Well the Zuckmeister has done his dance in front of Congress. Guess what? Nothing is going to happen, nothing ever does. Stop sweating it. History shows you’ll be fine.

Zuck confirmed that most of our representatives don’t have a clue about how the internet or social networks work. Reminds me of the joke about why we had a national speed limit of 55 mph after the oil crises. Punch line: that’s the average IQ of Congress. I guess we just stumbled upon their digital IQ as well.

Before you panic, step back and take the long view. Technology has been following this pattern of market power concentration with government trying to catch up and mostly failing for a long time. We are all still here and mostly for the better.

Today we use the term: the network effect. Simply stated: the more users that adopt the use of a technology platform, the greater the value of that platform to each user. The effect has a runaway, exponential impact where the numbers of users seemingly explode overnight.

Governments have been struggling to get ahead of this for 100 years. When they do finally enact some laws the unintended consequences are worse than the perceived potential danger.

AT&T is the poster child for our technological age. It pursued the network effect with wild abandon. In the New Deal, Congress passed the Federal Communications Act of 1933, which among other things put a heavy hand on AT&T’s pricing, etc. As new network technologies continued to emerge the government played its game of catch up.

It was terrified that Ma Bell would take over space communications when it successfully launched Telstar. So, in 1962 it created the Communications Satellite Act of 1962 leading to Comsat Corp. for domestic satellite communications thereby blocking AT&T from that market. (Full disclosure: I used to work for them). Finally, appearing to throw its hands up in frustration in 1984, the Justice Department broke up AT&T through an antitrust suit. Of course we all know how that eventually turned out. Ta-da! We have a duopoly of AT&T and Verizon. We can argue whether all these decades of regulation advanced or retarded the emergence of new and better solutions (personally I vote for the latter).

In an insightful book: “The Master Switch” Tim Wu chronicles how a similar dynamic ripples through all network technologies: radio, television, cable, film and of course the internet.

But as we swung into the 1990’s and the 21st century the roller coaster has really started to run. Boom! Google, Amazon (especially AWS), Facebook, and Twitter are all new phenomena based upon the Internet. And, they became de facto monopolies through the network effect.

But instead of hurting consumers by stifling competition their services were “free” or at unheard of low prices. With no traditional cause for taking action these tech darlings were left largely alone by the government. But all technologies are neither good nor bad in themselves, their moral impact depends on how they are wielded.

Unseen, growing like cancerous tumors were: fake news, Russian meddling, trolls, anti-competitive behavior, lack of privacy, and on and on. The list is pretty ugly and just gets longer. Society was outraged! The call went out: We’ve got to do something about this!

Yeah, right – put your patience hat on! Here are some observations:

  • The new GDPR (General Data Protection Regulation) of the EU that will take effect in on May 25 took six years to come into effect after it was introduced. And, the EU was motivated. It is well known that the Europeans don’t really like Google, Facebook and most American tech companies who are the reg’s primary target.
  • Congressional hearings – like we just had with FB – are just the beginning of a process leading to new regulations. It is not a quick process – case in point: something like what we now know as Obama Care (passed in 2010) was first proposed under the Truman administration.
  • A recent survey indicates that 77% of FB users prefer to keep the ad-based service (with the Faustian bargain of surrendering your privacy). Doesn’t sound like a ground swell will be writing their Congressman or Senators clamoring for change.

Now what? Perhaps much better than government intervention is how the market grinds away. New technologies and business models emerge to regularly to humble the mighty and bring low the so called mighty.

For 13 years the Feds besieged IBM in an antitrust suit. Eventually a judge dismissed the suit “without merit”. Off it went again as a colossus straddling the world or maybe not. How is Big Blue doing today? It kind of missed a few technology revolutions. Investors are excited (if that is the right word) because after 23 quarters – six years – of losses it finally showed a profit.

Another government tilt at windmills was Microsoft. Starting in 1992 with an FTC investigation that ended in a deadlock. Then a Justice department anti-trust suit in 1998 resulted in a 2001 settlement that some parties considered just a slap on the wrist. Microsoft returned to dominance – sort of. It too missed a few revolutions. How is MS doing? Google and AWS almost killed it until 2014 when Satya Nadella took over and turned it into the cloud. It’s recovering but no one would call it “dominant”.

Let’s circle back to Zuck (now in a suit and tie) and Facebook? There is recent data that indicates 10% of American subscribers have cancelled their accounts in response to the #DeleteFacebook campaign. FB admitted before the scandals that the US subscriber base had shrunk slightly. The US is where FB makes the most money in total and per sub. If this lucrative base really has shrunk by 10%, that’s what we call an existential threat.

Can’t wait to see the next couple of quarterly SEC filings? Between the GDPR (remember users have to opt in) and the marketplace’s creative destruction discipline might be restored – or not! What do you think?

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