Is Facebook a Monopoly?

Written By Briton Ryle

Posted September 20, 2017

Facebook is now worth $500 billion. Half a trillion. There are just four companies that are worth more than it is — Apple, Google, Microsoft, and Enel Americas (a Chilean utility). The fact that a free-to-use website is one of the most valuable properties in the world seems pretty crazy…

But that’s what happens when you have detailed information on over 2 billion customers. 300 million photos get uploaded every day. 900,000 people log into Facebook every minute. In the U.S., one in every five pages viewed on the internet is a Facebook page. Facebook is 20% of the internet…

I think I can safely say no company has ever been able to affect 26% of the global population. 

Facebook’s amazing reach could only happen in a world connected by the internet. Just 20 years ago, there couldn’t have been a Facebook. Simply not possible. But this is the internet age. And technology always moves faster than humans can imagine.

I doubt Johannes Gutenberg thought he’d be enabling Martin Luther to kick off the Reformation. Likewise, we’ve got tons of companies and products popping up that were unthinkable 20 years ago. Even 10 years ago, we didn’t have Uber, Airbnb, Kickstarter, the iPhone, self-driving cars…

And we’re losing companies that were once staples of the economy.

Usually we focus on the transformative benefits of technological innovation. For instance, there are some amazingly bullish forecasts about how autonomous cars will cut costs for transportation so much that it will be like getting a 20% raise. But that’s just a guess. No one really knows what will happen. Nuclear power was once hailed as a clean, endless power supply. But a Chernobyl and Fukushima later, many countries are rethinking their commitment. 

And right now, maybe we should be thinking about the monopolistic aspects of companies like Amazon, Google, and Facebook.

Monopolies in the Internet Age

We aren’t even 20 years into the Internet Age. From an opportunity standpoint, the connected world is amazing. A good idea can sweep the world in no time and make a person wildly influential and wealthy. I mean, there’s a guy making more than $10 million a year playing video games on YouTube, fer cryin’ out loud.  

Of course, that YouTube guy just let a racial comment slip, and his platform is gone. Google banished him. Google doesn’t own the internet, exactly. But it controls about 92% of it. (That’s a real figure: 92% of internet search is done with Google.) So if you don’t show up on a Google search, you basically don’t exist. Violate Google’s ever-changing terms of service, and you’ll be cut off. Your internet business is done. 

Here at Wealth Daily, we have to be very careful to stay on Google’s good side, even though we spend a few million dollars with Google every year. In fact, Google has many standards we have to adhere to and practices we have to adopt. Google has no problem telling us how to run our business. And if we don’t like it, we’re free to use the other 8% of the internet to do our business. 

Now, when it comes to legality, sure, Google has an obligation to make sure its clients are on the up and up. And, in many ways, Google’s efforts have made the internet better and more useful for everyone. I mean, when was the last time you got a Viagra ad in your email? Still, I can’t get past that 92% number… 

Yes, using Google for search is voluntary. There are other choices, in theory. But the simple fact remains: if you want to have a web-based business, you have to go through Google. So it may not be a monopoly in the traditional sense. But then, we’re still in the very early stages of the Internet Age. We still have some things to figure out. 

Don’t miss the fact that the European Union just hit Google with a massive $2.7 billion antitrust fine because the company “denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.”

The fine could have been 10% of revenue, or $10 billion. And the EU also said competitors can claim compensation in European courts. 

Sure, with $94 billion in cash, Google can afford it. But that’s not the point. The issue, as always with stocks, is growth. If the potential for new regulations (or whatever) threatens Google’s growth, that stock gets hit, hard.

Fire! Fire!

I haven’t been on Facebook in over a year. I got sick of the “who’s living the best life” competition. I also got sick of Facebook’s invasive practices. For one, I don’t like the fact that if you stay logged into Facebook, it follows you around the internet, logging everything you do. I got tired of things I discussed in email showing up as ads. 

Facebook currently dominates internet display ad spending with a 40% market share. YouTube, owned by Google, is second, with 25%. Between them, that’s 65% of all ad spending.Facebook_Thumbsdown

Two things bug me about this. One, it looks as though Russia bought $100 million in ads last year. Now, I want to be clear that I’m not one of those who believe Russia stole the election and got Trump elected. That’s ridiculous. BUT there were fake accounts that originated in Russia that bought ads, not to sell products, but, as Facebook said, “appeared to focus on amplifying divisive social and political messages across the ideological spectrum,” including race, immigration, and gun rights.

Yeah, I know, free speech. People can say what they want. But you can’t yell “Fire!” in a crowded theater. And I very much do not like the fact that Russia would be trying to influence the way people think on Facebook. It’s propaganda. I’m under no illusions that we aren’t subjected to propaganda all the time, from lobbyists, journalists, politicians, etc. At least we’re all Americans.

The other thing that bugs me about Facebook is the recent revelation that Facebook had approved ads that targeted people who expressed interest in topics like  “Jew hater,” “How to burn Jews,” or “History of ‘why Jews ruin the world.’”

Most Facebook ads are automated. An advertiser can go into Google’s system, search for the interests of people they want to target, and ads get sent to those people. So an advertiser might search “pet owners” and then send dog food ads. Or search for people who used the word “skiing” and send them ads for ski boots.

But “How to burn Jews”? Umm, that seems to be pushing the free speech thing a bit far.

I don’t know how this all plays out. This internet thing is still new, and both consumers and companies are still figuring it out. So be careful when you buy into the growth story based on the dominance of companies like Google and Facebook. They may not stay so dominant.

Until next time,

brit''s sig

Briton Ryle

follow basic @BritonRyle on Twitter

follow basic The Wealth Advisory on Youtube

follow basic The Wealth Advisory on Facebook

A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.

Angel Pub Investor Club Discord - Chat Now