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      Source: Jeff Dunn, “The Tech Industry Is Dominated by 5 Big Companies—Here’s How Each Makes Its Money,” Business Insider, May 26, 2017.

      It is not that Tim Cook, Brad Smith, and Marc Benioff make these statements aimed at the negative space of their respective firms’ core business models principally because they feel the need to opine as public intellectuals. Rather, I would suggest that their issuing these statements—and, in the process, fueling the inspection of the true consumer internet firms—actually favors the long-term business interests of Apple, Microsoft, and Salesforce alike. This is true not only in the sense that their statements make these executives appear to care about economic equity and individual rights. In fact, unless they are stopped in some way, Google and Facebook will increasingly squeeze profit margins for most other major technology firms into the future. This is because Google and Facebook enjoy extraordinarily high profit margins yielding huge sums of cash—cash that they have smartly reinvested not only in their untouchable advertising regimes but also in younger side businesses that will increasingly challenge the likes of Apple, Microsoft, and Salesforce. In fact, the more that Facebook and Google profit from the consumer internet business model that they exhibit more than any other firm, the more they can invest in the development of ancillary products that will potentially subvert the other firms’ leadership in their subsectors. Facebook’s Workplace service, for example, is a major new investment for the company in the enterprise software market that Salesforce currently leads, and it will probably begin to threaten Salesforce’s competitive edge. Google is making similar investments, and its foray over the past ten years into the consumer-device technology space—including cellular phones and home gadgets—may increasingly threaten Apple. And Google Docs, Google Sheets, and Google Slides directly challenge Microsoft’s hegemony in enterprise software. This dynamic reinforces the idea that these various firms occupy different industries—and that firms like Apple, Microsoft, and Salesforce should not be considered consumer internet firms in the way that Facebook and Google are.

      A New Perspective on the Economic Logic behind the Open Web

      With a clearer picture of the firms that sit at the center of the consumer internet—including Facebook, Google, Twitter, and Amazon, in addition to second-order companies such as Pinterest and Snapchat—we can now analyze what makes their businesses tick. Let us start with the company that has been in the news the most—the one that puts up the big blue app, whose founder Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg have been forced onto American television screens over the past three years.

      Facebook makes the vast majority of its revenue from digital advertising—but if we were to stop there, we would be addressing just the superficial and leaving aside the full truth behind the company’s operation. The Silicon Valley business model directs Facebook to create compelling services, harvest personal data used to create consumer profiles, and develop algorithms for content curation and ad targeting. These three pillars together define the vaunted institution that everyone in the digital industry venerates: Facebook’s commercial engine. The first of these pillars, designing captivating apps that effectively engage consumers and win their attention over other competing services—is simple to understand but difficult to achieve. In fact, some economic experts might contend that only a big player in the consumer internet—perhaps one of the few biggest platform companies in the sector—can possess such engaging services.70

      Consider Facebook’s key offerings: the news feed that users scroll through to see a curated and ranked social feed of updates from across their network, the Messenger internet-based text-messaging service, the WhatsApp encrypted text-messaging service, and the picture-sharing service Instagram. These are the core services that are principally responsible for Facebook’s perpetual growth around the world. It is difficult to imagine another competing service surviving in any of these market siloes under our current regulatory regime. Facebook’s services have each claimed their respective markets by moving into them aggressively and establishing an extraordinarily powerful network effect that limits the capacity for would-be rivals to compete. Facebook’s services benefit by raising barriers to entry; the competition’s digital and physical infrastructures—extravagant capital expenditures—would have to be built up from scratch to reach the level of sophistication required to compete with Facebook. The highly vertically integrated nature of Facebook’s business practices today—driven by the company’s focus on the sequence of tracking user data, targeting ads at users, disseminating those ads over monopoly platforms, owning much of the infrastructure that enables those platforms to sustain themselves, and maintaining strong commercial relationships with vendors up and down the technology stack—represent a Goliath that not even the most enterprising David could overthrow.

      Consumer internet firms have a stranglehold on the market for attention because of how engaging they are. YouTube’s video recommendation algorithm, for instance, is engineered to capture users’ attention and keep them watching—and inject a few targeted ads that might engage them as well. There is no other goal for YouTube; the only incentive is maximizing ad revenue. This is no public square. It is the dominion of a profit-seeking firm. And this is precisely where things get messy for the company: there are some especially violent types of videos—shootings, bombings, terrorist speech, exploitation—that many of the platform’s users find highly engaging. YouTube does not know any better than to simply up-rank such videos and attempt to capitalize on the expected engagement they generate. Despite the unmatched commercial power of its parent (Google), and despite its powerful fleet of private servers around the world, YouTube simply does not have the incentive to deal earnestly with the problems it has created. And without appropriate legal exposure, it never will.

      Tristan Harris has described the manner in which these firms capitalize on biological weaknesses in the human psychology, exploiting the dopamine-delivering effects that the platforms have on our thinking about the world. Harris and his colleagues appear to be correct in their analysis: these services are designed to be addictive. This propensity to addict the consumer to social media can cause great harm.

      The second pillar—the collection of data to the end of creating and maintaining a behavioral profile on the individual user—feeds off the first pillar’s effectiveness in engaging the individual. Consumers passively generate a great deal of exhaust in the form of personal behavioral data as they use internet platforms such as YouTube. Time spent viewing a given video, areas over which a user might have hovered the cursor or tapped the screen, the time of day and device type, the user’s location, the browser and internet connection used to communicate with YouTube—all of these data are readily collected by the platforms to understand who users are and to target ads to them.