trap. ‘It’s not enough for an app to support a sustainable business,’ says Rushkoff, ‘it has to have a path to owning the entire marketplace, presumably forever, with a means to take over still others. Otherwise it can’t justify the venture capital it has accepted.’
Twitter, so useful to journalists and activists in the Arab Spring and Occupy movements, is currently under intense pressure from its rich investor backers (which include Goldman Sachs and Saudi billionaire Prince Al-Waleed) to grow and get a bigger share of the advertising market.
Last year there were complaints that the company was too far off reaching its ‘100x growth potential’ and its CEO Dick Costello was forced out. Rushkoff reckons that for Twitter to pay back 100 times the investment in it, it would need to become a corporation bigger than the economies of several nations.7
One way to grow is to gobble up other companies. Facebook and Google, once start-ups themselves, now acquire more businesses than they incubate internally. Since 2001 Google has acquired more than 190 companies (now listed under Google’s holding company, Alphabet). Facebook has acquired 50 since 2005.
The way in which the internet giants have penetrated national economies, combined with their wealth, gives them considerable political clout.
Their bosses appear on panels at high-level international gatherings of the World Economic Forum or the G8, for example. Governments want these companies on side. And the companies want governments to go light on regulation, give them tax breaks and turn a blind eye as they try to monopolize.
After months of lobbying President Narendra Modi of India, and a sustained charm offensive aimed at the Indian people, Facebook seemed inches away from a deal that would deliver a virtual monopoly on the internet access of millions of new users. Then, an extraordinarily successful mobilization by Indian net-neutrality activists scuppered the social media giant’s plans.
Imagine an Amazon that shared profits with its suppliers, instead of price-gouging them out of existence...
A new report from the US Campaign for Accountability (CfA) shows how Google has been ramping up its lobbying efforts. The company already enjoys unmatched influence in Washington. Its executives visit the White House more than once a week on average, according to Anne Weismann of the CfA. The organization has documented more than 250 ‘revolving door’ moves between Google and the US government.
Now Google appears to be trying to replicate this level of influence in Europe in a bid to head off anti-trust action and attempts to tighten up online privacy. The research suggests that Google has hired at least 65 former government officials from within the European Union in the past decade. Some 28 officials have been hired from key departments in the British government. Meanwhile, Eric Schmidt, chair of Alphabet (Google), is on prime minister David Cameron’s Business Advisory Council.
Tamasin Cave of the British campaign group Spinwatch says: ‘We need to rethink how we view Google. It’s not a search engine, it’s a political beast that has captured the attention of our policymakers. Most worryingly in health and education, where privatization through technology is gathering pace. Even if our politicians have bought into its thinking, we as a public should be asking how Google’s involvement in the National Health Service and schools will impact them. What are the consequences, and who benefits: us or Google?’8
What’s to be done?
We are at a critical point as we enter the ‘Internet of Things’, a world where nearly all home appliances and systems will be online; the ‘smartification’ of everyday life, with Google’s android system operating our smart watches, smart cars, smart thermostats. As Silicon Valley critic Evgeny Morozov puts it, this places Google ‘between you and your fridge, you and your car, you and your rubbish bin, allowing the National Security Agency to satisfy its data addiction in bulk and via a single window.’9
By 2020, an estimated 25 billion devices will be connected in this way. The surveillance opportunities are boundless, and not just for companies and Big Brother states, but criminals and terrorists too. (Car brakes that can be disabled remotely, for example.) The parlous state of online privacy and normalization of bulk surveillance make us all increasingly vulnerable to those who would manipulate us.10
We have to act now if we are to change our relationship with the digital titans who control this technology and our data on it, and who want to carry on doing so in the most unregulated way possible. The power imbalance we are experiencing is not the fault of technology or innovation. It is the result of something neither new nor revolutionary– capitalism, and an exceptionally sneaky, libertarian and parasitic form of it.
To stand up to it we need to have, and know, our rights. The civil-society Madrid Privacy Declaration of 2009 is a good articulation of some of those rights and there have been some important legal victories in the Court of Justice of the EU.11, 12 But it’s a slow and painstaking process.
There needs to be an independent international body to oversee and regulate digital companies and to take action against monopolization. We need new laws forcing companies to collect minimum data, for a minimum time, and more securely than they currently do. There needs to be transparency, so we can know what they are doing with our data, and have agency over it.
There are a number of campaigns aimed at empowering users in their dealings with the tech providers. After all, we, the users, are the source of their wealth. Some of us may, just about, still be able to choose not to use them or to use them less or to switch to more ethical platforms, before we all get sucked into the Internet of Things.
The power imbalance is not the fault of technology. It is the result of an exceptionally parasitic form of capitalism
Caught up in the furious profit-driven techno-rush, it’s important to remember that it does not have to be this way. Service providers can treat their users properly. They can respect their privacy, autonomy and need for security. They can do business differently, in a more co-operative and less exploitative way. Imagine, for example, an Amazon that shared profits with its suppliers, instead of price-gouging them out of existence before moving on to the next hapless victim.
They can even view cyberspace, not as private space that needs to conquered, colonized and enclosed, but as a global commons. For net neutrality and open-source activists, that notion has never gone away, but it needs to be shouted out more loudly now, from the mainstream.
In foreveryone.net, a new documentary film by Jessica Yu, Tim Berners-Lee urges us to take to the streets and fight for an internet that is free from the domination of either corporations or governments, and is a human right, like access to water.13
Real change requires a shift in social norms and a realization that the monopolizing billionaires who are providing us with ‘so very cheap’ or ‘for free’ have a totalitarian agenda that seriously undermines democracy.
So, what of Mark Zuckerberg’s largesse? True, $43 billion is a lot of money, even over a lifetime, and it seems churlish to complain. But Facebook is a serial tax avoider, using ‘Double Irish’ arrangements to pay only two to three per cent or less tax on all international revenue. That unpaid tax could have gone to providing ‘education, medicine, connectivity’ in the many countries where Facebook is making money. But then it would have been allocated according to priorities set by democratically elected governments, not the personal whim of a libertarian billionaire, who, incidentally, is retaining the shareholder voting power of all the shares he vows to give away.
As in most matters to do with the digital revolution and its beneficiaries, it’s best not to take too much at face value.
The sharing economy
Uber and Airbnb are at the vanguard of a new ‘person-to-person’ business model that uses the internet to match people wanting certain services with people who can provide them. Its image is one of friendly informality, more ‘social movement’ than commerce. Instead of using a professional taxi service, Uber puts you in touch with a person with a car who is in your area right now. Instead of going to a hotel, Airbnb lets you stay in someone’s home.
In reality, the so-called sharing economy is far from the ideal presented in the publicity. The people who own Uber and Airbnb are now billionaires; those who provide the services are, after expenses, low paid. The sharing does not stretch very far.
Uber’s market valuation is $69.5 billion. It recently received a $3.5 billion investment from Saudi Arabia’s National Public Investment Fund, with Uber CEO Travis Kalanick commenting that ‘we look forward to partnering [with Saudi Arabia] to support their economic and social reforms’.
Uber’s approach to local law is lax. By calling itself a ‘platform’ that connects drivers with passengers, it works in a regulatory grey area that enables it to slash overheads while inflating revenue and reducing its liabilities and obligations to the public. It operates an opportunistic price gouging and surging policy, based on demand. In 2015 there were more than 50 lawsuits against Uber in the US and it was accused of breaching regulations in Belgium, Germany, Canada, Australia, New Zealand/Aotearoa and Brazil. Uber has been banned in Spain, Thailand and France – where legislators dubbed it ‘illegal’ and ‘dangerous’.
Airbnb’s publicity relies largely on inspirational personal stories about how the company has provided a living for people who do not have much money but do have a spare room. In 2011 it had 50,000 listings; by mid-2015 it had 1.2 million (more beds than the world’s largest hotel company). Its market valuation is $24 billion.
Airbnb does not put the big swanky hotels out of business, but rather small, regulated, tax-paying guest houses and B&Bs. It emphasizes that many of its hosts are ‘artistic’ – and not wealthy. In fact, research shows that entire house rentals are now the norm and, increasingly, Airbnb hosts are well-off people with more than one property to let.
- thestreet.com 05/24/2016 nin.tl/tax-raid-google-paris ↩
- nytimes.com 2015/08/16 nin.tl/amazon-workplace ↩
- nytimes.com 2016/05/17 nin.tl/amazon-anti-union ↩
- bloomberg.com 2016/05/15 nin.tl/google-faces-eu-fine ↩
- wired.com 2010/08nin.tl/the-web-is-dead ↩
- Shoshana Zuboff nin.tl/surveillance-capitalism ↩
- Douglas Rushkoff, Throwing Rocks at the Google Bus, Penguin, 2016 ↩
- theguardian.com 2016/jun/04 nin.tl/google-political-influence ↩
- Evgeny Morozov, guardian.com 2014/jul/20 nin.tl/internet-of-things-v-democracy ↩
- Le Monde Diplomatique, June 2016, ‘Europe’s New Privacy Shield’ by Janne Järvinen and Markku Kutvonen ↩
- The Madrid Privacy Declaration 2009 nin.tl/madrid-declaration ↩
- europe-v-facebook.org and nin.tl/max-schrems ↩
- foreveryone.net also see nin.tl/berners-lee-interview ↩