ARGUMENT (Declared Bias: Classical Liberal)
In late July, Facebook lost about $120 billion in market capital due to missed expectations on revenue and slowing user growth rates. To make matters worse, a recent Pew Research Center study shows that 44% of 18 to 29 year olds have deleted Facebook off their phones. These ominous trends, compounded with data mismanagement scandals, have had Facebook becoming largely controversial.
The Cambridge Analytica privacy scandal from last April has reignited debates on whether or not large social media companies such as Facebook hold too much power . Because Facebook provides an ostensibly free product, it is not readily apparent whether or not its market dominance constitutes a monopoly. A monopoly is a firm that possesses enough influence and market power to give it the power to control and crowd competitors out of the market. Facebook can be categorized as a monopoly because of its significant market power, high barrier to entry, and ability to drive its own prices.
Facebook holds unprecedented market power; in the United States, the social media giant occupies one-fifth of internet page views . Want to message your friend? Unless you and your friend are both using Apple devices, your two best options are Messenger and Whatsapp, which are both (surprise) owned by Facebook. The Facebook “Pages” and “Groups” features are the primary ways for organizations to communicate with members. During Facebook CEO Mark Zuckerberg’s Senate hearing, Sen. Lindsey Graham, R-SC, asked Zuckerberg who Facebook’s biggest competitor was. Dodging the question, Zuckerberg replied that the “average American uses eight different apps” per day to connect with their friends . He likely included stock applications, such as default email and texting clients on smartphones in his calculations, and declined to mention that at least four of the eight top communication apps in the U.S. are Facebook-owned (Facebook, Messenger, Whatsapp, and Instagram).
People use Google Search because it, in their eyes, is a superior service. Nothing is preventing consumers from spontaneously switching to Bing; however, this hasn’t happened yet. Google owns almost 91% of the search engine market because it owns the perception of quality searches . On the other hand, Facebook has the enviable quality of being almost impossible to quit; studies show that heavy users of Facebook show brain patterns similar to those found in drug addicts . The first president of Facebook, Sean Parker, corroborates this finding:
"[S]tudies show that heavy users of Facebook show brain patterns similar to those found in drug addicts"
“The thought process was all about, ‘How do we consume as much of your time and conscious attention as possible?’ And that means that we need to sort of give you a little dopamine hit every once in a while, because someone liked or commented on a photo or a post or whatever, and that’s going to get you to contribute more content, and that’s going to get you more likes and comments. It’s a social validation feedback loop...You’re exploiting a vulnerability in human psychology. I think the inventors, creators...understood this, consciously. And we did it anyway” .
Leaving Facebook means leaving behind your family, friends, and business connections. Even if you could extricate yourself from Facebook’s sticky web, you’re out of the frying pan into the fire; people who abandon the social network often flock to Instagram, where their data is tracked and shared with its parent company, Facebook .
Snapchat is the most frequently cited example of a formidable and popular competitor felled by the sheer size of Facebook. As recently as 2013, Snapchat was cited as the new platform for teenagers; in October of 2013, Facebook’s then-CFO David Ebersman admitted that the company was seeing a decrease in usage by teens. Even worse, Facebook was noticing a steadily increasing percentage of teens who skipped over the site to go directly to Snapchat . This was clearly a sign that the budding messaging app had built a product that appealed to teens. Despite Snapchat’s successful product, Facebook was able to use its dominant market position and ownership of Instagram to drive the smaller company into the ground. After Instagram introduced its Snapchat clone “Instagram Stories” in Q3 2016, Snapchat growth slowed significantly, plummeting from 17.2% in Q2 to a low of 3.2% in Q4 2016 . Adding insult to injury, Instagram Stories now has 250 million daily users, almost 100 million more than Snapchat’s . Instagram’s total user base currently sits at around 800 million monthly users . If Snapchat, a company that understood teenagers better than any other, was crushed within a year by an uninspired clone created by the dominant social media company, how can the argument be made that the barrier to entry for the social media market is low enough for legitimate competition? Snapchat’s decline is an example of how Facebook has abused its monopolistic position to destroy its competitors.
Businesses advertisers on Facebook are also feeling the effects of Facebook’s ability to set prices: they are being forced to endure higher prices for increasingly less effective ads. In 2016, the number of ads displayed to users on Facebook rose at a rate of 50%, but slowed significantly to 15% growth in 2017. Meanwhile, 2016 ad prices on Facebook rose by 5%, while 2017 ad prices rose by 29% . In other words, advertisers receive less ad space as Facebook’s ad growth slows, but are forced to pay more each year. This demonstrates that Facebook offsets slowing ad growth by increasing ad prices. This is the textbook definition of being a price maker: the monopolistic position of being able to dictate prices (in this case ad prices) . If rising ad prices weren’t bad enough, there is growing evidence that Facebook ad performance is below that of smaller competitors, such as Snapchat: the 2016 average clickthrough rate for an ad on Facebook was 0.98%, while Snapchat reported that 69% of their users skipped ads often . While these two statistics aren’t directly comparable, Snapchat’s data suggests that around 30% of their users engage with ads on a semi-regular basis, while Facebook users click on ads less than 1% of the time. This shows that Facebook is able to directly control the pricing of its ads, despite having a less effective and more inefficient ad product than its competitor Snapchat.
Due to Facebook’s dominance in the social media market, its ability to eliminate any competition, and clear history of price making in selling ads to businesses, Facebook fulfills the requirements of a monopoly. We must not let its “free” services and altruistic public statements persuade us that Facebook’s dominance is not a problem.
Edited by Managing Editor Andrew Kim
Sources and Notes
Featured Image: “Photo by Priscilla Du Preez on Unsplash” by Priscilla Du Preez — Own work. Licensed under Cc BY 2.0 via Unsplash