In the New York Times, Luigi Zingales and Guy Rolnik are proposing to pre-emptively deal with market power issues arising from the likes of Google and Facebook by advocating for social graph portability. Rather than use price regulation or antitrust, the propose a reallocation of property rights. As they note, this has happened before:
[I]n the mobile industry, most countries have established that a cellphone number belongs to a customer, not the mobile phone provider. This redefinition of property rights (in jargon called “number portability”) makes it easier to switch carriers, fostering competition by other carriers and reducing prices for consumers.
This got my attention because it was I (along with Stephen King and Graeme Woodbridge) who first proposed this solution to mobile network switching costs. Here is the original paper and here is a more formal treatment. Stephen King has gone on recently to propose a similar reallocation to handle issues associated with credit cards and I once proposed it as a solution in retail banking competition.
The basic premise of the argument is that network effects make it hard for consumers to switch to new entrants. Switching costs was the basis of mobile number portability but there were not the network effects issues as you could call anyone on any network. Facebook is a different story. If you were to switch to another social network, let’s call it Newbook, you could not read your friends posts on that network and your friends could not read your posts on Facebook. Not surprisingly, that is a big problem for Newbook’s ability to compete and Newbook — even if it were far superior to Facebook for some (or all) consumers — would not get many (or any) customers.
Well, that is not quite true. As Zingales and Rolnik point out, Facebook have APIs that do give some ability for third parties to access consumer’s “social graph” — that is, who they are linked with on Facebook. But that can be cut off (something Twitter did in the past) or otherwise controlled by Facebook.
What Zingales and Rolnik want is for that social graph to be controlled by consumers who can choose where to re-route their communications on any network. So if I want my posts to go to you and to see your posts, so long as we have a link, it would not matter which network we were actually on.
In practice, what would this mean? It would mean that you might have a “social identity” (akin to a phone number). You would then form bilateral links with others and those links would be recorded publicly. You would then modify those links as need be. That said, the last time we did something similar we got marketing calls! The point being, one value of Facebook, in particular, is the way permissions work. It is not readily obvious how this would work in their absence.
It gets even more complex when we think about people’s private and public identities. Some of my Facebook posts are public and I read many public posts from the media, fan groups and companies. That is all part of my social graph but how would we work all of that? That said, there may be solutions there. The larger issue is how these links work is constantly evolving yet having a consumer controlled social graph may make it difficult to be responsive. After all, think about how you manage the social graph that is your pre-programmed fast dial numbers on a phone (if you even do those things). They quickly go out of date and you can’t be bothered updating them.
Zingales and Rolnik mention Google as well referring to your search history as a critical piece of data. I don’t think that Google’s search market power comes from switching costs per se but instead the economies of scale and scope it can generate by having access to the entire history of search … for the world! That is the barrier to entry although even that is not as high as barriers in the past. That didn’t stop Google in facing the consequences of owning a market in the EU last week. (As an aside, why would you spend over $2 billion to defend your right to do Google Shopping which has to be your worst product in that nobody has heard of it — unless of course it is surprisingly lucrative in which case the EU really have a point).
That said, practical issues of porting an entire social graph aside, Zingales and Rolnik are on to something. There is, in today’s world, a need to clarify what data a consumer owns. In terms of social graph, consumers surely have a right to share information they have provided Facebook with others and Facebook should probably make that easy even if it falls short of some portability proposal. Google already allow the export of much data (including your entire Gmail history using Google Takeout). But in all of these cases, true consumer power would come if you could also exclude how your data is used. The porting proposal doesn’t even touch that … yet.