Facebook’s Unbreakable Gene

In April 2018, I wrote that no person or government can effectively break Facebook. In my opinion, breaking a platform-business within the same mindset of the industrial age companies is waste of time: one part of that company will grow and dominate just as the previously broken one.

If you decide to break Facebook apart, one part will grow and dominate others. This is possible because of the positive continuum of network effect where the biggest keeps getting bigger and also better. I explained that in a recent piece in the Harvard Business Review. You can regulate Facebook but another company will come to take over its position because in this sector, it is winner-takes-all. Yes, the best wins.  Why? The scalable advantage improves with lower marginal cost.

In a piece in Bloomberg, the Editorial Board made the same point:

Market forces would also likely impede such an effort. The main way Facebook and its fellow tech behemoths have grown so powerful is through network effects: The more people who join Facebook, the more useful it becomes; the more useful, the easier to attract more users. Breaking it up wouldn’t reverse this dynamic. One of the new MiniBooks would in all likelihood emerge as better than the rest — bringing in disproportionate users, data, and advertising dollars, and thus achieving dominance just as Facebook has.

Simply, only markets can put these companies in order – not dead regulations. And markets are working: Facebook lost $119 billion yesterday over its problems.

Facebook lost about $119 billion of its market cap today. Technically, it made history: it recorded the largest loss in a single day in stock market history. But Facebook is lucky: it did not lose because of competition; it lost because of correcting its past. Yes, User Privacy won even as Facebook temporarily lost.

Governments need to focus on policy and standards, and allow these companies to compete. Provided they do no harm, consumers will be fine. We are already used to the best search, best social media, best micro-messaging, etc and even if governments engineer many versions at the end, only one or two would survive. Simply, the best will win because of the positive continuum which drives these businesses.  As the Bloomberg editorial noted, governments need to be on alert to check abuses from platform companies.

Regulators must keep a close eye on this sort of thing, and shouldn’t hesitate to intervene when it’s being abused. The Federal Trade Commission should ensure that Facebook isn’t collecting such data under false pretenses — Onavo, audaciously, markets itself as tool to “keep you and your data safe” — and any new Facebook acquisitions should be greeted with due skepticism by antitrust officials.

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