Facebook: The New Digital Monopoly

On April 10th and 11th, Facebook CEO Mark Zuckerberg sat before Congress for a total of 10 hours and answered nearly 600 questions regarding Facebook’s respect of user privacy in the wake of the Cambridge Analytica data harvesting scandal, the extent to which it censors content to promote a specific, potentially left-leaning agenda, and the need for regulation. With all eyes on him and dozens of cameras documenting every sip of water that he took, Zuckerberg remarkably left Capitol Hill without any further devastating blows to his company’s reputation. Ironically, rather than expose Facebook’s recent faults, the light instead seemed to shine on the Congressmen who questioned him, many of whom were unaware of Facebook’s business model or the entire landscape of the social media industry.

One particularly entertaining exchange was between Zuckerberg and Senator Lindsey Graham. In his line of questioning, Graham asked who Facebook’s competitors are, to which Zuckerberg replied there were several. Graham went on to ask, “Let me put it this way: If I buy a Ford and it doesn’t work well and I don’t like it, I can buy a Chevy. If I’m upset with Facebook, what’s the equivalent product that I can go sign up for?” To this question, Zuckerberg blurted out a seemingly well-rehearsed statement that their competitors could be placed in three different categories, and that the average American uses about eight different apps to communicate and stay in touch with their friends.  Finally, Graham bluntly asked, “You don’t think you have a monopoly?” To this, Zuckerberg retorted with a tinge of rarely-emitted humor, “It certainly doesn’t feel like that to me.”

The exchange revealed not only that Graham most likely does not spend his time away from Capitol Hill sharing impassioned posts or photos of his dogs on the platform, but also that Facebook’s business model is in fact a little nebulous and cannot be succinctly identified. A social media titan, Facebook is comprised of its central platform, as well as Instagram, Whatsapp, Oculus VR, and more. Thus, in addition to social media, it has also permeated through the photo-sharing, messaging, and virtual reality industries. Given it is a dominant player throughout several industries, it begs the question: was Graham correct in his diagnosis? Is Facebook in fact a virtual monopoly?

In considering whether or not Facebook is a monopoly, one has to first consider what a monopoly is and then compare it to some of the most influential monopolies throughout history. A monopoly has historically been a company or producer that controls supply of a good or service, and barriers to entry as a result of the company’s influence are high, often to the point of being completely restricted. Textbook examples of monopolies are Standard Oil, which in the late 1800s controlled 88% of the production and distribution of oil in the US, and Microsoft, whose built-in web browser at one point in time was found in all PCs.

Meanwhile, in terms of views to the outlets, Facebook’s market share in the social media industry as of November 2017 is around 44%, with Facebook occupying 42% and Instagram 2%. Its next highest competitor, Youtube, captures 25% of the market, and Twitter comes in third with around 6%. While it does not have exclusive control of the product of a social media sharing platform, it does have a commanding presence.

Secondly, whereas it is nearly impossible for oil or web browsing competitors to enter the market, it is relatively cheap to create a social media app, so consequently the industry is flooded with competition. Granted, new companies’ chances of obtaining a substantial market share are stifled by Facebook’s dominance in advertising, the primary profit-generating mechanism, as it along with digital ad giant Google commands 56.8% of the market. However, by making ad-generating easy and efficient, new platforms can easily curb the profits of these two companies.

A separate issue is that while an app may have the needed profits to succeed, it also needs the paramount component of a network of people that want to share on the platform. As the service is the network, a sizable barrier to entry in the market is recruiting enough users to make the service viable. With over 2 billion users across its multiple platforms, the networking service Facebook provides is unparalleled because of the sheer number of users that use the platform.

Facebook consequently is not a monopoly in the traditional sense as it neither controls exclusive supply of a good or service nor does it technically have a high barrier to entry to start the business. Further, Facebook’s conglomerate of products represents more a horizontal consolidation of different services rather than vertical consolidation of a single good. However, Facebook proves that there is a need for an alternative conception of a monopoly for the digital age. Facebook does not have exclusive control over the concrete good of a social media platform, as Standard Oil did with oil and Microsoft with web browsers, but it does have exclusive control of its network. While its users do not have to exclusively use Facebook, its full network cannot simply be extracted and replicated on another platform. Additionally, and equally importantly, it is extremely difficult for a new competitor to obtain a network the size of Facebook, so the full manifestation of an equivalent social networking app (the platform coupled with the network) has a relatively high barrier to entry. Thus, whereas one could trade a Chevy for a Ford without it having any effect on their driving abilities, in the digital world of hyper-connectivity, one cannot simply trade Facebook for another platform without it directly affecting their networking capabilities. Consequently, Facebook constitutes a monopoly in the digital age not because it has exclusive control over a sharing and connecting platform, but because it has exclusive control over its user network.