Part three. How Facebook and Google Monetize Your Privacy
“Web Giants hoard mountain of cash” isn’t news.
The Platforms Google and Facebook do make a lot of money: in 2020 Google raked in $USD 182 billion for an operating profit of $41 Billion. Facebook took in $86 Billion revenue and $32 Billion in profit.
To give you a sense of scale, Canada’s biggest news organization, Bell Media recorded $USD 2.4 Billion in revenue and a net profit of $0.6 Billion in pre-pandemic 2019.
Big companies throwing their weight around isn’t big news.
But unregulated foreign-owned communications companies holding monopoly-scale power is news: We were reminded of that in 2020 when CEO Mark Zuckerberg pulled the plug on Facebook’s Australian users for a week in retaliation against proposed government regulation.
And like all powerful companies with dominant market power, the Platforms impact not only their customers and competitors but also the public good. Remember the 1989 Exxon Valdez oil tanker spill on the Alaskan coastline? Or green house gases circa 2021? What economists antiseptically call the “externalities” of bad corporate behaviour really means that citizens suffer the collateral damage and the corporation may or may not pay for it.
In the case of Google and Facebook, their chief externality has been to corner the market on media advertising, the golden goose that used to pay the bills for news journalism, a public good that keeps our democracy alive. Making it worse, Facebook hosts disinformation on its Platform.
Western democracies want to do something about it. But so long as US Congress sits idle on the market power of the Platforms, the options for other sovereign nations are limited.
One of the tactics employed by other governments is to challenge the Platforms on anti- competition grounds. In the UK, which has a more powerful regulator than Canada, the Competition and Markets Authority (CMA) published a 437-page report in July 2020. It concluded the Platforms has captured overwhelming market power and are in many cases abusing it. The CMA recommended regulatory interventions into many aspects of the Platforms’ business practices.
At the core of the Platforms’ market power are parallel monopolies in digital communications: Google’s search engine and Facebook’s News Feed.
Google owns a cool 95% of the global search engine business. Facebook, with its purchases of Instagram and WhatsApp, controls 70% of the world’s social media traffic.
The Platforms have been wildly successful in their bargain with digital consumers: in return for the Platforms’ tracking and accruing digital data in every nook and cranny of your every day life, you get an array of free digital products which, in this day and age, most people can’t seem to do without.
Again, advertisers and ad dollars are the golden goose. The Platforms’ ability to build rich data profiles on hundreds of millions of people allows them to sell custom-fit demographic audiences to advertisers at reasonable prices (Google ran an experiment for publishers in 2019 showing that ads not guided by consumer data fetched only 70% of the price of the usual data-guided digital ad).
As you can see, the Platforms’ monetize your private daily life. This is not news to most of us.
But their secret is this: they need interesting content that draws you to their products in the first place. News is not the number one draw, but it’s a big one. Just think how often you go to Google Search looking for breaking news, or even old news. Think about how frequently you scan your friends’ Facebook shares as part of your daily take on the news.
It doesn’t end with Search or News Feeds of course. The Platforms have branched out, growing their digital empires into an ecosystem of complimentary digital products that are mostly free and feed their voracious appetites for your personal data.
Google has about 270 digital products in Search, advertising, video broadcasting (YouTube), personal communications, publishing, maps, business analytics, and so on. Unless you’ve been secluded in a log cabin since 2002, you’ve used a lot of them. Each time you give your personal information to Google, you add to their treasure trove of data.
Facebook has expanded too: it owns not only Instagram, WhatsApp, and Messenger, but also a host of complimentary digital freebies like Facebook Live, Facebook Marketplace, the list also goes on.
Besides building their profile on you with basic personal data, the Platforms consume your daily digital life through your searches, browser visits, phone location systems, online shopping, e-mail, messaging, likes, and comments. In other words, everything about you. And you pretend not to mind (or you would rather not know).
In the digital world, data is everything, because it’s what gets monetized if advertising is in play. The Platforms’ golden data goose just keeps getting fatter.
What’s worse, the Platforms occasionally abuse their stewardship of your data. In 2013, Facebook’s third party app Open Graph allowed Cambridge Analytica, a right wing consulting company, to build data-driven “psychological profiles” of millions of Facebook users and their contacts. They used this private data to fuel disinformation campaigns during the 2016 US election and the Brexit referendum. When a Cambridge Analytica employee blew the whistle in 2018, Facebook CEO Zuckerberg was forced to apologize to the US Congress and paid a $USD 5 Billion fine to the Federal Trade Commission.
Under the leadership of its far more likeable CEO Sundar Pichai, Google is an even bigger data gorilla than Facebook. Its abuses, as documented by the CMA Report, are on the advertising side of the business rather than the user side.
In addition to having captured 95% of advertising in Search and roughly half of the entire digital advertising business around the world, Mr. Pichai also does a brisk business in display advertising through Google Ads and, for good measure, controls about a third of the “open display” advertising market.
Open Display is a marketplace for publishers to sell ads on their web pages to advertisers through “real time” auctions of ad space. The auctions are triggered when you open a web page, instantly offering your data profile to be matched with a suitable ad. This speed of light auction is conducted through a commercial chain of computer servers known as “the Ad Stack.”
Surprise, Google holds the dominant ownership position in this Ad Stack at every link in the server chain. In fact, Google is the dominant provider in both the supply (publisher-side) and the demand (advertiser-side) links in the server chain, providing a surely irresistible opportunity to favour its own business interests over any given client at any given time, for millions of ads each day.
You get the picture: the Platforms are the global data juggernauts and they don’t always play nice.
For news publishers the implications are as follows.
First, the publishers clearly can’t compete with the Platforms for data-driven advertising dollars. As print advertising winds down---at about 10 to 20% every year--- the news publishers’ dilemma only gets worse.
Second, the Platforms’ monopoly control of two indispensable platforms for drawing news consumers ----Google Search and Facebook News Feed--- means that negotiations to pay for editorial content between thousands of individual news publishers and the monolithic Platforms is hopelessly lopsided in favour of Google and Facebook.
True, spokespersons for Google and Facebook are fond of arguing that they drive viewer traffic to publisher websites that can be paywalled to earn money.
There is merit to their argument, but it’s of little consolation to publishers who are struggling to convince you and I ----life-long addicts of free or subsidized news content that we are---- to start paying full tariff for it. Nor do the Platforms acknowledge they have cornered the market on the ad dollars that used to pay for news.
It’s notable that the British competition authority recommended a number of market interventions to mitigate the harms that the Platform monopolies inflict on their own customers and would-be competitors in digital products. As for the publishers, the CMA struggled to identify any market corrections that might mitigate the “externality” of bankrupting or otherwise impoverishing news journalism.
In other words, the news publishers will never acquire the data resources allowing them to compete for ad dollars with the Platforms through some intervention by competition authorities. There is no unscrambling this omelette.
Unless of course…the CMA could have grabbed some headlines with a recommendation as dangerous as it is taboo: the Platforms could re-unite news content and advertising dollars by getting into the journalism business themselves.
Just imagine mergers of media companies with data companies to provide a so-called level playing field between global giants. Perhaps a marriage between Fox and Facebook. And another between Google and the New York Times. And just imagine Steve Bannon or Rupert Murdoch as CEO.
If that doesn’t make your blood run cold, check for a pulse.
Our next blog poses the question: what if anything can sovereign nations do to save their news media.