What should we do about network-effect monopolies?

Many large companies today are software monopolies that give their product away for free to get monopoly status, then do the most horrible things once they’ve won. (Previously, previously.) Can we do anything about this?

Unfortunately, “you’re the product” is a popular business model for a reason: businesses like Facebook would be really hard to support without them.

Facebook would be suicidal to charge its users money, because its entire selling point is that everyone uses it, and “everyone” hates paying money. In the US, Facebook makes over $25 per person on ads (source). Can you imagine if instead of ads they tried to charge people $25 a year?

Even on the margin, anything that costs Facebook users also makes it less valuable for its remaining users—it’s a negative feedback loop. The same goes for any other site where users create value for other users, like Twitter or Craigslist or Yelp or Wikipedia. (It’s not an accident that these are some of the most stagnant popular websites!)

In fact, this is a fundamental problem with network effects and low marginal costs. If a company wants to maintain a network effect, they need as many users as possible. If their marginal cost is low, then the easiest way to get users is to give the product away. To do that, they have to get paid by someone else. And when they start getting paid by someone else, they’ll inevitably start prioritizing that person’s interests.

Historically with other network-effect businesses, we’ve addressed this in a few different ways:

• regulation (e.g. local utilities)

• breakups (e.g. Bell)

• standardization and interoperability (e.g. email, the Web, cryptocurrency)

So far for tech monopolies, people seem to be focused mostly on breakups—e.g. Facebook from Instagram/Whatsapp—but standardization seems to have produced much better outcomes in the past. (I like email and the Web a lot more than National Grid…) I’d be interested to see more exploration of that option!