Internet Companies Behaving Badly

Fair warning: this one is a bit of a ramble. I have a lot of thoughts on the current state of the consumer internet, but depressingly few solutions.

The internet is one of mankind’s greatest achievements. This global communications network underpins almost every aspect of life in modern countries. Non-technical people think the internet means Facebook and email, but the internet is much bigger than the parts we can see. It facilitates every facet of our daily lives; quietly passing data at the speed of light to keep our cars running, our houses warm, our hospitals lit, and our paycheques flowing. It is also almost entirely unregulated which means everyone has equal influence. That sounds great on paper, but is that the type of internet we really want?

While much fanfare was made when Apple broke the trillion-dollar market capital ceiling in 2018, it was far from the first company to do so. The first company to break the $1T market cap was a Chinese oil and gas company named PetroChina which passed $1T 12 years prior in 2007. It would take another 11 years before Apple became the next $1T company. The floodgates then opened as Amazon, Microsoft, and Alphabet (Google’s parent company) followed suit in short order. A trillion-dollar company isn’t that surprising anymore, but it is interesting that the only trillion-dollar companies that aren’t in the very rich O&G field are all technology companies.

Two of those tech companies depend entirely on the internet for their existence. Amazon would have no storefront and no way to tap the global market without the internet. Google makes the bulk of its fortune from the ads it serves to internet searches; without the internet, there would be no searchers. While Microsoft and Apple depend heavily on the internet for their app store and Azure offerings respectively, they still have a foot in the good old product business. They build and sell physical stuff and useful services in addition to their internet revenue streams. Amazon and Google do not have any similar product lines and the existence of the internet is an existential requirement for those companies.

Companies can be good stewards of things, but it is rare, especially in America. The United States government is overwhelmingly controlled by corporations which is a situation to be expected by the world’s prototypical capitalist country. Consequently, the American internet is already fragmented and less useful than it is elsewhere. Communications companies use tactics such as “zero-rating” to leverage users into visiting sites the company is being paid to promote and thus drives less traffic to non-paying competitor sites.

Companies like Google own the internet through the large portion of the browser market that Chrome dominates. Google wields the power of Chrome’s large user base in the corners of the internet that most people do not know to exist. Yet these places completely control how the internet functions. Places such as the SSL CA/B forum where Google holds enormous power over seemingly mundane things such as how secure certificate information is displayed in the browser address bar, and how long SSL certificates should be valid before requiring (paying) renewals. The balance of power in the CA/B forum lies with the browsers and the relationship in those forums is regarded as unbalanced and toxic by some industry pundits. While the nature of the decisions made in the CA/B forum may not seem to be of interest to end-users, be assured that end users pay for these decisions, usually out of their pockets.

In the same predatory vein, Google has also recently decided to stop allowing third-party cookies in the Chrome browser. This is a very good thing for internet users because third-party cookies are a perversion of the original cookie standard and provide very real tracking and surveillance capabilities to advertising companies. Google states that this initiative is combined with the rise of its Privacy Sandbox project which allows advertisers to still put relevant ads in front of people, but requires less private data to identify those users. In practice, we cannot ignore the value of advertising within Google, so it can’t be ignorant to the fact that removing third-party cookie support will deal a killing blow to many smaller internet advertising companies. I think the truth is that Google’s long-game to penetrate the browser market with Chrome has allowed it to collect much more data on internet users than any other internet advertiser. Thus, Google no longer needs third-party cookies to put relevant ads in front of users, so it is shutting off that lifeblood for other internet advertisers which will effectively bankrupt a lot of them. It doesn’t take an MBA to figure out where Google thinks those displaced advertising customers are likely to end up.

Amazon has its own share of bad behaviour stories. When Jeff Bezos decided he wanted to buy Diapers.com, he used Amazon’s tremendous technological advantage to show Diapers.com that Amazon could wipe them out in a hot second if they did not take the offer on the table. I don’t mean Bezos showed the Diapers people a few power points. I mean he built a system to track the prices of products on Diapers.com in real-time and lowered Amazon prices below the Diapers’ prices every minute of every day. At one point, Amazon was tracking to lose $100 million dollars in the diaper category because of the pricing it set to beat Diapers.com. Amazon was literally prepared to lose $100 million dollars just to acquire diapers.com. That is not the fair gamesmanship we desire in the business world. That is not an example of one company simply being better than the other. That is an example of a company that has enough power to influence the behaviour of an entire country of consumers. And for no other reason other than to make more money.

Apple isn’t exactly blameless, but, arguably, it has “honourable” intentions behind its missteps Apple alone among 1T club does not engage in advertising. Amazon advertises to get customers to its site, Google lives almost entirely off advertising revenue, and Microsoft’s Search Network is an advertising revenue stream. When a company sells ads, it necessarily has to harvest user demographics and behavioural data – there is just no other way to be competitive anymore. This quest to hoard the most data on the most people is what drives companies like Amazon, Google, and Microsoft into questionable ethical behaviour.

Apple collects user demographics and behaviour data as well. The difference is that Apple has not built a multi-billion dollar empire off of selling that data. Rather, it uses that data for its own use and has built a $1 trillion-dollar company on the age-old tactic of just building stuff that people want and are willing to pay for. Apple alone in the $1T tech club makes its money the old fashioned way. However, Apple has had problems in other areas. It has made unfavourable decisions regarding censorship of regions it operates in and also has some negative press about the labour practices of its primary contractor, Foxconn in China.

In America, power stems from wealth. These companies have so much wealth that they can’t be constrained by the systems we’ve built to date. When Amazon can decide to throw $100 million dollars into the firepit just to shut down a single competitor in only one of Amazon's thousands of product spaces, it showed us that consumers have no say in how the market operates anymore. The lesson is that consumers can no longer “vote with their wallet” and chose not to buy a certain product or boycott a certain company. That company can now just completely rewrite the market from scratch and remove all competing sources for that product, leaving consumers with only one choice.

Historically, successful companies meant successful regions and several decades ago that was still true. In those days, a successful company meant jobs for those located around it, and healthy donations-by-tax to keep the neighbourhood infrastructure healthy. That was a win-win, but these days, those living in the shadow of these tech company buildings are very much on the wrong side of a win-lose scenario. Successful companies these days outsource their work so there are no jobs for the local people. They also go through vastly complicated exercises each year to determine which countries to route their revenue through so that they do not have to pay taxes to the local or regional governments where their workplaces are. These days, a successful company is a parasite on the populace around it. It consumes resources and erodes infrastructure while striving to give as little of its money as possible back to the community. For some reason, America likes that. We know that because it awards these companies with trillion-dollar market caps.

Those that do not like the current market situation – which is everyone but the extremely wealthy – frequently turn to government regulation as the solution. Elizabeth Warren is currently campaigning for the 2020 U.S. Presidential election on a platform that includes breaking up the big tech companies. Her view is that breaking up these internet giants would weaken their power and restore the consumer voice in the market place. I think that the truth is that those smaller companies would form cabals and join forces anyhow, and the net result would remain much the same for consumers.

Another option on the table is to leave the companies to their own governance, but strengthen regulations and increase fines for bad behaviour. In theory, a company that operates without due regard for regulations would become non-profitable because it is wasting so much money on fines and litigation. But, there comes a time when a company has become so large that it can afford any fine as a cost of doing business, and even negotiate that fine in advance to facilitate budgeting. When Facebook negotiated its own $5 billion fine for bad behaviour, its stock surged. Facebook stated months earlier it had budgeted for $3B but apparently $5B is close enough for the pools Facebook plays in. When a company can simply budget away the GDP of more than 30 countries in the world as a line item, what chance do fines have of hampering this behaviour? And, let’s not forget, Facebook isn’t even anywhere near being in the $1T club at this point in time and it can easily afford this fine.

I believe there is no way to stop what is happening now, but there is a way to prepare a safe landing place for the future. The consumer internet is firmly in the hands of a very few very powerful companies, and nobody has the ability to outfox these companies into weaker positions. I believe that the MAGA era (Microsoft, Amazon, Google, Apple – what did you think I was referring to?) is upon us and will run its course. Much like the grandiose shopping malls of yesteryear surged into dominance and then faded into husks dotting the landscape, so shall these first fumbling attempts at global consumer dominance wane and the marketplace will return to something more similar to the bazaar that we’ve become accustomed to.

However, a pre-requisite for re-stabilization of the market at a later date is the existence of a relatively level playing field on internet speeds. The practise of zero-rating in America is very dangerous. That type of behaviour removes the level playing field of the internet and strongly encourages consumers to use only the sites that are excluded from their internet bandwidth caps. That means smaller companies in the same space will wither away and no longer exist when we need them most. Without creating a stable safe place for everyone to access the internet in the same way we access electricity now, we will not be able to return to a post-shopping center existence. There will be nobody left for us to return to. The creation and enforcement of net neutrality, an internet where no company can purchase special access, is the only tool that will allow the current internet to be usable in later years.

my shorter content on the fediverse: https://the.mayhem.academy/@jdw