What you usually hear about Facebook going public is disappointment. The I.P.O got more publicity than any in recent history, yet the stock plunged quickly and has only bobbed up into mediocre territory since. You also hear about the anticipated solution: Facebook stock might finally perform well once the company finds a way to place more ads in mobile phones.
But that kind of short term analysis masks the bigger issue, which is that a dumb ideology has forced most consumer-facing Internet companies to focus on a single business plan that doesn’t have a future.
The ideology was first adopted by Google around the turn of the millennium. Since computers would continue to get cheaper and cheaper, following Moore’s Law, why not make the services free? It’s the data that’s valuable, according to this line of thinking, so online companies can give away the computation and keep the data.
This was the opposite of the business formula of the earlier PC era. Before computers became cheap and everyone got online, those who owned personal computers also owned their own data. Google’s idea was to centralize the information services industry by demonetizing it. No one can compete with free.
If the new formula was to give away the computing but keep the most valuable data, how would money be made? Well, the term “advertising” was repurposed. Where it used to mean an act of communication, a romanticizing of a product, now it would mean micromanaging the options placed in front of people for pay.
It’s a fantastic business plan in the short term. Google, by owning gigantic computers, can out-compute smaller competitors. The more openly information is shared, the more advantage Google gains. Google’s users are not its customers. Instead, the customers are the advertisers, who pay to place links in front of users, based on “big data” analysis of how the users can be most effectively manipulated.
Google’s customers, the “advertisers,” are practically locked into positions through an auction system. If a customer contemplates moving business to, say, Facebook, then it is a certainty that that customer’s next nearest competitor will win the abandoned position.
This idea (of giving away computation but keeping the data in order to use giant computers to predict how to best manipulate people) is really the only possible business plan if information is to be “free.” Every other company is forced into a shrinking pool to compete with Google.
This is Facebook’s core problem, not the shift to mobile. Even if it can win away some of Google’s empire, it is nuts that two companies that do completely different things should have to compete so directly. Search and social networking are different enough that they should not be limiting factors for each other’s commercial success.
Moreover, it is ordinary people who provide the information that make companies like Facebook so powerful and valuable, but they don’t get paid for what they contribute—their own data. Behind every tech network hides a crowd of disenfranchised people, and the network effects that have made these companies so powerful will continue to hollow out the “information economy.” It started with musicians and journalists, but surgeons, lawyers and all kinds of other skilled workers are next.
A universal micropayment system, in which people are paid when the data they add to a network is used by someone else, provides a way out of this trap. When the biggest companies will have to pay for information, manipulating users will no longer be business plans—and they will have to provide new kinds of values.
Jaron Lanier is currently a researcher with Microsoft Research, but this piece was not viewed by Microsoft in advance and does not reflect a Microsoft point of view (Microsoft was an early investor in Facebook). Lanier has also sold a startup company to Google.
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