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Facebook's New Business Plan: From Utility to Monopoly
In the wake of its IPO debacle, expect Facebook to leverage its market dominance aggressively – with its billion users hostage
The tweet, posted a little over two years ago by someone with deep connections in the internet world, was illuminating. It said, simply:
"A friend working for Facebook: 'we're like electricity.'"
I recalled that tweet last week when Facebook made two announcements of note. First, as everyone knows by now, it has a billion users – including, I suspect, nearly everyone I know. I scarcely use the social network myself, but I am constantly invited to look at items that others post there – and which are unavailable unless I log in. It is getting more and more difficult to avoid Facebook in daily life, and if Facebook gets its wish, it will be an outright necessity.
The second announcement was relatively minor in the bigger scheme of things – Facebook's plan to charge a fee, rumored to be $7, for users who want to place a post high in their followers' news feeds. Wall Street saw the fee as yet another way Facebook might generate revenues – an ever-stronger mandate from shareholders and the financial community in the wake of the company's fumbled IPO.
Both moves spoke to the growing influence of this still-young company, and to its genuine potential to become what amounts to a public utility. It's not as essential as electricity yet, but that goal is not as far out of reach as you might think.
Facebook's ever-expanding user base is easy to understand. It's the ultimate (so far) positive feedback loop – the network effect run wild. The service does offer value to its users, after all: convenience and connections. Sorry to say, most people value their privacy so little these days that they shrug off just about every new abuse of their personal data because the convenience and connections are worth it. Even people and companies that are deeply suspicious of Facebook's motives – with ample reasons for their suspicions – now feel obliged to use the service anyway, compounding Facebook's authority by posting items there and nowhere else. For people like me, who try to avoid using it, this increasingly means either signing in or not seeing things I'd like to see.
One of Facebook's most audacious initiatives has been in the developing world. As featured in an in-depth piece in the Atlantic magazine's new Quartz business news site, Facebook is subsidizing mobile phone data service, making it "free" for users – but with a catch: for all practical purposes, Facebook then becomes their entry into the internet. The company has made no secret of its desire to become what amounts to an alternative internet, and this is a brilliant – if disturbing – way to make that a fait accompli in a number of places where mobile data services are much more important and ubiquitous than what happens on desktop and laptop personal computers. In such places, Facebook will be wedded to national information networks and the governments that control them.
Electricity? Not exactly. But close enough.
Facebook's goal is not just to connect people with each other, but also to be the ubiquitous entry point for those connections. It wants to become what amounts to a public utility. The more Facebook makes itself an essential part of our lives – or, more accurately, the more we make it so – the easier it will be for the company to start charging us for using it. Users have been the product until now; advertisers buy access to us and our personal data. But the $7 fee, which is surely aimed more at businesses than average users, is a way of ensuring that messages get seen.
Only Facebook (and maybe Twitter) could even attempt to do this kind of thing, because it owns the user experience so completely. In its best walled-garden days, AOL couldn't have pulled this off with email, because even then, it didn't have Facebook's kind of dominance.
Market dominance always leads to distortions. Competition is always the preferred cure. But we have other methods, too, and it's not too soon to be contemplating them. We have antitrust laws designed to curb abuses, and we regulate public utilities because we can't trust them not to abuse their positions.
Will policy-makers awaken anytime soon? They'd better.