Why Facebook is beyond our control

One Of these things is not like the Others

- By Peter Martin

What’s the difference between Google and Facebook?

One difference is that last week Google agreed to pay Australian news outlets for their content in the face of a threat of government action to force it to. Facebook did not, temporaril­y removing Australian news sources from its feeds, a decision it only reversed after winning a range of concession­s.

Another is the reason why. It’s that Google faces competitio­n, whereas Facebook really doesn’t.

If I want to switch from Google to another search engine (something I’ve done) it costs me next to nothing. I might find it hard to move my search history over (although there’s probably an app for that) but otherwise the new search engine will either be better, worse or about the same as the one I left. I’m free to find out.

It means that Google is forced to defend itself from competitio­n (or the threat of competitio­n) by providing an extraordin­arily good service.

Not so Facebook. Although a relatively new concept in economics, the idea of a “network effect” dates back to at least 1908 when the president of the American Telephone and Telegraph Company, Theodore Vail, spelled it out in a letter to stockholde­rs.

“A telephone, without a connection at the other end of the line, is not even a toy or a scientific instrument,” he wrote. “It is one of the most useless things in the world. Its value depends on the connection with the other telephone—and increases with the number of connection­s.”

The ASX stock exchange is another example, as is ebay. You could try to sell something on a different platform, but you wouldn’t reach nearly as many potential customers, so you might not get as good a price.

The Australian Competitio­n and Consumer Commission puts it this way in its report on Facebook: even if the government made it easier for a user to switch to another network, perhaps by mandating the transfer of data.

If none of the user’s friends or family are moving away from Facebook, that user would be unlikely to switch platforms.

The “lock in” that happens when a network gets so big people feel they have to use it means it doesn’t have to treat them particular­ly well to get them to stay.

Seventeen million Australian­s use Facebook every four weeks—a huge proportion of the population, and an even bigger proportion of the population aged over 14 (80 percent). Without Facebook, it would be hard to know what family and friends and long-lost classmates are up to—whether or not Facebook offers news. It doesn’t need to treat its users particular­ly well to get them to stay.

Fifteen years ago Myspace was how people connected, but it hadn’t grown to the point where network effects took over. When they did, there could be only one clear winner, and it happened to be Facebook. Now, not even its bad behavior (Roy Morgan finds it is Australia’s least-trusted brand) can stop most people using it.

In the same way as people who want the lights on generally have to use the electricit­y company, people who want to catch trains generally have to use the railway and people who want to drive cars generally have to buy petrol, people who want to stay in touch generally have to use Facebook.

Facebook has become a (transnatio­nal) utility, unconcerne­d about its image. Attempts by one government, or even a coalition of government­s, to force it to do anything are pretty much a lost cause.

No-one wanted it to be like this, and it’s not like this for Google. Facebook has moved beyond our control.

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