Silicon Valley has obviously been a highly successful center of innovation, technology and wealth creation. In general, most Americans like the many of the products, like the entrepreneurial energy that has spread from Silicon Valley to the rest of the country and generally support people getting incredibly rich by creating incredibly successful businesses. In earlier years, I'm sure many of those innovators thought that were improving the world while they also wanted to make money. More recently, it seems pretty obvious that the initial goal is to become a billionaire. And, the only way one can do that optimally is to provide free services and products, that attract huge amounts of users who provide huge amounts of their own data so that the company can then sell that data to advertisers who want to target the users in very sophisticated and narrow ways. A company like Facebook has nearly perfected the process of extracting, analyzing and selling the users' data. Advertisers pay top dollar for access to that data and to target Facebook users based on that data. At some level, we congratulate Facebook and marvel at what a great business model that they have created. Obviously, that business model is what attracts investors, who look for the businesses who can maximize profits. Again, that's how capitalism works we generally like that.
However, we need to consider whether these technology companies, especially the social media companies are special cases due to their technology-business models that allow them to scale up so quickly and often take most or all of their markets. That is, are they really akin to monopolies and are their activities essentially abuses of dominant market positions? Typically, mainstream economics and government policy would then state that such businesses need to be highly regulated and, on occasion, broken into pieces in order to avoid negative consequences to innovation or user choices. It seems obvious tha this should be under serious consideration.
My view is that the Facebooks, Googles, etc. of the world do need to be regulated and very likely broken up. But, my bigger concern is the nature of the business models that drive these businesses and create these consequences. One of them is that the nature of technology businesses (like software or media) allows for incredible value creation once scale has been reached. This is largely a question of when variable revenue starts to exceed variable costs - in economics, this is called "contribution margin". In businesses based on intangibles, this is how incredible wealth is made. But, I don't think we want to or can outlaw a highly favorable business model (although we could inordinately tax profits derived from very high contribution margin). My bigger issue is the "free" nature of these business models to the users. The most profitable, scalable and dominant of these companies do not cost money for most of the users (aside from "premium" accounts, etc.). That is because the data that users give to the company is way more valuable than any subscription fees that users might otherwise pay. So, those business models cause those companies to relentlessly pursue more users and more usage, so that they can get more data and sell more data to advertisers. Because these companies have investors who know that such persistent scaling creates more profits, those investors push management to drive more and more growth (and management is generally legally required to do that on behalf of shareholders). That's entirely logical, but it is very negative for users, society and the economy for several reasons, including that the incredibly sophisticated micro targeting of users allows the advertisers to have an incredible degree of control and persuasion over the users and their economic activity. From a privacy and policy perspective, we should want to avoid this. It also leads to extreme over-consumption by users, which is not good for society and certainly not good for the financial well-being of the users. Again, we should want to avoid this. All this could addressed through smarter and more aggressive policy and regulation.
Social-minded entrepreneurs could also avoid these business-model consequences. That is, if an entrepreneur desires to develop a technology business that can bring great good to the world, but avoid the negative consequences of the current business models, then a subscription-based approach is much more socially responsible. For example, if Facebook charged a monthly fee instead of using a non-fee model, then it would not need to monetize every data point of its users' lives. It also would not then be selling micro-targeting advertising. It also would not induce extreme and wasteful consumption. The users would also get a service that it actually wanted (because a user would only pay for what it wanted) and not a push-model of exploitative services that don't bring value to the users.
Sure, such a model would possibly not make the entrepreneurs billionaires, but if they provide a great service that users are willing to pay for (in exchange for not having their data and lives manipulated in ways inconceivable to them), they will still be very rich - and will actually be contributing to society instead of only extracting value from society. In fact, my guess is that there is a huge segment of the population who would very much pay a monthly fee if they could be confident that their data would not be exploited and they would not have to put up with non-stop advertising pushing unwanted and unneeded consumption. So, maybe entrepreneurs should really think about the social impacts when developing their business models. Maybe, they should Try Not To Be A Billionaire by refraining from socially negative business models and instead just try to be very rich by using socially responsible business models.
However, we need to consider whether these technology companies, especially the social media companies are special cases due to their technology-business models that allow them to scale up so quickly and often take most or all of their markets. That is, are they really akin to monopolies and are their activities essentially abuses of dominant market positions? Typically, mainstream economics and government policy would then state that such businesses need to be highly regulated and, on occasion, broken into pieces in order to avoid negative consequences to innovation or user choices. It seems obvious tha this should be under serious consideration.
My view is that the Facebooks, Googles, etc. of the world do need to be regulated and very likely broken up. But, my bigger concern is the nature of the business models that drive these businesses and create these consequences. One of them is that the nature of technology businesses (like software or media) allows for incredible value creation once scale has been reached. This is largely a question of when variable revenue starts to exceed variable costs - in economics, this is called "contribution margin". In businesses based on intangibles, this is how incredible wealth is made. But, I don't think we want to or can outlaw a highly favorable business model (although we could inordinately tax profits derived from very high contribution margin). My bigger issue is the "free" nature of these business models to the users. The most profitable, scalable and dominant of these companies do not cost money for most of the users (aside from "premium" accounts, etc.). That is because the data that users give to the company is way more valuable than any subscription fees that users might otherwise pay. So, those business models cause those companies to relentlessly pursue more users and more usage, so that they can get more data and sell more data to advertisers. Because these companies have investors who know that such persistent scaling creates more profits, those investors push management to drive more and more growth (and management is generally legally required to do that on behalf of shareholders). That's entirely logical, but it is very negative for users, society and the economy for several reasons, including that the incredibly sophisticated micro targeting of users allows the advertisers to have an incredible degree of control and persuasion over the users and their economic activity. From a privacy and policy perspective, we should want to avoid this. It also leads to extreme over-consumption by users, which is not good for society and certainly not good for the financial well-being of the users. Again, we should want to avoid this. All this could addressed through smarter and more aggressive policy and regulation.
Social-minded entrepreneurs could also avoid these business-model consequences. That is, if an entrepreneur desires to develop a technology business that can bring great good to the world, but avoid the negative consequences of the current business models, then a subscription-based approach is much more socially responsible. For example, if Facebook charged a monthly fee instead of using a non-fee model, then it would not need to monetize every data point of its users' lives. It also would not then be selling micro-targeting advertising. It also would not induce extreme and wasteful consumption. The users would also get a service that it actually wanted (because a user would only pay for what it wanted) and not a push-model of exploitative services that don't bring value to the users.
Sure, such a model would possibly not make the entrepreneurs billionaires, but if they provide a great service that users are willing to pay for (in exchange for not having their data and lives manipulated in ways inconceivable to them), they will still be very rich - and will actually be contributing to society instead of only extracting value from society. In fact, my guess is that there is a huge segment of the population who would very much pay a monthly fee if they could be confident that their data would not be exploited and they would not have to put up with non-stop advertising pushing unwanted and unneeded consumption. So, maybe entrepreneurs should really think about the social impacts when developing their business models. Maybe, they should Try Not To Be A Billionaire by refraining from socially negative business models and instead just try to be very rich by using socially responsible business models.
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