Platforms, monopolism and polarisation, with Jonathan Wareham

Jonathan Wareham is a professor of Information Systems at ESADE Business School in Barcelona Spain and has a big knowledge of the relationship between data, platforms and entepreneurship.

As a matter of fact, his research interests are at the intersection of Innovation Platforms, Deep Tech, Scientific Computing, Scientific Policy, and their effects on business (Life Science, Energy, etc.).

Wareham is currently working in two projects funded by Horizon2020; ATTRACT and ScienceMes which are centered around developing breakthrough technologies for science and society as well as fomenting scientific collaboration through technology.

Last October, the US House Judiciary Committee released an antitrust report of Amazon, Facebook, Apple and Google which revealed an “alarming pattern of business practices that degrade competition and stifle innovation”. Do you agree with this assumption?

At many levels – yes. Platforms are business models that create marketplaces matching different parties with complementary interests relying on what economists call indirect network effects; dating sites, eBay, Facebook, YouTube, and operating systems such as Android and IOS are all platforms of different varieties.

Due to their size and status as natural monopolies, both consumers and suppliers often have few other options.

These platform businesses can use this to the detriment of competition, unfair pricing, or other forms of influence that can be used negatively. They can also use some form of technological “lock-in” to create artificially higher costs for those consumers or suppliers looking for alternative solutions.

Nevertheless Mark Zuckerberg has argued they have acquired “large market shares because consumers love their products”. Could they be considered natural monopolies then?

Yes. Platforms are what economists call ‘natural monopolies’, which does not mean they are granted monopoly status like a utility providing universal service. Rather, all parties benefit from the increased aggregation of supply and demand, liquidity, and lower search costs when activities are concentrated in a few, large platforms.

If you want to sell a piece of rare memorabilia, you are better off if all the potential buyers can be found on one platform. A similar logic applies if you are buying, posting, sharing, whatever. As such, when platform businesses such as Facebook, Twitter or eBay first begin, fast growth is all-imperative in a winner-take-all competition. So, the assertation that platforms achieve monopoly status because they provide value that consumers appreciate is true.

The problem is not their size, per se. Rather, it is what they do with the size and influence that warrants conversations on appropriate regulation and governance.

Otherwise, how are big marketplace platforms like Amazon or Alibaba impacting innovation and research ?

Platforms like Facebook have algorithms that provide you content intended to optimize your time (i.e. stickiness) on their site. There is an old adage in the media world, “if it bleeds it leads.” This refers to the fact that sensational, violent, or other scandalous content provokes more emotions, and simply sells more newspapers or advertising. Hence, there is an acknowledged tendency for social media to show emotionally explosive content that speaks to convictions concerning politics, religion, or other prickly topics. This provokes users to share it in their own networks in exchange for likes and additional shares as a currency of status and self-affirmation.

The hyper-personalization bias of the platform’s algorithms has been termed “filter bubbles” or “echo chambers.” The fact that users are more likely to like and share the more polarizing topics has been called “amplification effects”.

While it might be unfair to hold Facebook or Twitter fully responsible for the recent election results, their effects on increasing populism, fringe movements, and the divisive, tribalistic behavior we often see on-line are a topic of serious concern of sociologists and political scientists.

Diversity of opinion is certainly positive and must be celebrated. But when platforms like Facebook are not held responsible for the accuracy of the content it presents, it has no incentive not to show you the most outrageous or fake. It is only recently that Facebook and Twitter have enacted bans of former US President Donald Trump after witnessing the harmful- yet real – effects this hyper-polarizing mechanism can have. Hyper-polarization is a social cost and, like a chemical company under environmental regulation, should be controlled to mitigate its worse effects.  

How important is data extraction by P2B platforms to that process?

Traditional television and newspapers are what we call ´broadcast´ journalism, meaning, to throw the same content widely to a general audience. Social media platforms, by contrast, are narrowcasting; given their ability to pinpoint who you are, their algorithms choose content exclusively for what they think you want to hear, making frequent, personalized editorial decisions based upon your browsing behavior on their own platforms, other websites (e.g. if you use Facebook or Google to login), or location information taken from your cell phone´s operating system (Android). Have you ever wondered how localized the advertising on Google or Facebook becomes when you travel? It is almost frightening.

Do you believe that data extraction creates a competitive concern at some point?

The concern about social media platforms is that in collecting so much demographic and behavioral data from our online activities, they are able to create a very precise digital model of who we are with significant predictive accuracy. 

They use these profiles, our digital twins or avatars, to sell to advertisers both in and outside the platform. This enables a very detailed profile for highly customized advertising and pricing. They do this with little explicit knowledge or consent from their users. Moreover, you, as a user, have no rights to your own meta-data. It is a competently asymmetric relationship; a Faustian bargain where in exchange for the service of search, networking or location information, users allow these platforms into the most intimate corners of our lives with little perception of what our how our secrets are being sold.

The only way smaller businesses can get access to this kind of data is to pay good money for it. Hence, in this respect, it is anticompetitive as well. This paradox will surely increase as the adoption of wearable technologies grows and the boundaries between regulated healthcare and unregulated consumer sports sectors blur. Here, the need for public conversations about additional regulation will most certainly increase.