Over the last century, Big Business transformed dramatically, several times. What used to be in the hands of heavy industry, of oil and steel, gradually became the domain of the chemical, pharmaceutical, automotive and later on consumer electronics industries. And from the 1990s onwards, it morphed again as the Digital Revolution unfolded.
Today, Big Business is dominated by just a handful of truly global players, who all grew up in Silicon Valley, are firmly rooted in Information Technology, and were amongst the first to foresee the potential of network or platform economics. These companies were the first to develop viable business models for data-driven, open platforms that deliver IT-enabled services. And most importantly, they found ways to exploit network effects as a cornerstone of their value proposition.
A catchphrase for this new form of Big Business is GAFAnomic [1], named after the pre-eminent examples Google, Apple, Facebook, and Amazon. Despite some obvious differences, they share a few essential characteristics: They all succeeded in establishing an ecosystem around immaterial, non-rival services, which are easily scaled at close-to-zero marginal cost. These platforms can adjust the services offered to individual customer needs in real-time, while they encourage customers to generate and share data. And that propels the platforms forward: the more data you have – the better your service – the more customers you get – the more data you obtain; like a perpetual motion machine that grows bigger and stronger at breathtaking speed.
But that’s a mere economic perspective; and judging GAFA just like any other business is missing the important point: in the 21st century, data is the new oil. Data is the resource that drives the economy. This development, whether we like it or not, imposes fundamentally new roles on the customer: not simply as the user of a fabricated product, but also as the generator of the resource needed to create the product, to improve the product, and to design new products. As customers, we now are the oil well, the refinery, large parts of the petro-chemical plant, AND the consumers of all the products. Consequentially, the relations between Big Business and its customers have radically changed.
Big Business by itself is neither new nor is it a problem. But its latest incarnation in the form of GAFAnomics produced a range of intertwined challenges that society is neither prepared nor equipped to deal with. To my mind, this problem is paradoxical as well as complex, and that creates a conflict of interests for the customers, which makes it difficult for society to exercise appropriate control over today’s Big Business.
The problem is paradoxical
Big Business transformed to stay the same. It hasn’t really changed since the time of the robber barons at the turn of the 20th century, and yet it is fundamentally different today. So what remained unchanged? And what is really new?
What remained? The basic economic mechanisms as well as society’s response are unchanged.
- Big Business today still shares many of the characteristics that Standard Oil , U.S. Steel Corporation, or J.P. Morgan displayed in the early 20th century. As business entities, they are devoted to making profit. To achieve that principal objective, they seek to grow their market, grow their share of the market, and grow their profit margin. Over time, success turns an initially small company into Big Business: It services the majority of the customers in the market, has either repelled or acquired most of the competition, incorporates most of the value chain within its organisation, and has accumulated considerable capital, assets and resources to ride out any future storm. This Big Business has achieved a dominant market position, in many cases a monopoly. These economic mechanisms haven’t changed.
- What was new at the turn of the 20th century was society’s response to such accumulation of economic power. The anti-trust legislation put forward by Senator John Sherman in 1890 for the first time declared illegal any corporate structure or action, and even the attempt “to monopolize any parts of trade or commerce“. This was the legal basis for the Supreme Court’s verdict in 1911 to dissolve Standard Oil and break it up into several independent businesses. And society’s response to Big Business hasn’t changed since then: whenever there is an undue accumulation of economic power (suffice it to say that there is always considerable debate about that little word “undue”), society will employ its legislative and / or judicial means. In fact, the Sherman Act and its later amendments were actually employed in a number of high-profile cases to curtail the market-dominating powers of industry giants such as AT&T, IBM, or Microsoft.
What is new? This time is different through the pervasiveness and omnipresence of the platforms.
- The GAFA platforms have literally changed the lives of billions of citizens around the world: for most of us it’s unthinkable to spend a day, let alone a week, without access to the myriad of services running on GAFA platforms. Furthermore, they provide the backbone for lots of other businesses. Just take the example of Uber and its use of Google Maps, Amazon Web Services, Apple’s AppStore, Facebook’s Messenger: without the services of the GAFA, Uber couldn’t exist.
- GAFA do not only control large portions of today’s market, they are ideally positioned to maintain their dominant position in the future, based on data and talent. The enormous volumes of data they have already aggregated are the perfect resource to develop and train Artificial Intelligence systems, which are the next Big Thing in the industry. Equally important: with the assets and resources they command, GAFA can easily attract the best talent, either straight from university or from competitors. You might say that GAFA do not only control the present, they own the future as well.
GAFAnomics is built around platforms that exploit network effects. The growth of these companies follows the usual economic mechanisms, just on 21st century steroids. An established network with billions of users and thousands of businesses already presents an insurmountable competitive advantage. Together with their control of large data volumes and their attractiveness for the most promising talent, GAFA have effectively fortified their market position in such a way that there is no realistic hope for any potential challenger to set a foot in the door. The challenge is that society’s response isn’t up to speed, i.e., not ready to match the speed and scale of today’s Big Business.
The problem is complex
How do we deal with Big Business today and in the future? That’s the all-important question. And the key part of it is: Who is that we? We as customers? We as generators of resources? We as a society? In the old economy, these roles of demand, supply, and control were clearly separated. But in the brave new GAFAnomics world, they are massively entangled: each of us plays all of them, more or less. Here’s how that works (or not):
- The GAFA let me use their platforms free of charge. That seems like a brilliant deal for me, because my customer-me enjoys a free ride. And that ride, the services offered, is quite addictive. But wait: we all know full well that there’s no such thing as a free lunch. And GAFAnomics is no exception.
- To use the “free-of-charge” platform, I transfer personal data to gain access. And I will continuously generate additional data whenever I use the platform, including data about myself that GAFA won’t give me access to. Worse still, while I pay with my data, I have no idea about its price, what value GAFA derive from my data, or how much I should charge them (if that was at all possible). Worst of all, my supplier-me remains unconscious: I am not even aware that I am GAFA’s oil well. But that’s not really a surprise, as I have no previous experience as a resource supplier for Big Business. Hence I neither expect to have this role, nor would I know how to fulfil it.
- At the same time, my control-me is traditionally slow to respond (in general a good precaution to avoid hectic over-reaction). However, it is particularly tardy in the case of GAFAnomics, as it is numbed by the free-riding customer-me. So I would need the supplier-me to gain consciousness for the control-me to start thinking. The supplier-me must understand that the deal offered by the GAFA is one-sided and does not serve the total of my interests. Only then will the control-me move into action.
So I’m trapped within my own conflicting desires. And once I got addicted to the free ride, I need my daily dose. That’s why I’ll keep feeding the GAFA platforms with my data. Under these conditions, it is unlikely that I’ll actively try to change the deal.
And even if I would, and many others like me would want to change the deal with the GAFA, e.g., demanding an appropriate reimbursement for the data we keep generating, such negotiations will be highly challenging, to say the least. Speed and scale give the GAFA decisive advantages over the means society could employ to exercise control. Pursuing lawsuits or issuing new laws and regulations involve protracted processes that are no match for a philosophy of “move fast and break things” (Facebook developers’ motto until 2014). And the global scale of GAFAnomics makes successful litigation a piecemeal effort, because the application of law is tied to a specific territory.
Now, all of this might seem rather bleak, with little left that society could do counteract the GAFA monopoly over the platforms that have become the backbone of our daily lives. But not so fast. Big Business and society are tied together through customers and their various roles. So there are multiple channels to interact with each another. Big Business uses its influence already, and society should really do the same.
Influence works in two directions, with many facets
The big question is: Who influences whom? And the unsurprising answer is: Everybody influences everybody else. Big Business, the customers (as consumers of services and generators of data) and society (the collective of customers), they all influence each other in many different ways. In all this messy entanglement, we have to remain acutely aware of the different objectives of business and society:
- Business seeks to maximise economic value, and that’s normal: making profit is the essence of a company’s existence. And it’s equally normal that companies pursue business opportunities that arise from novel technologies.
- Society on the other hand seeks to maximise social value, promoting peace and stability, leading healthy and fulfilling lives, advancing culture. Economic prosperity and technological progress are the means to those ends.
From this perspective, business serves society’s objectives, but with a specific emphasis on profit. Hence society would be ill-advised to simply accept the offerings of business. And that’s particularly important when dealing with GAFA. With that, let’s take a critical look at a few illustrative examples.
How GAFA influence society (and politics)
- Think about Mark Zuckerberg’s 2010 declaration of the “end of privacy“. That certainly reminded many observers, including myelf, of George Orwell’s dystopian novel “1984”. Nevertheless, Zuckerberg’s statement launched a public debate about the nature and purpose of online privacy. And that made many customers of social networks aware how much control they had already given to Facebook, and how little that had retained to themselves.
- Or take the open letter signed by many Silicon Valley CEOs, urging the President of the U.S. to not withdraw from the Paris Climate Accord. Even though it didn’t succeed in its immediate purpose, through this letter GAFA (and others) lent their powerful voice to support sustainable development.
- A less audible, and unintended, influence on society comes through the way social media are used. Echo chambers are a new phenomenon that diminishes the quality of public discourse to an extent that jeopardises the foundations of democracy.
How society influences GAFA (through politics and legal action)
- Early in 2017, Denmark became the first country to appoint a Digital Ambassador. This political decision acknowledges the far-reaching influence of the digital economy. More importantly, it helps coordinate digital policy matters across various branches of government and establishes a clear, direct communication channel between government and the digital industry (including GAFA).
- More recently, the European Court of Justice ruled that Uber is a normal transportation company, hence is subject to the respective regulations in Europe. Uber had argued to be a digital service and does not to comply with the taxi business regulations. This verdict denies an undue competitive advantage for Uber. The arguments used by both parties clearly highlight the fault lines between old and new economy. And the case illustrates how the law can be employed to safeguard society’s interest in a competitive market.
This short list is necessarily incomplete, but I hope it showcases how influence is clearly exerted in either direction, through a broad range of approaches.
For the future
But how do we go forward? It’s obvious that GAFAnomics will have massive influence on the future of the economy. And given the multiple roles of the customers, society cannot separate itself from GAFAnomics. It’s inevitable the society must find a constructive way to deal with it.
Legal action to break trusts and monopolies is not the Holy Grail. But it shouldn’t be taboo either: as Jonathan Taplin pointed out last week in Can the tech giants be stopped?, anti-trust action in the past “has often served not to constrain innovation but to promote it.” So it might be society’s last resort to ensure competition in a given market.
But before calling on judges to apply existing law, or on parliaments to issue new law, the producers of data should raise their voice. All the users of the GAFA platforms, who continuously generate data and give them away for free, are the labourers in and the owners of the oil fields. They should unite, whether under the banner of a labour union or as the OPEC for data, to demand their share of the value generated by the platforms. There is no point in blindly accepting the expropriation of data that is practised today: free-of-charge access to the platforms does have a value, but so do data. And rather than arbitrarily declaring both of these values to be zero, let’s figure out the numbers. Platform users should be aware of the bargaining power that could have, if they speak with one voice. They have more to gain than to lose.
Lastly, there are two different philosophies to deal with the impact of technology. The European perspective focuses on concerns and seeks to avoid undesirable outcomes by a priori pre-emptive intervention. The U.S. perspective maintains a focus on opportunities and considers corrective action only a posteriori. Neither of these philosophies is inherently better or worse, and neither of them is wrong. On the contrary, it could be a real innovation in international policy making to combine the best of both approaches in a truly concerted effort.
[1] Business analysts FaberNovel offer a comprehensive tutorial (in two solid slide decks, Season 1 and Season 2), a series of four articles built off the content of Season 2 (Part 1, Part 2, Part 3, and Part 4), and even a weekly update on GAFAnomics.
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