How to deal with digital monopolies

Keeping digital monopolies honest and innovative is difficult. Here are two interesting ideas.

Image credit: James Petts, Wikimedia Commons

Let’s first look at two suggestions that most likely won’t work (despite being the most common suggestions).

1. Shutting them down: Calls to shut down monopolies forget that some of the most powerful monopolies (e.g., Google, Facebook, Amazon) are not just threats; they also offer tremendous benefits to billions of consumers (and other partners in the ecosystem) every single day. Take the example of Google. Do you want to go back to a world without the opportunity to “google” anything or the opportunity to easily navigate anywhere with Google Maps? I certainly don’t.
2. Breaking them up: Calls to break up monopolies forget about network effects. Let’s say a regulator broke up Facebook into Facebook 1, Facebook 2, and Facebook 3. It’s only a matter of time until one of the new Facebooks (or a new competitor) becomes dominant again. Hence, this option would only be a short-term fix.

Let’s move on to the exciting stuff: ideas that might work. Here are two of them:

1. Mandatory APIs: By providing some of the building blocks, APIs (application programming interfaces) make it easier to develop new software (or whole new companies). Albert Wenger from Union Square Ventures has suggested that “any system with 1 million+ users should by law be required to issue users with personal API keys.” This idea could lead to real — much needed — competition in the digital space. Take the example of Facebook. Here’s Albert again, “with an API key I can have an intermediary software layer that operates on my behalf. And that layer can connect me with friends and family that are split up across multiple social networks. This would allow for real competition to Facebook to arise.” (Here are Albert’s article and interview on the topic).
2. Forks: The crypto ecosystem is unique in many ways. Per definition, a decentralized ecosystem lacks central regulatory authority. How do you keep digital monopolies honest and innovative in such an ecosystem? Kevin Kwok from Greylock Partners explains how “its the specter of forks that ensures developers innovate and remain responsive rather than resting on their network effects.” Forks are still in its infancy, and there are many things we have yet to explore. Kevin touches upon a couple of the critical points in his article. To me, the most interesting part about forks is how comparatively easy it has become to try out different experiments. It’s next to impossible to start a competing Facebook. To do so, one would have to make up for years of work and its extremely strong network effects. It is not impossible, however, for a team of developers to fork a blockchain. After all, unlike in the Facebook case, they don’t have to start at zero; they start at the current point of development.

In summary, simply shutting down or breaking up digital monopolies would most likely make consumers’ lives worse and/ or not work. Mandatory APIs or forks present more viable options. They deserve more thought.

This article has also been published on LinkedIn.