Breaking Facebook up without structural reform won’t fix the problem of monopolies

Social media is not all bad, so let’s stay calm and tackle real structural change that will improve — not destroy it.

We need a new approach to managing social media

Anti-trust regulators are certainly eager to dismantle the world’s largest social network. Their argument for doing so cites real harms, including the erosion of privacy, the spread of misinformation and hate speech, the acceleration of political polarisation and threats to the integrity of elections. Competition, they argue, will force Facebook to fix these problems.

However, ill-conceived antitrust action, without structural reform, will not only fail to solve them, it will make matters worse.

Social media markets tip toward monopoly because of network effects: the value of a networked platform is a function of the number of people connecting to it. As more people use the product, its value to everyone increases. The greater its gravitational pull, the greater the grip it has on current customers.

Breaking Facebook up into its component parts might slow that process down — but it won’t change the fact that, in the long run, network effects create monopolies or near-monopolies.

The people running social media companies bolster the tendency toward monopoly by making it difficult for users to walk away. They make their platforms incompatible with each other and keep an iron grip on the data we upload to them (and that they collect about us).

If we leave Facebook or Instagram, we lose our pictures, our conversations, our very memories. We don’t want to give those things up — and we also don’t want to lose the relationships involved. These hi-tech walled gardens combine with network effects to tip these companies even further toward monopoly.

Creating competition in the social media economy is essential. Imagine the positive effects for consumers if social media giants were competing to safeguard consumers’ privacy, for example. But breaking up Facebook does nothing to promote the market conditions needed to sustain competition because network effects will simply push the next Facebook-like company into a dominant position. Breaking up one company won’t change the underlying market economics.

There’s a cost to getting this wrong. Network effects create substantial economic benefits for billions of people around the world. As those benefits depend on the connections we make through social media, dismantling the networks will reduce the benefits without addressing the economic forces that drive the social economy toward concentration.

Economic measures such as gross domestic product and productivity growth don’t capture the consumer value that Facebook creates, because users don’t pay to be on Facebook. (And because they’re not captured, they’re easy for regulators to ignore.) But the value is real.

Researchers at MIT and Stanford have investigated how much people would need to be paid to give up Facebook; it turns out that we put a very high value on the service. The research estimates that Facebook generates about $370bn a year in consumer benefits in the US alone. Now, imagine those benefits worldwide.

The antitrust case against Facebook ignores these economic conditions, and it does nothing to directly protect privacy, distinguish free speech from hate speech, ensure election integrity or reduce fake news. In fact, it will make addressing these harms more difficult by creating more social platforms to regulate and oversee. Rather than politically expedient trust busting, we need structural reform — first to catalyse the competition that a break-up will fail to achieve and then to unwind the market failures wrought by the social economy, one by one.

Let’s look at a few structural reforms that would help us achieve the promise — and avoid the peril — of social media.

Making social networks interoperable

To foster competition, we need legislation that makes social media networks interoperable and allows consumers to take their data and their social networks to competing companies, as happens in the telecommunications industry. Number portability made cellular services more competitive: when the European Union insisted on the ability to take your mobile number, and thus your network of contacts who knew you by that number, to other services in the early 2000s, the policy increased economic welfare by 880 million euros a quarter across 15 EU countries.

Interoperability also levelled the playing field in chat messaging. When the US Federal Communications Commission forced AOL to make AOL Instant Messenger interoperable with Yahoo, MSN Messenger and others in 2002, AOL’s market share in instant messaging fell from 65 per cent to just over 50 per cent in four years. In 2018, AIM ceded the entire chat market to Apple, Facebook, Snapchat and Google.

Safeguarding election integrity

The US Congress should pass targeted legislation such as the FIRE Act, the SECURE Our Democracy Act and the Voting System Cybersecurity Act to harden our elections. In addition to fighting fake news, social media companies must make firm, verifiable and enforceable commitments to make data available for research into social media’s effects on democracy. Risk-limited election audits should safeguard against attacks on our outdated voting systems. The details could be worked out in a bipartisan National Commission on Democracy and Technology.

Protecting privacy and data

Federal privacy legislation must harmonise ad hoc state policies and balance the moral, practical and utilitarian importance of privacy with the need for data sharing to support investigative journalism, scientific research, commercial applications of machine learning, audits of election integrity and the economic surplus generated by advertising.

Attacking spread of misinformation

To slow the spread of misinformation, the platforms must label fake news, make sources transparent, prohibit advertising next to false content, limit resharing (as WhatsApp did to slow the spread of COVID-19 misinformation) and demote misinformation in search results. Meanwhile, public and private education should re-emphasise media literacy and critical thinking.

Better balancing speech

To protect free speech while curtailing harmful speech in the US, we must draw sensible boundaries around the protection from civil liability afforded to social media platforms by section 230 of the Communications Decency Act of 1996. Section 230 makes a free and open internet possible. However, regulations can limit the cases under which 230 applies. Rather than have politically appointed commissions like the FTC or the FCC deciding under executive orders when 230 should apply, representative, deliberative legislative boundaries, similar to FOSTA-SESTA, should be drawn to balance free and harmful speech.

Breaking up Facebook could take 10 years. By the time that happened, the landscape of social media would look nothing like it does today. Forward-looking legislation that ensures competition, open markets and a level playing field, alongside market and legislative remedies for misinformation, privacy, free speech and election integrity, will chart a more productive path than backward-looking attempts to unwind networks and companies that already exist.

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Sinan Aral is the director of the MIT Initiative on the Digital Economy and the author of The Hype Machine: Would breaking up Facebook fix the social media morass?
Copyright 2020 Harvard Business Review/ Distributed by New York Times Syndicate