Wednesday, July 24, 2019

To Regulate Facebook and Google, Turn Users Into Customers

First published in Techonomy, 2/26/19 -- and more timely than ever...

There is a growing consensus that we need to regulate Facebook, Google, and other large internet platforms that harm the public in large part because they are driven by targeted advertising.  The seductive idea that we can enjoy free internet services — if we just view ads and turn over our data — has been recognized to be “the original sin” of the internet.  These companies favor the interests of the advertisers they profit from more than the interests of their billions of users.  They are powerful tools for mass-customized mind-control. Selling their capabilities to the highest bidder threatens not just consumer welfare, but society and democracy.

There is a robust debate emerging about how these companies should be regulated. Many argue for controls on data use and objectionable content on these platforms.  But poorly targeted regulation risks many adverse side-effects – for example abridging legitimate speech, and further entrenching these dominant platforms and impeding innovation by making it too costly for others to compete.

But I believe we need to treat the disease, not just play whack-a-mole with the symptoms. It’s the business model, stupid! It is widely recognized that the root cause of the problem is the extractive, ad-funded, business model that motivates manipulation and surveillance.  The answer is to require these companies to shift to revenue streams that come from their users.  Of course, shifting cold-turkey to a predominantly user-revenue-based model is hard.  But in reality, we have a simple, market-driven, regulatory method that has already proven its success in addressing a similarly challenging problem – forcing automakers to increase the fuel efficiency of the cars they make. Government has for years required staged multi-year increases in Corporate Average Fuel Efficiency. A similar strategy can be applied here.

This market-driven strategy does not mandate how to fix things. It instead mandates a measurable limit on the systems that have been shown to cause harm.  Each service provider can determine on their own how best to achieve that.  Require that X% of the revenue of any consumer data service come from its users rather than advertisers.  Government can monitor their progress, and create a timetable for steadily ratcheting up the percentage.  (This might apply only above some amount of revenues, to limit constraints on small, innovative competitors.)

It is often said of our internet platforms that “if you are not the customer, you are the product.”  This concept may oversimplify, but it is deeply powerful.  With or without detailed regulations on privacy and data use, we need to shift platform incentives by making the user become the customer, increasingly over time.

Realigning incentives for ads and data.  Advertising can provide value to users – if it is targeted and executed in a way that is non-intrusive, relevant, and useful.  The best way to make advertising less extractive of user value is by quantifying a “reverse meter” that gives users credit for their attention and data.  Some services already offer users the option to pay in order to avoid or reduce ads (Spotify is one example).  That makes the user the customer. Both advertisers and the platforms benefit by managing user attention to maximize, rather than optimize for exploitive “engagement.”

What if the mandated user revenue level is not met?  Government could tax away enough ad revenue to meet the target percentage.  That would provide a powerful incentive to address the problem.  In addition, that taxed excess ad revenue could fund mechanisms for oversight and transparency, for developing better solutions, and for remediating disinformation.

Can the platforms really shift to user revenue?  Zuckerberg has been a skeptic, but none of the big platforms has tried seriously.  When the platforms realize they must make this change, they will figure out how, even if it trims their exorbitant margins.
Users increasingly recognize that they must pay for digital services.  A system of reverse metering of ads and data use would be a powerful start.  Existing efforts that hint at the ultimate potential of better models include including crowdfundingmembership models, and cooperatives. Other emerging variations promise to be adaptive to large populations of users with diverse value perceptions and abilities to pay.

A growing focus on customer value would move us back towards leveraging a proven great strength of humanity — the deeply cooperative behavior of traditional markets.

A simple mandate requiring internet platforms to generate a growing percentage of revenue from users will not cure all ills. But it is the simplest way to drive a fundamental shift toward better corporate behavior.

Coda, 7/24/19:

Since the original publication of this article, this issue has become even more timely, as the FTC and Justice Department begin deep investigation into the Internet giants. 

  • There is growing consensus that there is a fundamental problem with the ad- and data-based business model
  • There is also growing consensus that we must move beyond the narrow theory of antitrust that says there can be no "harm" in a free service that does not raise direct costs to consumers (but does raise indirect costs to them and limits competition). 
  • But the targeted strategies for forcing a fundamental shift in business models outlined here are still not widely known or considered
  • It primarily focuses on these business model issues and regulatory strategies (including the auto emissions model described here), and how FairPay offers an innovative strategy that has gained recognition for how it can generate user revenue in equitable ways that do not prevent a service like Facebook or Google from being affordable by all, even those with limited ability to pay.
  • It also links to a body of work "On the deeper issues of social media and digital democracy." That includes Google-like algorithms for getting smarter about the wisdom of crowds, and structural strategies for regulation based on the specific architecture of the platforms and how power should be modularized (much as smart modularization was applied to regulating the Bell System and enabling the decades of robust innovation we now enjoy.)