The disruptors disrupted: Are Google and Facebook losing their grip?

The business story of this millennium in the West has been the rise of the FAANGs. These businesses have been held up as the poster children of our stock markets and even gave rise to (temporarily) the first trillion-dollar business.

A larger part of their rise can be attributed to a lack of regulation, specifically government policy that fails to make platforms accountable for user-generated content.

Within the digital advertising world, two FAANGs have created a duopoly: Google and Facebook. With a seemingly unassailable grip on the market through the data they control via their platforms.

Until now?

There are two major risks to these platforms that are outside their control. The first is a change in consumer preference; although, this is unlikely in the next five years. The second is regulation and given America’s reluctance to tackle corporate behemoths (the last break up of a major US monopoly was Standard Oil in the early 1900s), this is mostly likely to come from the EU. Every major tech group has already suffered at the hands of the EU’s antitrust rules and Data & Privacy is now firmly in their sights.

The Economist last week wrote an excellent article, “The Power of Privacy”, on how the EU thinks differently to the US and thus why they are the ones to watch in curbing Google’s and Facebook’s powers. The key takeaways were:

  • Europe has a different lens to the US. It has fewer large tech companies and its key industries (cars / telecoms / media) are being disrupted by US tech. This alters its perspective and approach, but just as significant…
  • Because of its long history of dictatorships, privacy is considered a fundamental right by the EU in a way that it is not in America.
  • Europe has a different approach to the ‘free marketers of the so-called Chicago school’ and is ‘philosophically more sceptical of firms that have market power’. Alphabet / Amazon / Apple / Facebook / Microsoft have taken over a company a week over the last five years – reducing competition.
  • Though campaigns and lobbyists claim that people care about their privacy, consumers are not acting as if they do. This suggests that market forces alone will not correct the situation.
  • The likely answer will be a regulator to liberate data, reducing the edge the incumbents have.

Mark Zuckerberg, Facebook’s CEO, has seen the writing on the wall and this week personally promoted regulation – though commentators are cynical about his motivations.

In addition, this morning there was a leaked report from the UK Government that it is considering making social media bosses personally liable for the content on their platforms in the UK, overseen by a body like Ofcom.

The establishment is becoming the new disruptor and the FAANGs should prepare to be disrupted. This can only be a good thing as too much power in one place harms consumers. And as we’ve seen from GDPR that where the EU goes, many parts of the world follow.

We are in uncharted territory and there is no magic solution to restore a free market in the digital world but regulation feels like the best next step. It won’t be easy for businesses and entrepreneurs to capitalise on the liberation of data, but for those that can, a vast and lucrative market awaits.