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[ NNSquad ] Facebook, Instagram, Google, and the Monopoly Fallacy

        Facebook, Instagram, Google, and the Monopoly Fallacy


Ah yes.  The Net is abuzz with the sound of a billion dollars (I'm
refraining from the "Dr. Evil" references with great effort)
landing in Instagram's lap, courtesy of Mark Zuckerberg's Facebook.
And whatever the associated mix of cash and Facebook stock turns out
to be, that's one hell of lot of moolah for a firm that's only been
around a couple of years, has a grand total of 13 employees, and zero
income (not to mention nada profit).

They don't even have their own infrastructure -- they use Amazon Web
Services array of servers, though one might assume now that at some
point those functionalities will be assimilated into Facebook's farm.

But what really fascinates me about this acquisition is how it puts
another nail firmly in the coffin of false arguments that Google,
Twitter, or various other large Web services firms are monopolies in
their operational spheres, potentially or currently in need of
antitrust enforcement.

What is Zuckerberg really buying with Instagram?   

The entire management and staff of the company can be counted on three
hands, with fingers to spare.  Good people to be sure, but probably
not worth a billion dollars.

What of Instagram's core technology -- letting people take photos,
pretend to be artists by applying various filters (a capability
provided by innumerable other programs and apps), then sharing the
results with their so-called friends and followers -- is there a
billion dollars of value there?

Some 30 million or so Instagram users come along (like it or not!)
with the deal, who will almost certainly find themselves intimately
entwined with Facebook's existing 800-odd million users at some stage.
A significant collection of warm bodies, but a billion bucks worth?

So again, what is Zuckerberg really getting for that billion dollar
price tag?

Peace of mind.

My gut feeling is that Facebook saw the shadow of a significant
potential competitor forming in cyberspace, and decided to nip it in
the bud -- while it was still practical to do so just by throwing a
chunk of money in the appropriate direction.

But how could Instagram -- no infrastructure, no income, hardly any
employees -- be a threat to the 800-pound gorilla of social networking
that is Facebook?

Zuckerberg isn't my idea of a good role model, but he's nobody's fool.

He knows full well what many of us have been saying for years -- that
disruptive competition on the Web can appear and grow quickly at any
time, and will usually be essentially just a single click away for
your current users.

The Cadillac that is Facebook looked in its rear-view mirror, and
realized that the little Nash Rambler of Instagram was pulling up with
surprising speed.

With users increasingly able to easily extract their data from
existing services if they want to switch -- Google has long supported
Data Liberation, and Facebook is now moving in a similar direction --
that "one click away" competitive reality is now even more the order
of the day.

And the counterexamples are equally instructive.

Where effective competition does not exist, cannot be easily created,
or where users cannot move between competitors without pinning the
hassle meter in the red zone, we see complacency and often abusive
behaviors that indeed do call for regulatory approaches.

Microsoft's antitrust problems were fundamentally the result of their
unwillingness to play fair, by their maneuvers to lock PC
manufacturers and users into Windows environments whether they wanted
to be there or not.

The giant ISPs in the U.S. who control most Internet access have spent
decades manipulating the regulatory and political environments to
purposely limit effective competition, to make it as difficult as
possible for subscribers to switch services where any competition did
exist, and to utterly control the "road" that connects subscribers to
the Internet itself.

There was no "one-click" escape from Microsoft's anticompetitive
behavior, and there isn't one today for users in the increasing
concentrated, restrictive, and manipulative world of the immensely
powerful major U.S. ISPs.

So perhaps we owe Facebook and Mark Zuckerberg some gratitude 
after all.

They have helped to illustrate the fallacies of accusations claiming
evil monopolistic behavior by Google or other major Web services firms
where users are free to easily switch between competitors, while also
pointing us toward a better understanding of why regulatory oversight
of the dominant ISPs is so badly needed.

The key to understanding Internet competition is in the click.

Facebook has provided us all with a billion dollar lesson in why this
is true.

Just please don't send us the bill.

Lauren Weinstein (lauren@vortex.com): http://www.vortex.com/lauren 
Co-Founder: People For Internet Responsibility: http://www.pfir.org 
 - Data Wisdom Explorers League: http://www.dwel.org
 - Network Neutrality Squad: http://www.nnsquad.org 
 - Global Coalition for Transparent Internet Performance: http://www.gctip.org
 - PRIVACY Forum: http://www.vortex.com 
Member: ACM Committee on Computers and Public Policy
Lauren's Blog: http://lauren.vortex.com
Google+: http://vortex.com/g+lauren / Twitter: http://vortex.com/t-lauren 
Tel: +1 (818) 225-2800 / Skype: vortex.com

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