STRS: Tech Market Creates Unique Pressure For Services To Respond To User Demands
Driving rushed calls for new tech regulations or antitrust action is the misperception that consumers must place faith in individual businesses to make changes on their own. In fact, it is market forces that compel technology services to respond to consumer dissatisfaction. More than any other sector, the risk of losing users to the competition dictates that tech services be responsive to what users demand. Three points are critical:
1. Tech is a highly competitive market. Recent evidence – analysts predict that Twitter and Snap will continue to grow at Facebook’s expense. eMarketer predicts Google and Facebook will lose digital ad market share this year. Given this dynamic, it is unsurprising that tech leaders spent more on R&D last year than any other sector in an effort to stay ahead. It is in businesses’ interest to make changes to meet user demands.
2. Regulation has unintended consequences, including shielding current leaders from new competition and harming innovation.
3. Breaking up America’s leading tech services does not address data privacy concerns and will only harm consumers.
Leading tech services are subject to many federal and state laws as well as regulators. Tech services are responsive to the demands of users and the public. Any new regulation would need to be well-considered, and aimed at gaps in the law to address a concrete harm to consumers, not reactively based on critics’ unsubstantiated attacks.
More information on what experts have been saying recently is below.
Tech is highly competitive. Users already have multiple apps per service, making switching costs minimal.
— Last month, Pew Research found the median American uses three social media apps. Economist David Evans finds, “The ease and prevalence of multihoming have enabled new firms, as well as cross-platform entrants, to attract significant numbers of users and secure critical mass necessary for growth.”
— No fan of large tech services, Tim Wu writes, “So what stands in the way of building a genuine alternative? It isn’t the technology…No, the real challenge is gaining a critical mass of users. Facebook, with its 2.2 billion users, will not disappear, and it has a track record of buying or diminishing its rivals…. But as Lyft is proving by stealing market share from Uber, and as Snapchat proved by taking taking younger audiences from Facebook, “network effects” are not destiny. Now is the time for a new generation of Facebook competitors that challenge the mother ship.”
— Georgetown’s Larry Downes recently said, “The best regulator of technology, it seems, is simply more technology. And despite fears that channels are blocked, markets are locked up, and gatekeepers have closed networks that the next generation of entrepreneurs need to reach their audience, somehow they do it anyway — often embarrassingly fast, whether the presumed tyrant being deposed is a long-time incumbent or last year’s startup darling.
Regulations have unintended consequences, including shielding current leaders from future competition and harming innovation.
— The American Enterprise Institute’s Jim Pethokoukis notes that while regulations similar to GDPR could take a bite out of leading tech services, they will definitely impact many of their rivals.
—Tim Wu also argued, “When a company fails, as Facebook has, it is natural for the government to demand that it fix itself or face regulation. But competition can also create pressure to do better. If today’s privacy scandals lead us merely to install Facebook as a regulated monopolist, insulated from competition, we will have failed completely. The world does not need an established church of social media.”
— MIT Economist Simon Johnson notes that while the E.U. is considering new digital rules, “…the EU also substantially missed out on the round of digital entrepreneurship that began in the 1990s, and it is not generally at the forefront of this sector currently — so few people in the U.S. are rushing to follow its example.”
Changes to antitrust policy aren’t the answer.
— What’s more, an overhaul of the definition of antitrust “is a poor tool for resolving the problems posed by the technology industry right now,” writes Smith. If concerns are about data privacy, then regulations should center around data privacy – not these sweeping, radical calls to break up leading tech services.
— University of Pennsylvania Law Professor Herbert Hovenkamp argued, “Breaking up these companies may have unintended consequences. ‘The reason these companies… have low prices is because of their size,’ he explained. ‘If you break them up, you may be eliminating most of those cost advantages.’ That would lead to higher, not lower, prices.”
— Holman Jenkins, Jr. is explicit in The Wall Street Journal: “Antitrust is not a solution for the privacy and fake news problems that come with social media. And neither is antitrust called for on traditional monopoly grounds.” He goes on to note the misperceptions of leading tech services’ power: For example, leading tech services are said to be dominant in digital advertising: “But digital ads are ads, a $540 billion annual market they hardly dominate.”