Why Facebook is a natural monopoly - YouTube

- Facebook is everywhere, whether we like it or not.

It's how we invite our friends to parties,

how we talk to relatives, what we do on our phones,

while we're waiting for the microwave to finish.

But even though we use it all the time,

it's kinda terrible.

It makes you feel bad.

And you feel even worse when you realize

how much data you're giving off for targeted ads,

and political campaigns.

- We didn't take a broad enough view of our responsibility,

and that was a big mistake.

And it was my mistake, and I'm sorry.

- Facebook's done so much creepy stuff,

that it's hard to trust them now.

And even if you delete your account,

it's hard to get away from the company entirely.

It's complicated.

And if you want to know why that is,

you gotta look at the big picture.

(rhythmic tonal music)

In theory, there's a way to deal with companies

that do things we don't like.

Companies have competitors, and if one of those competitors

is doing something better, then either the first company

changes, or it gets replaced.

That's the market.

But, Facebook doesn't seem worried about that,

and you can see why.

Facebook has no real competition.

If you don't like Uber, you can take a Lyft.

But, if you don't like Facebook,

you kinda have to quit social media entirely.

Facebook is the one place you can count on finding

nearly all the people you know.

The other networks just aren't as big.

About 180 million people use Snapchat each month, (Correction: each day, not each month)

and that number's actually going down.

Twitter's bigger, with 330 million users,

but in 2018, Facebook cleared 2.3 billion users,

and it made 13 billion dollars in revenue off them,

at a time when its competitors are right on the edge

of profitability.

The only networks that come close are Instagram

and WhatsApp, both of which are owned by Facebook.

That doesn't mean Twitter and the other runners up

are doomed, but it's hard to see any of them

getting to be size of Facebook.

Once you have a social network that big,

you don't really need another one.

The term for this is a natural monopoly.

And that's when entering a business is so hard,

that a single winner ends up dominating the industry.

The classic example is the cable business.

It's really expensive to lay cable to a building,

but it's pretty cheap to operate, once the cable's in place.

If you've already run cable to all the houses in a city,

it's gonna be hard for anyone else to compete on price.

They'd have to run a whole new set of cables,

there's just no way to justify that expense.

And since the cost of laying cable encourages

a single big provider, you can't expect competition

to solve problems, like high prices

or bad business practices.

It's hard to be sure if social networks

are a natural monopoly.

They've only been around for 10 years,

and they're still changing a lot.

Unlike cable, it's not actually that expensive

to start a social network, it's just hard

to get everyone on board.

The barrier to entry is more about users than money.

But, after seeing a dozen different competitors

try and fail to rival Facebook's size,

there's a growing consensus that market competition

just isn't gonna keep the company in check.

- The problem is Facebook.

That's the problem.

And that Facebook has broken so much trust

to allow you to simply gobble up every form of competition

is probably not in the public interest.

The simplest form of regulation would be

to break Facebook up, or treat it as a utility.

We've dealt with natural monopolies before.

When Bell Telephone started rolling out the first

consumer phone service in the 1880s,

people were faced with the same problem.

Once there's a network of phone lines in place,

there's no real reason to start a second one.

Bell drove a particularly hard bargain

around the expensive long distance phone lines.

If you didn't buy their local service,

you couldn't use the long distance service, either.

It was the kiss of death to competitors.

And so aggressive that the government decided to step in.

The Department of Justice actually sued the Bell System

as a monopoly, and won a string of settlements

and consent decrees.

The first one was in 1913, and the regulations

just got tighter from there.

In 1934, 1956,

1974, and 1982, until the company was finally broken up

into a bunch of regional companies in the 1980s.

Then those companies were consolidated

into the heavily regulated telecoms we know today.

Not everything that regulators did worked,

but for the last hundred years, for better or worse,

the federal government has been the main force

keeping phone companies honest.

It's hard to say what that kind of antitrust case

would look like for social networks.

For the last 40 years, the standard test for monopolies

is that they raise prices.

But Facebook is free, like everything else on the Internet.

The damage isn't in higher prices, but market power.

Whether that's driving up the cost

of reaching your followers, or shaping

the entire marketplace to suit its needs.

The sheer size of Facebook means it can muscle in

to other areas, like messaging or photo sharing,

or buy out competitors like WhatsApp and Instagram.

As long as it's impossible to compete,

Facebook can keep expanding and expanding

until it takes up the entire Internet.

And, unless we find some way to keep the social network

in check, that's exactly what it's gonna do.

- [Enquirer] 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?

- Well, there's the second category

that I was gonna talk about or--

- [Enquirer] I'm not talking about categories,

I'm talking about, is there real competition you face?

You don't think you have a monopoly?

- It certainly doesn't feel like that to me.

- [Enquirer] Okay.

(group laughs)

- So if you liked that video, please like us on Facebook,

it's a huge social network, it's really important.

You can also get us on YouTube, at youtube.com/theverge.

You gotta look at the big picture,

that's actually not very big, is it.

You gotta look at the medium-sized picture.