ZUCKERBERG ! YOU'RE A MARKED MAN!
The writer is an associate professor at Texas A&M Law School
Big Government is finally taking on Big Tech. Last week, in the most momentous antitrust lawsuit in a generation, the US Federal Trade Commission accused Facebook of unfair competition and asked a federal court to break it up. This week, the EU proposed sweeping new rules forcing big technology companies to take more responsibility for policing content on their websites and refrain from anti-competitive practices or face billion-dollar fines and break-up threats.
We are witnessing a struggle between Facebook and its regulators that will determine nothing less than the future of the internet and our data.
They say that data is the new oil, and it is hard not to be struck by the parallels between the FTC’s Facebook complaint and the attacks on another era-defining monopoly, Standard Oil. In the 19th century, new technologies spawned a generation of millionaires, ushering in a Gilded Age. None was more prominent than John D Rockefeller, whose mammoth oil conglomerate grabbed staggering levels of market share using suspect tactics. Facebook chief Mark Zuckerberg’s 2008 email saying that “it is better to buy than compete” recalls, to an uncanny degree, Rockefeller’s screeds against “ruinous competition”.
That makes it worthwhile to look at what happened the last time governments took on a company of this size and power. Rockefeller was a consummate student of capitalism, which then, as now, is based on the idea that everyone is better off if companies compete with one another to provide better products and sell them for less. Adam Smith called this the “invisible hand”, a powerful force that in a free market leads individuals acting in their own self-interest to promote the common good.
But Rockefeller understood, better than others, what companies were competing for. To him, the ultimate goal was to win, to crush competitors and sell all the products. If they were very good at it, they could beat their rivals out of existence and stop having to compete entirely.
An economist might point out that even a monopoly has to continue to “compete”, in a theoretical sense, lest new entrants come in and woo away its customers. But, as Rockefeller knew very well, it is a lot easier to stamp out new companies than it is to compete with established ones.
One of his favourite tactics was the railroad rebate. Oil companies relied on railroads to ship their oil to market and so profits depended on the price of railroad freight. So Rockefeller negotiated special deals using Standard Oil’s size as leverage to get lower rates for his own oil. He even convinced railroads to pay him any time they allowed a competitor to use their lines. This gave Standard Oil an insurmountable advantage over its rivals and, by 1879, it had near-complete control of the industry, accounting for 90 per cent of all of America’s refining capacity.
“The day of combination is here to stay,” Rockefeller proudly announced. “Individualism has gone, never to return.”
Rockefeller had beaten his competitors into submission. But he had not taken into account Smith’s point about the common good. Standard Oil’s deceptive and bullying tactics beat rivals, but undermined claims that the corporation was good for the nation as a whole. And, in 1902, Rockefeller was undone by a “muckraking” investigative journalist named Ida Tarbell.
That year, she began publishing a series of articles for McClure’s Magazine that described Standard Oil’s deceptive business practices, its anti-competitive agreements and its legislative manoeuvring. Her damning conclusion: “Mr Rockefeller has systematically played with loaded dice, and it is doubtful if there has ever been a time since 1872 when he has run a race with a competitor and started fair.”
The company had beaten its competitors but lost the war of public opinion. President Theodore Roosevelt launched an investigation of the company and, in a landmark ruling in 1911, the Supreme Court ordered Standard Oil broken up.
That story provides important lessons for us about Facebook’s past, present and future. Just like Standard Oil, Facebook’s history of controlling its core platform and buying out small start-ups before they grew to be rivals, as described by the FTC, has proved remarkably successful.
Today, though, we are witnessing the backlash. Facebook’s recent controversies — from its handling of personal data, to its use in disinformation campaigns, to allegations that it stokes political polarisation — have tarnished its reputation. The FTC’s lawsuit is just the beginning. The EU, with its vigorous — critics would say overzealous — enforcement of competition law, could well be next.
The last lesson speaks to the future. The government broke up Standard Oil, but before long it started to reassemble itself. The fragments would soon emerge as Exxon, Chevron and Mobil, new corporate giants with sprawling new empires. The same thing happened to the seven regional telephone companies known as Baby Bells that were created out of the 1980s break-up of AT&T.
If Facebook is shattered into a thousand pieces, watch those pieces.