Monday, June 27, 2011

My Google Worries Confirmed by FBI Investigation

Google under antitrust investigation.

I hate to say I told you so, but..

I kinda told you so.

It’s not about ‘good guys’ and ‘bad guys’, this is not a Spaghetti Western. You could have Mother Theresa running a thermonuclear weapon company who makes the fabest cutesy pastel Easter-themed neutron bombs, supports anti-African malaria charities, is carbon neutral and who shits hummus-flavored granola. The fact that Larry and Sergei are nice geeky engineers you’d like to have a Red Bull with who don’t really want a monopoly on the world’s communication and knowledge acquisition systems does not change the scaryness of the consolidation of power inherent in Google and similar tech companies. Every dictatorship starts out as a well-meaning revolution.

The “if people don’t like it they can just hop on over to some other search engine” argument is about as naive as the belief that anything like a free market actually exists in the real world. Perhaps in the Ivory Tower where Homo Economicus denizens frolick in ideal worlds hewn of theory, there we might actually have perfect or even functioning competition. It’s nice to theorize about how all inefficiencies and bad aspects of companies get magically worked out by Adam Smith’s “invisible hand”, but in the real world we have to look at how people actually behave. It’s like saying, “If people don’t like Coke, they can always drink Pepsi.” Don’t like eBay? You can always exert vast amounts of your personal time and energy hand-peddling your products to the 3 billion people on the internet for a fraction of the targeted eyeballs you’d get from eBay. Companies in the search business, like companies in the soft drink business, follow a Power Law distribution, that is, the vast majority of market share is inevitably controlled by a tiny minority of companies, and the barriers to entry of any new entrepreneurial venture into an existing mature industry, such as soft drinks or search, are so immense that the free market competition factor is so distorted it becomes essentially nil, ultimately resulting in a universal attractor state of near-monopoly. Oligopoly, if you like. This is why almost all small businesses ventures are in smaller, non-Power Law sectors (What Nassim Taleb calls “mediocristan”) like restaurants, or are inventing some new business niche who has not yet developed a monopolistic stasis (as the venture capitalist who started Google once did).

This effect goes DOUBLY for internet companies who, on top of the business Power Law, have the monstrous advantage of software lock-in and network lock-in. Software lock-in manifests as the substrata of established code, protocols and API upon which new programs are built become exponentially more difficult to dislodge and revamp as time passes. Network lock-in is best illustrated in the eBay example where the user utility of the service (internet auctions) increases dramatically with increase in user base, thus creating a winner-take-all feedback loop causing the company with the most users to become the Master Node for that particular market. The best utility for auctions (most eyeballs, cheapest prices) can be garnered via eBay, so users will naturally continue to flock there until either they shut down for whatever reason or people stop wanting to auction their stuff off (not likely). In the case of Facebook, since they've become the only SN game in town, "opting out" puts you at a crippling networking disadvantage in the business sector, and leaves you out of the conversations and connections between friends and family near and far. Ultimately this free market spiel "I can leave anytime" is an illusion of choice: for their particular service there is no competition and the opportunity costs are so great that many simply cannot afford to choose abstinence. In the same way that nobody had to go around with a prod "forcing" people and businesses to get online: the internet simply became so ubiquitous you either got with the cyber-program or you got left in the dust(bins).

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