As Facebook grows more powerful, regulators are taking more of an interest. Photo / 123RF
As Facebook grows more powerful, regulators are taking more of an interest. Photo / 123RF
Taming the beasts of Silicon Valley is a thankless task for governments. Tread lightly, and you are accused of giving tech giants a free ride, but overstep the mark and you choke innovation.
One train of thought is that politicians really shouldn't try to control the internet: the industry changesso quickly, and competition is so cut-throat, that by the time they have got round to creating rules, let alone enforcing them, the market will have been turned on its head by some teenager in a California garage.
Once the dominant technology company was IBM, then it became Microsoft, which was in turn superseded by Google.
The freedom of the internet, so the theory goes, does a much better job of stoking competition than regulators could ever do.
The European Union spent years investigating Microsoft, over claims it abused the monopoly enjoyed by its Windows computer software to unfairly push its own web browser, Internet Explorer. But by the time it had slapped it with a €561m (NZ$901m) fine in 2013, the smartphone revolution was in full swing, and Internet Explorer had fallen to less than 25pc of the browser market, behind Google's Chrome and Mozilla's Firefox.
It was not the heavy hand of regulators that had created competition in the market.
It was innovation from Microsoft's rivals, and the company's own sluggishness. Any action from the EU came so late that the idea of Microsoft being a monopoly was laughable: its dominance had long since evaporated.
Similar criticisms could be made against the Commission's long running investigation into Google over allegations it is abusing its search monopoly to promote its own online shopping services.
In 2010, when the probe started, one could argue that the regulator had a point, but since then internet shopping has moved towards mobile apps and websites like Amazon and eBay. By the time the EU gets round to fining Google, we may be browsing the aisles in virtual reality shopping centres.
In most industries competition is assessed by pricing or market share. In Silicon Valley the fear is always of some looming technological threat. If supremacy is rarely entrenched, regulators can hardly accuse tech companies of abusing it.
Or so the conventional wisdom goes. But in practice, the most powerful internet companies are becoming increasingly dominant and less prone to disruption than they look. If they were not, investors would be unlikely to ascribe such enormous valuations to today's Silicon Valley titans.
Take Facebook. Mark Zuckerberg's company knows only too well the power of disruption. Shortly after Rupert Murdoch paid $580m (NZ$932m) for Myspace in 2005, Facebook swept in with a better website, destroying almost all of Myspace's value, as well as that of its one-time rival, Friends Reunited.
Disruptive theory suggest that the same fate should await Facebook; that something should come along to do the same thing Zuckerberg did to Myspace. But the reality is that the company is so big, so powerful, that this is unlikely.
Facebook's biggest threats to date came from other fast growing social apps, but these have been systematically eliminated, largely through acquisition. Instagram and WhatsApp, two potential competitors, were bought for $1b (NZ$1.4b) and $19b (NZ$27b) respectively.
Facebook founder Mark Zuckerberg. Photo / Getty Images
More far-flung technologies that threaten to challenge Facebook, even years down the line, have been absorbed. The $2b (NZ$2.8b) purchase of virtual reality company Oculus in 2014 was not so much a statement of confidence in the next technological leap as a hedge against Facebook being left behind by it. The one upstart that Facebook hasn't bought, although it tried its best, was Snapchat.
Snapchat's founder Evan Spiegel refused to sell, but in the last year Facebook has dedicated most of its creative energies to cloning most of Snapchat's features, using its superior scale to squeeze its smaller rival. The pattern is clear: identify a threat and neutralise it, by whatever means necessary.
This is more than just smart business. Zuckerberg, who won't easily forget the teething problems Facebook had adapting its business from desktop computers to smartphones, is laser focused on making sure that he is not disrupted.
So while these predictions are always dangerous, at this point it is very hard to see Facebook being toppled in the same way Myspace was.
But as Facebook grows more powerful, regulators are taking more of an interest.
There was plenty of evidence of that last week, when the company was fined €110m (NZ$176m) by the European Commission for misleading regulators when it bought WhatsApp in 2014.
Some people say that it is not for government to regulate when it comes to technology and the internet. We disagree.
Facebook had claimed it would not be able to share data between the two services, before, last year, starting to do just that. Two days before, the French data watchdog hit the company with an (admittedly piddly) €150,000 fine for unfairly tracking its users.
The British equivalent, the Information Commissioner's Office, said it would investigate whether political parties were exploiting the data Facebook gathered to target them, and Theresa May's election manifesto spoke of stricter rules for internet companies.
"Some people say that it is not for government to regulate when it comes to technology and the internet. We disagree," it read.
The manifesto spoke of fines for internet companies that fail to remove harmful content, and an industry-wide levy for social media firms. No one company was not mentioned by name, but there is little doubt about who would be affected by these rules.
