The internet has provided humanity with so much content that in many ways, we are overloaded with information. Our smartphones are constantly buzzing with notifications about the latest podcast upload or commercial email marketing the newest product at our favorite store.
We take this for granted, but it has occurred, in part, because the internet has created a marketplace of ideas in which a highly profitable new business model dedicated to attracting our attention can flourish. In economics, this is referred to as a trade-off, which Business Dictionary defines as:
a technique of reducing or forgoing one or more desirable outcomes in exchange for increasing or obtaining other desirable outcomes in order to maximize the total return.
Trade-Offs Inherent to a Free Business Model
“There are no solutions; there are only trade-offs,” said Thomas Sowell, an American economist and senior fellow at Stanford University’s Hoover Institution. Since the so-called “Cambridge Analytica scandal” with Facebook, politicians and media talking heads have been discussing federal privacy laws and business privacy practices. The proposed policies to alleviate these issues have included further government regulation and the use of 1900s antitrust laws to “break up” companies.
Facebook has allowed countless users to connect with lost family members, acquaintances, and even old friends.
What is noticeably missing from this broader conversation is the business structure of these major technology conglomerates. Facebook and Google rely on advertisements to generate revenue from many users. As Christopher Mims writes at The Wall Street Journal, “In reality, these services are anything but free. We just don’t pay for them in the way we’re used to.”
Mims goes on to discuss how these companies generate profits. These allegedly free business models rely on companies attracting users and “compel them to suck up our personal data.” Next time you can, check the “Screen Time” section on your iPhone and track how much time you dedicate to social networking. It will likely be much more time than you imagine. Surely, the services these companies offer are beneficial; otherwise, we would not spend our time on their platforms. For example, Facebook has allowed countless users to connect with lost family members, acquaintances, and even old friends.
How Advertisements Affect Social Media
As I have previously explained, Google organizes “information about webpages in a search index, which contains more information than ‘all of the world’s libraries put together.’” Many Americans have grown up in a world where Google is the ultimate source of information, replacing the encyclopedia. There were search engines prior to Google, however, they were unable to establish a high-quality product at such scale.
Google and Facebook derive much of their revenue from advertisements, and according to Fortune, these two companies “accounted for about 90% of all the growth in the business.”If a video is approved for monetization, then the creator can earn income from the successful dissemination of their video.
In reality, this means that Google and Facebook are generating billions in revenue for attracting our attention. This “free business model” requires no physical exchange of money for a product but instead our attention in return for use of their platform.
A prime example of this business model is YouTube, a Google-owned video content platform. YouTube allows content creators to utilize the platform, and if the content creator chooses, they can request that YouTube monetize their video. YouTube outlines the requirements for monetization on a page called “YouTube Partner Program overview, application checklist, & FAQs.” This page provides the creator with the guidelines for making money off of their content. If a video is approved for monetization, then the creator can earn income from the successful dissemination of their video. This revenue is generated by the placement of advertisements by various companies, which is where controversy has been ripe.
Censorship on a Private Platform
Controversy has arisen due to the alleged throttling of conservative content, a problem that may benefit from increased transparency, and the demonetization of content not only on YouTube but also on Facebook. Additionally, advertisers have grown concerned due to the placement of their ads on contentious videos. In general, advertisers and companies are risk-averse and seek to avoid controversy, so YouTube has established stringent guidelines on what constitutes a video eligible for monetization. These platforms often brand themselves as “pro-free speech,” but their business model is not conducive to controversy. Inherent to the idea of freedom of speech is the presence of controversy.
Engagement-maximizing algorithms have unknowingly promoted disputable material such as Holocaust denialism, Sandy Hook conspiracies, and white supremacist content. According to Christopher Mims,
other well-documented ills that may have been exacerbated by Facebook include the erosion of global democracy, the resurgence of preventable childhood diseases and what the company itself acknowledges may be wide-ranging deleterious effects on the mental health of millions.
At Medium, I outlined the problems surrounding Google’s manipulation of algorithms and its effects on democracy in the United States. Again, these platforms have provided our society with some of the greatest resources in history. Google has democratized information. YouTube provides academics, scholars, celebrities, athletes, and everyday individuals with the opportunity to spread their knowledge and profit off of it. Facebook has connected long lost relatives, old friends, and professionals with one another. Ultimately, however, these platforms will have to decide which route they will take.
No Such Thing as a Free Lunch
There’s no such thing as a free lunch. As any economics teacher will note, there will always be trade-offs to our choices. While these platforms have provided us with unprecedented information and content, the nature of their business model has created consequences for society at large. Another such consequence is the large-scale elimination of our consumer privacy through data mining. Big Data is the fuel that artificial intelligence uses to run these algorithms. Big Data has led to these companies’ possession of mass quantities of data, which they must store properly under relevant federal and state law.
This is how Facebook and YouTube know which content the user may be interested in, and it is how advertisements are “micro-targeted.”
Big Data has led to these companies’ possession of mass quantities of data, which they must store properly under relevant federal and state law. These processes can be infiltrated, as was the case in September 2018. Facebook announced that 50 million accounts were known to be affected while an additional 40 million accounts may have been affected. The problem of cybersecurity incidents, also known as breaches, has grown exponentially with the large-scale use of the internet and “cloud technologies.”
Which Path? Government Regulation or Self-Regulation?
Some of these issues are not entirely the result of a free business model. There remains a large question for these platforms: Can their business model be sustained given the regulatory and media scrutiny present, or must they forgo their status as “free speech” platforms? Given that the chief executives of these major companies seem complicit with further regulatory intervention, the answer is likely that these platforms will no longer remain similar to “the public square.”
One of the central conflicts among politicians in Washington is whether or not Section 230 immunity should continue to apply to these platforms. Section 230 of the Communications Decency Act states,
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
Policymakers understood that it would be “infeasible for online intermediaries to prevent objectionable content from cropping up on their site.” This conflict centers on whether or not Facebook or YouTube are “providers of an interactive computer service” or publishers.
Few things are certain outside of death and taxes, but politicians are keen to act when an issue affects their personal electability. Democrats and Republicans alike have proposed regulatory intervention to solve the ills created by the free business model, but these are not solutions. One would not propose placing a Band-Aid on a broken arm; the current business model of these platforms is at odds with their intended purpose. In order to address the unintended consequences, these platforms must look internally to solve this public relations crisis. Hopefully, these platforms find it in their long-term interest to act before the power of the state comes knocking on their door.
This is a guest post from the Foundation for Economic Education by Mitchell Nemeth. He holds a Master in the Study of Law from the University of Georgia School of Law. His work has been featured at The Arch Conservative, Merion West, and The Red & Black. Mitchell founded the Young Americans for Liberty chapter at the University of Georgia.