Tech duopoly has too much of our personal data

As Google and Facebook continue their wrecking-ball swing, we are only just cottoning on to the threats these ­behemoths pose.

Chinese President Xi Jinping, centre, talks with Facebook Chief Executive Mark Zuckerberg, right, and Lu Wei, left, China's internet czar.

Does it matter that the ratio of public relations professionals to journalists has passed 12:1 as traditional media firms lose their ­investigative clout? Does it matter that a couple of private foreign companies know more about us, including location, likes, dislikes and relationships, than any elected government ever could or should?

As Google and Facebook continue their wrecking-ball swing through the traditional media, regulators have cottoned on to the problems of not just an ­emaciated media but the threats to privacy and competition the digital ­behemoths pose.

Last year the European Commission fined Google €2.4 billion for giving its own shopping comparison service a leg up in the ­ordering of search results. In January Israel’s anti-trust regulator began an inquiry into the digital duopoly’s power in the ­advertising market. The French and German governments have found their ­collection of data could raise bar­riers to entry for new firms. A few weeks ago Britain announced an inquiry into the sustainability of its fourth estate.

The Australian Competition & Consumer Commission this week unveiled the scope of its own inquiry into “digital platforms”, which promises to be the most comprehensive yet, examining the impact on media, advertising and the competitive implications of data collection.

Public submissions close next month, with a final report due in the middle of next year.

Facebook and Google have ­become integral to our daily lives, delivering communication, loca­tion and commercial services wher­ever the internet is working, but especially in Australia. Google has about 95 per cent of the search market, while about 95 per cent of Australians who use social media are on Facebook.

Together these companies know our calendars, video tastes, search history, social networks, which apps we use and even where we have been physically — information that in the wrong hands could cause great problems for ­individuals and governments alike.

“That’s very rare. At some point Standard Oil controlled 90 per cent of the refining market in the US, and not surprisingly there were legal cases against it,” says Luigi Zingales, a pro-free market professor of economics at the University of Chicago.

These aren’t markets for pet food or even oil: the power to control the flow of information, sort news and compile, in some cases, highly personal data of millions of individuals bestows enormous power. What to do about it, if anything, is politically and theoreti­cally difficult.

“Having 80 or 90 per cent market power obtained by being better at something than everyone else is not a crime per se, and does not necessarily demand intervention. There needs to be some abuse,” Zingales says.

Left and right-wing pundits typically fall silent when it comes to the digital duopoly, unsure what their side’s talking points should be. The economics texts were written long before the tech giants or even the internet came along. For instance, neither Google nor Facebook charges users a price, so how can they be abusing any pricing power? What even is their “market” — are they advertising firms or publishers?

The “price” users pay is in fact the data provided to them, wittingly or unwittingly, which is highly valuable to advertisers by providing scope of campaigns far more targeted and sophisticated than any newspaper or television station could have.

Whatever the technique, Australian media has been clobbered. Over a few years to 2015, news­paper and magazine publishers lost $1.85bn in print advertising and gained $98 million in ­online advertising, not much of a ­consolation.

About 2500 journalists have been laid off by Australia’s media companies since 2011, according to the media union, about a quarter of the total. At the same time the ranks of public relations, advertising and corporate affairs professionals have swollen to 91,000 by early last year, according to ­Australian Bureau of Statistics data. Growing paid subscriptions have helped stanch the losses but newsrooms have been devastated, forcing editors to lean more on comment and opinion. “The ­returns to a scoop have dropped by a huge factor; that’s a problem,” Zingales says.

Meanwhile, Google and Facebook, which also have come under fire for paying little tax, enjoy about 40 per cent of total advertising spending in Australia. Digital advertising expenditure has ballooned from $83m in 2000 to a forecast $8.3bn next year, according to estimates by GroupM, part of WPP, the world’s biggest marketing communications group.

“There are three ways to ­approach this: heavy-handed regulation or even nationalisation, use of existing anti-trust law and finally a redefinition of property rights,” Zingales says, suggesting the latter is by far the best route. “The effect of regulation is often worse than the problem.”

WEB Inquirer Facebook avertising change

Zingales, whose podcast Capitalisn’t discusses the economics of Google and Facebook in greater detail, thinks regulators should at least compel Facebook to permit other social networks to connect to it. “Imagine I want to move from Facebook to MySpace, with such regulation it would be possible ­because I could still communicate with my friends and have access to my data,” he says.

Counterintuitively, some regulation is necessary to underpin ­effective competition, he says. “Think about mobile phone number portability: this did not use to be the case, regulation made it compulsory to promote compe­tition.” A similar push is occurring in banking, where the Turnbull government is following in Britain’s footsteps in forcing banks to give their customers’ data to third ­parties if they request it — “open banking”.

How to expose Google to competition is more fraught. Once a search engine becomes dominant, it’s hard to dislodge. However great a rival’s interface may be, it won’t have the appeal or scope of Google’s algorithm. Even Bing, a search engine promoted by a company as powerful as Microsoft, has failed to take off.

But that doesn’t mean Google should be allowed to sit there and reap the benefit in perpetuity without ploughing its income back into something useful.

More government intervention or direct subsidies to traditional media would be a disaster. In France, the government funds newspapers but they are still ­failing. Moreover, government money tends to dull the incentive to be critical, especially of government itself.

The trick will be to change property rights to improve the fortunes of media, in the public interest, without any tax having to change or any bureaucrat having to exercise a judgment. Parliament could change copyright rules to strengthen the hand of media companies whose content appears in searches. As Rupert Murdoch, executive chairman of News Corp, publisher of The Australian, recently suggested, perhaps tech ­giants might pay a fee to the owners of content that their users read from their platforms. That content adds to their appeal, after all.

Moreover, it’s odd that Facebook doesn’t have the obligations of a publisher, when that is exactly what its interface is doing. ­Depending on users’ privacy settings, up to 2.1 billion people (the number of people who used Facebook at least once a month last year) could read what users write on their or others’ “walls”.

Liberal senator Jim Molan posted a video last year produced by a British far-right group that apparently caused great ­offence, yet no one I know of (except me, on ABC’s The Drum) said Facebook should bear some responsibility. If social media platforms had an incentive to avoid their users’ publishing defamatory or inflam­matory material, it wouldn’t happen so much.

There’s no guarantee there’ll be any defanging of FANG, the acronym for the quartet Facebook, Amazon, Netflix and Google. The tech firms are well-resourced. Consider how little has occurred in the home of anti-trust law, the US.

A leaked internal report from the US Federal Trade Commission found that Google had unlawfully maintained a monopoly over search by “scraping content from rival vertical websites”, “by entering into exclusive and highly ­restrictive agreements with web publishers that prevent publishers from displaying competing search results or search advertisements” and “by maintaining contractual restrictions that inhibit the cross-platform management of advertising campaigns”. Yet the FTC later dropped the case. Between president Barack Obama’s first inauguration in January 2009 and the end of October 2015, Google staff and asso­ciated entities went to the White House 427 times, including 21 meetings with Obama.

Google and Facebook have ­improved the world in many ways, by slashing the cost of accessing information and revolutionising commerce. It’s hard to imagine life without them — and that includes for journalists whose productivity has surged on the back of them.

But the huge profits that accrue to them, partly as a result of the ­internet, don’t appear to be benefiting society as much as they used to in the hands of publishers — who at least spent some of the windfall on things that were worthwhile.