Facebook Is the New [Standard] Oil
There's nothing inherently wrong with "Big." But there is when they wield their power in a disproportionate or harmful way.
|Mar 14, 2019|
Man, Controller of the Universe by Diego Rivera (via Gumr51 CC BY-SA 3.0, Wikimedia Commons)
You've heard the phrase "data is the new oil," right?
It was first used by Clive Humby, a British mathemetician and architect of Tesco’s loyalty program called Clubcard, in 2006. He said, "It’s valuable, but if unrefined it cannot really be used."
The phrase has been repeated many times since 2006, and most recently, many pundits have taken exception to it. The primary objection is that data is not scarce or in danger of running out, like oil is. In fact, there's a glut of data.
But let's pause for a moment to reflect on old oil. Or, put in another way, the origins of Big Oil.
In America, we have a strange way of treating celebrities, whether their business is industrial, tech, or entertainment. We don't have a monarchy in the States, but celebrities are the closest thing we have to royalty.
We consider them, their children, and those who associate with them, as larger than life. And we've certainly been treated to a whole wave of news recently that indicates that they've got just as many flaws and foibles as mere mortals. Perhaps more.
In the late 19th and early 20th century, we didn't have kings, but we had captains of industry. Names that are now legendary, many of whom made their mark in their respective industry. Astors, Vanderbilts, Morgans, Carnegies, and Fords were known for furs and real estate, railroads, banking, steel, and automobiles, respectively. For the most part, their names became part of their institutions.
But there was one other name that became syonymous with "the rich." John D. Rockefeller. Modern citizens will of course connect his name with Rockfeller Center in New York City, but over the last 75 years or so, his business empire has become increasingly obscured. His company, Standard Oil, was broken up, and you probably know some of the companies that sprung from it: ExxonMobil, Chevron, Sunoco, BP, Marathon. Some of the biggest names in the oil and gas industry.
For decades, Rockefeller ran Standard Oil with a tight grip. From his boyhood in rural New York, he was taught to be careful with money. He had to. His own father was a con man who often cheated his children out of their money. His mother was the thrifty one, and she impressed this upon him:
"Willful waste makes woeful want."
He had an entrepreneur's spirit, being careful with his resources and tracking his income and his spending.
When he founded Standard Oil, he was deeply involved in its operations and finances, and remained so for most of his time in the executive suite. When an enterprising journalist by the name of Ida Tarbell came along, she did what no one else had done: she exposed Rockefeller's methods of doing business that made it possible for Standard Oil to corner 90 percent of the oil market.
Her methods — now known as investigative journalism — exposed business practices that helped to hone and redefine anti-trust laws for the 20th century. From colluding with railroad companies on rates to end-to-end ownership of the oil industry, and an eventual business structure that rolled all of the divisions up to the Standard Oil Trust, Rockfeller did everything he could to dominate the buinesss.
He was ultimately known as "the single most important figure shaping the oil industry."
That sounds remarkably like Mark Zuckerberg and the social network industry.
Let's compare Facebook to Standard Oil:
Standard Oil: Made backdoor deals with railroads
Facebook: Made backdoor deals with apps for data
Standard Oil: Was criticized over price-fixing
Facebook: Was criticized over privacy issues
Standard Oil: Complete vertical integration: drilling, refining, distribution
Facebook: Control over distribution and holds power over publishers/media
Standard Oil: Consolidation of 34 entities within Standard Oil Trust
Facebook: Consolidation of messaging apps: Instagram, WhatsApp, Messenger
Standard Oil: Grew by acquisition
Facebook: Has acquired 79 companies
Standard Oil: Insider deals for shipping rates locked out and strangled those Rockfeller wanted to defeat
Facebook: After Snapchat refused Facebook's acquisition offer, Facebook simply copied many of Snapchat features in Instagram as revenge
But is the call to break up Facebook a realistic one? Size alone is not a crime. Recall a previous post in which I mentioned how the "Big" descriptor is automatically — and sometimes incorrectly — seen as evil.
The two giants have done their part to improve our collective experience, and their founders are also known for their philanthropy. Facebook provides a service that has made the world a more connected place, allowed families to stay in touch, old schoolmates to reconnect, and the like. Just as the Standard Oil Trust "made notable strides in improving kerosene, developing by-products, and reducing the cost of packaging, transporting, and distributing petroleum products worldwide." (Chernow, Ron. Titan: The Life of John D. Rockefeller, Sr. New York: Random House, 1998. p. 228)
That doesn't mean we shouldn't be concerned, or that their charity washes away the negative. Facebook's (and Google's and Amazon's…) control over so much data gives them extraordinary power. But if we're using anti-trust standards from 100 years ago, we're using outdated modes of thinking. Breaking them up either reduces the network effect that makes them useful, or it simply rearranges things like Standard Oil's 34 subsidiaries did.
It's painful to say, but better scrutiny should have been applied by regulatory authorities upon the announcement of acquisitions of Instagram and WhatsApp. The purchase prices alone should have indicated there was something up.
Regulators and trust-busters need to become more data-savvy, just as those of over 100 years ago had to try to get ahead of one of the most able business minds in American history.
Theodore Roosevelt, the leading proponent of trust-busting, had this to say in 1895:
"Too much cannot be said against the men of wealth who sacrifice everything to getting wealth. There is not in the world a more ignoble character than the mere money-getting American, insensible to every duty, regardless of every principle, bent only on amassing a fortune, and putting his fortune only to the basest uses —whether these uses be to speculate in stocks and wreck railroads himself, or to allow his son to lead a life of foolish and expensive idleness and gross debauchery, or to purchase some scoundrel of high social position, foreign or native, for his daughter. Such a man is only the more dangerous if he occasionally does some deed like founding a college or endowing a church, which makes those good people who are also foolish forget his real iniquity. These men are equally careless of the working men, whom they oppress, and of the State, whose existence they imperil. There are not very many of them, but there is a very great number of men who approach more or less closely to the type, and, just in so far as they do so approach, they are curses to the country."
True in 1895. True today.