Adam Smith Blog

A way to poke Facebook off its uncontested perch

Undercover Economist

We need to talk about Facebook. Google (or Alphabet, if you prefer) is more ubiquitous; Apple makes more money; Amazon is a more obvious threat to the bricks-and-mortar economy; yet there is something uniquely troubling about the social media leviathan.

One concern is Facebook’s unwholesome contribution to our diet of information. Because what we see in Facebook is a function of what our friends share, the site echoes our prejudices. This effect is accentuated — at least modestly — by Facebook’s own algorithms, which have learnt to show us more of what we like to keep our eyeballs on the site.

Then there is accuracy. Whether what we are shown is true or false does not much matter for Facebook’s business model, unless we start to show more interest in not being lied to. For now, fake news entrepreneurs have realised that it is far more profitable to invent eye-catching fables than to research and confirm the everyday truth.

We are also beginning to realise that Facebook is the perfect vector for carefully-targeted advertisements containing dark political smears. A false claim in a TV spot or the side of a campaign bus can be challenged; a false claim carefully targeted to a few thousand voters in a swing state may go unchallenged and, for that matter, unnoticed except by the intended few.

These problems are sometimes exaggerated, and are not Facebook’s alone: Twitter is politically polarised; Google also shows targeted ads; and few Facebook news feeds are as relentlessly blinkered as the pages of a British tabloid newspaper. But Facebook bundles them into a uniquely powerful package.

And the inconvenient fact is that Facebook seems to make us miserable. We log on like joyless addicts, two billion of us each month. I doubt that we truly value Facebook. But we use it anyway. Writing in the London Review of Books, John Lanchester cites numerous studies that suggest Facebook use goes hand in hand with envy and sadness, and quite plausibly causes them. It is also a notorious time-sink and source of distraction.

None of this is good, unless you are Facebook. But behind all these injuries is a final insult: there is no serious alternative. Buyers of Microsoft’s Office and Apple’s iPhone could choose something else. Even dominant services such as Google’s search or Amazon’s store could in principle be challenged. It would be no easy thing to build a better rival, but anyone who did would be just a click away.

In contrast, making a superior social network app is not enough to unseat Facebook: the main appeal of the site is that everyone already uses it. A rival social network would need to somehow attract groups of users en masse, an extremely difficult prospect. Two of the companies that were managing it — WhatsApp and Instagram — were bought by Facebook. It is hard to understand why regulators thought these mergers were benign.

The lack of competition may explain why Facebook retains its grip on our attention despite being clunky and pernicious; a company that faces no serious competition can afford to stop worrying about keeping its users happy. It is easy to imagine a better social network than Facebook: more privacy, a slicker interface, and less fake news. It is not so easy to see how such a rival could tempt entire social groups to migrate together.

Could regulators change this? Perhaps. They could certainly have been more aggressive in scrutinising mergers. But traditional measures such as price regulation seem less relevant to what is, after all, a free service.  Instead, we should ask ourselves if we can find a way to re-introduce serious competition in social networking.

Luigi Zingales and Guy Rolnik of the University of Chicago have proposed an intriguing idea. They build on the concept of “number portability”, the principle that you own your own phone number, and you can take your number with you to a different phone provider. The idea has promise in retail banking.

Zingales and Rolnik suggest an analogy: social graph portability. The idea is that I could take my Facebook contacts with me to another service — call it “ZingBook”. I could read their Facebook posts on ZingBook and they could see my ZingBook posts over on Facebook.  I can send emails from any program or service provider to any other, so why not guarantee interconnection between social networks? I would get whatever it was I liked about ZingBook while maintaining contact with my own social network back on Facebook.

In practice, the Zingales/Rolnik idea faces serious stumbling blocks — making the technology work, preventing cheating, and navigating permissions. If a friend decides to move over to, say, NaziBook, will he still receive my Facebook content? Will I even know where my words are now being viewed?  But the idea of social graph portability squarely addresses one of the big issues of 21st-century economic policy. The new tech titans need serious competition. For a social network, serious competition needs new rules to enable it.
Written for and first published in the Financial Times on 3 November 2017.

My new book is “Fifty Inventions That Shaped The Modern Economy”. Grab yourself a copy in the US or in the UK (slightly different title) or through your local bookshop.

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