Regulating Edge Providers

The year is only half over and already it seems like this might be the most interesting year for regulations we’ve had in my lifetime. It seems like a lot of the telecom regulations we’ve lived with for decades are being reconsidered and that nothing is guaranteed to stay the same.

Perhaps the most novel new idea I’ve heard comes from Steve Bannon in the White House. He believes that Google and Facebook have become so dominant that they should be regulated as utilities. He envisions this being done in much the same manner as is done with telephone and cable companies.

It’s not an entirely novel concept and the European Union has kicked around ideas for curbing the power of big software companies like Microsoft, Google and Facebook. I find the concept to be a little strange coming out of this administration since they seem to be largely anti-regulation and seem to be intent on lowering regulations for both telephone and cable companies. Trying to regulate these companies would have to mean a lot of new regulations.

The first question that popped into my head when I heard this was to ask what a government might regulate with these companies. The European Union went after Google in 2016 for their practices of requiring that cellphones default to the Google search engine and to the Chrome browser. In 2015 they objected that Google used its market power to insist that cellphones use the Android operating system. But these kinds of issues are related to abuse of monopoly power and there are already rules in the US that can tackle these issues, should the government care to do so. I don’t think this is what Bannon has in mind.

It seems like it would be a real challenge to regulate the main business lines of the two companies. You can’t regulate prices because Google and Facebook are free to users. They don’t directly sell anything to their users on their core platforms. If these companies are large it’s because they have a platform that a lot of people want to use. People have a lot of options for using alternate social media platforms or search engines. People seem to use these two companies because they offer something people want – and I really can’t imagine how you can regulate that.

It’s also hard to envision a single country really regulating these entities. We already know what that looks like today by seeing how these big companies operate in China. Probably lesser known is there are many other countries where the companies offer something different that what we see in the US. My guess is that regulation wouldn’t fundamentally change these companies – but it could make them modify the public face of the company if we tried to regulate – something that their many users would probably strongly resent.

I think perhaps the best argument against regulating these two companies is that there is no guarantee that they are going to maintain their current market dominance, or even survive as companies for the long-haul.

The online world has proven to be fickle and people’s collective tastes change over time. Already today US teenagers have largely bailed on Facebook and view it as a platform for their parents and grandparents. I know my daughter only maintains a presence on the platform to communicate with older relatives and that she communicates with her friends elsewhere. Facebook may have over a billion users today, but that is not to say that over a few decades that something better might come along and that they could lose a lot of that market power.

Google faces an even bigger long-term problem. Google relies on people making searches on computers and cellphones. There are a lot of tech experts predicting that search engines will be passe within only a few decades. They predict that people will begin talking directly to an AI-based personal assistant to perform most of the tasks that cellphones do today.

Both Google and Facebook make most their money today from advertising. But in a future world where everybody communicates through a smart personal assistant the direct interface between people and web platforms like Google or Facebook might nearly disappear. The advertising aspect of the Google search engine will disappear if your smart personal assistant is making choices for you based upon your preferences. In an AI-driven future both search engines and social media are likely to be replaced by something drastically different.

The conclusion I reach is that government is not really in a position to regulate the ever-changing world of the big edge providers. Facebook or Google may have a dominant position in their market niches today but in a decade could be in a different place. Just go back and make a list of the big technology players of twenty years ago. It would have been a waste of time to regulate AOL, Compuserve or the other platforms that dominated the web then. Those companies were usurped by something people found to be of more value. Regulation, by definition, assumes a predictable world – something that is unlikely in the edge provider world.

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