Today's tech giants are hardly the first corporations to achieve massive scale and entrench their dominance over key economic sectors. But unlike the monopolies of old, Big Tech has capitalized on the power of information itself to shut out potential competitors and manipulate consumer preferences and behavior.
CAMBRIDGE – We live in a world of giants. Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, IBM, Microsoft, Netflix, Tencent, and a few other tech behemoths have each found niches as digital service providers, acting as platforms and aggregators to secure scale, while deferring scope to individual vendors. Yet in confronting the sheer power of these firms, policymakers around the world have been focusing on size when they should be looking more precisely at how these firms are redefining our relationship with information.
In today’s economy, competition increasingly centers on influencing the value of information in the market. For firms, the primary objective is not just to create a widely appealing product, but also to anticipate and reshape consumer preferences through predictive analytics. Leveraging data in this way is now at the center of almost any firm’s approach to setting a business strategy or designing a product or service.
And yet the complexity of the modern economy has established a clear divide between firms that can derive value from information and those that cannot. And within the former camp, there is an emerging divide between firms that have the scale to leverage information-based advantages quickly, and those that do not. Under the new competitive model, the deciding factor is not just scale but also speed, sophistication, and control of the structures governing information in the digital economy.
This means that today’s regulatory challenges are fundamentally different than they were 20 years ago. Consider the US Department of Justice’s 1998 antitrust action against Microsoft, which is now remembered as a canonical example of a response to the problem of scale in the high-tech industry. As with today’s regulatory debates, the Microsoft case revealed a split in perspectives between those who worry about market imbalances and those who argue that the only purpose of antitrust is to mitigate harm to consumers.
The Microsoft case was about a specific kind of market domination. This was the era of the Internet browser wars, and Microsoft stood accused of excluding a particular competitor (Netscape) from the market. More to the point, the competition over computer hardware was shifting into the domain of software, where ownership of intellectual property and other intangibles – where the costs of reproduction are minimal, and the potential gains exponential – would increasingly determine the victor.
After that, the new race was for access to information. Driven by network effects, competition for the digital spoils has created public reliance on a select few platforms, ensuring a critical supply of capital to the controlling firms, which are now using it to augment their market position through acquisitions. And while acquisitions are standard market processes, their effects in the platform economy have been anything but conventional.
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For example, by acquiring DeepMind, Google secured not just IP, but also critical talent and data, which have allowed it to preempt new market entrants, while also controlling the direction of innovation in artificial intelligence. This means that the key assets for acquisitions of AI startups rely on the human capital that these companies have, rather than on just financial due diligence. In this way, today’s tech giants are not merely shaping consumer preferences; they are also hoovering up all of the tacit industry knowledge and data sets upon which competitive advantage in the digital economy rests.
Exceptional problems demand exceptional solutions. Until now, the regulatory response to big tech’s growing dominance has been insufficient, coming largely in the form of after-the-fact fines that have no effect on corporate behavior. The problem is that more extreme measures would come with equally vexing challenges of their own.
Consider proposals to break up the Amazons, Facebooks, and Googles of the world. Those overseeing the process would have to figure out how to distribute the pieces in a way that actually improves the competitive environment. Given the power of the network effect, there is no guarantee that an effective breakup would even be possible. As consumers flock to whatever platform everyone else is already on, a new giant would emerge in the old one’s place. Likewise, Big Tech cannot simply be taxed into submission. Even if tax policies were updated to focus more directly on advertising revenues, that would not reduce the entry barriers that have allowed just a few firms to control the entire digital advertising market.
Instead, policymakers need to focus squarely on ownership and control of information in the digital economy. The right to access and use data that is created collectively needs to be reconsidered. A growing share of online activity is not only uncompensated for the user; it is also being shaped and directed by profit-driven firms seeking to maximize the flow of particular forms of data.
Still, in regulating this market, privacy should be the effect, not the policy. The real goal should be to devise a conception of digital agency from which privacy would naturally follow. We need measures to ensure that people understand the choices they make online, and that prevent corporations from assuming control of those choices without asking.
But now that firms are increasingly manipulating our choices, we cannot simply put more information into citizens’ hands. We also must secure the methods by which that information is being accessed, exchanged, and maintained. It is not enough to be told that our data are being used; we all must be given control over how. If we want to bar companies from using our data, we should be able to do so. And if we want to take the data that Facebook has compiled about us and make it available to another social network, we should have that choice, too.
Either way, until we address the root issue of digital agency, the broader problems of market dominance in the digital economy cannot be resolved.