How many divisions does Facebook have? why Big Tech is onto a losing battle when fighting Governments

When I wrote my piece on the upcoming struggle between Governments and Big Tech over the future of Media (https://www.dhirubhai.net/posts/ianwhittakermedia_its-going-to-be-bigly-fallout-from-the-activity-6757937286312198144-bOOE) , I probably didn’t anticipate how things would escalate so quickly. The most high-profile spat has involved Facebook pulling news from Australian users (including from community group and Government sites, which didn’t go down too well) in response to the Australian Government’s News Media Bargaining Code (Changes to Sharing and Viewing News on Facebook in Australia - About Facebook (fb.com)) but there have been other examples – the Indian Government criticising Twitter for allegedly promoting agricultural protests (The Indian government's war with Twitter - BBC News), or proposed legislation by Florida’s Governor (and potential 2024 Republican Presidential candidate) Ron DeSantis to penalise social media companies that place restrictions on social media content in certain circumstances (Florida Governor Ron DeSantis backing effort to stop tech ‘censorship’ (heraldtribune.com)) .

Facebook’s reaction is particularly noticeable because it is the first time one of the Big Tech companies has taken such an aggressive stance against an elected Government. Some might argue banning ex-President Trump from social media post-the Capitol riots might be in the same league; while that has potentially huge implications in the future, President Trump was on his way out of office so the potential consequences for the social media companies would have been limited, and arguably greater if they had not done anything. This is not the case here, where the next Australian Federal election is in 2022, the current opinion polls suggest a very tight contest (The Poll Bludger) and Facebook’s actions are likely to used by the Morrison Government to highlight their willingness to take on powerful interests.

It is also noticeable for two other factors. The first is that it is a diametrically opposed reaction to Google, which has announced in the past several days, deals with major publishers including The Guardian and the (very influential in Australia) Rupert Murdoch-owned News Corporation, the latter on a global basis (News Corp and Google Agree To Global Partnership On News | News Corp) . The second is that Facebook’s chief advisor on political relations is Nick Clegg, the former UK Deputy Prime Minister who presumably should have experience of how such a step would be taken on the political front, and how Facebook’s move would be received. 

A cynic may say that Facebook’s move in Australia overshadowed the release of legal documents last Wednesday which alleged Facebook knowingly inflated its audience numbers to attract advertising money (Lawsuit claims employee said Facebook misled advertisers with data | Daily Mail Online). However, there is no doubt that Facebook’s concern is real and it also comes at a time when it is in dispute with other members of the FAANG club - its dispute with Apple over upcoming changes to iSO 14 IDFA changes (Facebook strikes back against Apple iOS 14 IDFA privacy change (cnbc.com)) for example. In addition, Microsoft’s public support of the Australian Government’s stance (BBC World Service - World Business Report, Update: Microsoft executive backs Australian government in tech war) has angered Facebook and indeed Google (Google criticizes Microsoft for supporting Australia news levy (businessinsider.com)).

Facebook also has a point about the unfairness of Australia’s move. There is no doubt that the Government’s proposed tool for paying for content is a blunt one and that Facebook has generated a significant amount of leads and advertising revenues for publishers from referrals. Facebook estimates it generated 5.1 billion leads to Australian publishers in 2020 with an estimated value of AUS$407m. Some may question the actual latter value but the principle holds, that social media generates leads that leads to traffic and extra advertising revenues.

However, as most people know, life is not fair and there are three reasons why Facebook, or indeed any other Tech company that looks to take an overly confrontational stance against even elected Governments are on a hiding to nothing.

The first is Governments control the levers of power, including the right to legislate, and have regulatory oversight through Government or quasi-Government entities. Put bluntly, if Governments put all their efforts into imposing serious restraints on the Tech companies, they can. While Tech companies can pull services from a country, as Facebook has done, and not pay what is deemed to be a fair share of taxes, Governments are unwilling increasingly to tolerate moves that are seen to be encroaching on the authority of the State. One of the major points I made in my piece from several weeks ago is that Governments view themselves as having the primary responsibility for being the arbiters of what is and not acceptable in the public realm and will take significant steps to protect that, which is why there was such a sharp backlash in the UK when YouTube blocked TalkRadio’s YouTube channel over comments made about Covid-19 (TalkRadio: YouTube reverses decision to ban channel - BBC News):

The second, in relation to the first, is that the Tech companies do not own the infrastructure that connects their services with the consumer but instead are reliant on telecoms operators and providers, which are highly regulated services that have little leeway in ignoring or opposing government and / or regulatory orders. I would also include infrastructure services such as Apple’s App store within in this remit. A Government that wants to make life difficult for a Tech company can do so very easily if it so wishes by pressurising infrastructure players not to carry services. There is a reason why Facebook and Google are, for all intents and purposes, not present in China (Search Engine Market Share China | StatCounter Global Stats). It is also the same reason why India was able to ban the most popular Chinese-owned apps relatively easily.

The third reason is that nature abhors a vacuum and so, even if a Tech company took the ultimate step and withdrew its services, there are plenty of players willing to step in to take their place. Both Facebook and Google have criticised Microsoft’s comments supporting the Australian Government’s ban as a move to win market share. That is probably fair and it is interesting to note that Microsoft is now calling on the Biden Administration to follow Australia’s lead (Microsoft urges Biden administration to back media bargaining laws (smh.com.au)). If Facebook continues its stance on the Australian market, it is likely that, over time, other players will emerge to fill the void, whether they be the publishers themselves or other parties. Moreover – and a somewhat under-appreciated point – is that will be plenty of capital available to players willing to fill that gap, whether from the stock markets or private investors. These new entrants are unlikely to be short of cash.  

I said in my original piece that the likely major problem for the Tech companies will be a few years out in the United States because the regulation and treatment of Big Tech has become such a political issue. While there have been calls on the left and within the Democratic Party for more responsibility and oversight of the social media companies in particular, the real issue is with the Republican party, where the challenging of Big Tech has become a sine qua non for any candidate looking to run in 2024 (DeSantis’ move has been widely praised by many commentators on the Right and has propelled him into probably pole position right now, although it is very early days). Yet, what is happening now is a foresight of what is to come and, for Tech companies, how they handle this may be a key determinant of their continued rise – or fall – in years to come.