Facebook, Network Externalities, Regulation

There is a growing debate about whether people should leave Facebook and whether there should be government regulation. I’d like to argue that it is very difficult for most people to leave Facebook three reasons: network externalities, social norms and technical competence. Network externalities, which I discuss below, means that the first to become a standard has an enormous advantage that can make it very hard for competitors. Plus, I believe that users of sites such as Facebook, Google, and even Ebay, Amazon, Craigslist and Wikipedia (a non-profit), have solid  reasons they can make moral, legal and perhaps even regulatory claims on these companies. Such companies exist by the virtue of the work their users have put in without monetary compensation. Also, they deal with often intimate personal information that deserves protection irrespective of claims about ownership.

Network externalities is economist-speak for the tendency of the value of certain types of products or services to increase as more people use them. The more people own fax machines, for example, the more useful each one becomes. That is also why there is a single standard for fax machines — would you switch to a brand new, faster fax machine standard if there was nobody else you could fax with your machine? Research shows that the presence of network externalities trumps product preference or quality; many people will chose a service that has more users compared to the one that is otherwise better for them. Such platforms, such as Facebook, tend to quickly dominate their market and become near-monopolies. This is also why everyone lists their wares on Ebay, where all the buyers are, and advertises on Google, where all the eyeballs go. The fact that a lot of people already have Facebook accounts means that considerations of network externalities will result in existing people staying put, or new people joining in anyway, even if they have qualms about the privacy issues.

People understand this. In my research, I asked many young adults why they are on Facebook if it causes so much trouble. “Because everyone else is.” Many people have laboriously constructed networks of far-flung friends, family, school-mates and colleagues and can count on others to find them on Facebook.

Facebook is a social norm in many settings, especially among young adults and increasingly among other groups. On a typical college campus not having a Facebook profile is tantamount to going around with a bag over your face; it can be done, but at significant social cost.

Also, while the tech-elite don’t have any problems up-and-moving to a new social network or tool, for many people, there are steep investment costs to mastering one more application. I don’t think that most people in the chattering classes who tend to be tech-savvy understand how little competence most people have in navigating their computer or the web. I am not blaming them; it is not a user-friendly environment. It takes time, effort and familiarity and most people don’t have either. This contributes to the issue of network externalities. Plus, I think most people are not aware of the implications of the privacy settings and how visible their information may be. And, really, why should they? For most people, the  privacy settings are not that relevant (or easy to understand) until something goes wrong — and then it is too late.

Network externalities mean that whoever becomes established first has a huge advantage, as a critical mass of users pull in others in a positive-feedback loop. Early users often choose sites that offer a solid product and reasonable terms, and so the initial “terms-of-service acts” as an implicit social contract. It is this social contract that is being broken, and that is not okay.

Initially, Facebook had a reasonable, and transparent, privacy policy. But the frequent unilateral changes have forced a great deal of information to be visible and created tedious and difficult-to-use privacy controls. This bait-and-switch tactic is one reason many are so upset.

Exposure online has real costs; more than half the subjects in my research on online sociality report negative consequences, including job loss and stalking, from social-network profile information finding its way to unintended audiences. And that is the tip of the iceberg as my respondents were reporting only on what they knew. Some describe spending an hour a day to make sure that nothing untoward –an unwelcome photo, an explicit comment on a wall — is seen by the wrong pair of eyes.

In a nutshell, Facebook is the new social commons, at least as important for fostering social interaction as the office water-cooler or the neighborhood park. This controversy reminds us that we must deal as a society with the fact that our commons has moved online and into privately-owned domains.

It is time to stop telling people “don’t share anything online if you don’t want the world to see it” or dismiss all concerns by reminding people that having an account is voluntary, as Facebook recently did. That simply won’t do as it is unfair, unrealistic and misses the larger point about human sociality. Sociality is a core human need not easily abandoned. Being able to socialize is both a need and a right. And the larger point is that increasingly, we socialize online.

People do want to share information online, but not necessarily with the whole world but with their own chosen audiences of friends, family, and acquaintances. Given that ample research shows the importance of robust social networks to health, well-being, longevity, economic achievement, civic life and a healthy democracy, it is time to stop treating the infrastructure of sociality as a mere commodity controlled by the whims, and profit motives, of large corporations.

Users of sites like Facebook (Google and YouTube are other examples) provide valuable infrastructure that captures and monetizes work its users put in, be it in terms of rich social data or search keywords or auction items or video production. Users of these sites are “prosumers,” who produce as well as consume; as co-creators of these sites, they have a strong moral claim to treatment with respect and to a role in determining the rules by which they operate.

Finally, ownership does not provide a blank check to freely do what one wants with personal and often quite intimate information. The European Union already has regulation, and other countries may follow suit. In other spheres, U.S. law also recognizes that dignity trumps property rights; in most states, tenants in rented dwellings have a right to privacy which landlords are not allowed to violate at will. Why can’t we have such rights in our online dwellings?

For now, Facebook should follow the lead of Google and roll back all its changes, offering them as options to be chosen freely. But even if companies do the right thing, it’s past time for a broader social discussion about our rights in the new digital commons.

5 thoughts on “Facebook, Network Externalities, Regulation

  1. Kenneth

    Excellent piece. I recently did quit Facebook, but yes, I can’t really replace contact with my non-tech-savvy family members in some other way (e.g. telling them to “look at my blog” mystifies them, which exemplifies your point on just how confusing the Web is for those not really familiar with it). And for me, too, the issue was not one of privacy but rather of autonomy: I want some control over how I share my information, and Facebook violated that. It may be that the age of privacy is dead, but the age of autonomy isn’t, and this is what Facebook doesn’t seem to have recognized.

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  4. Jose_X

    Very important discussion about the need for stronger “prosumer” rights where we recognize that the leverage held by social network hosting firms is extremely large and requires restrictions as a public good.

    I don’t use Facebook, but it’s clear to me we need more open forums to compete with these groups.

    Peer-to-peer offers a great opportunity moving forward. You would be able to browse lists, get addresses of new folks, and keep a running list of who is online or listening or in some other state. Ping them and even collaborate or share desktop applications with them with a simple click. All along the collaboration data is kept on your PC with a copy (if you wish) on the PC of whomever else participates in the particular conversation. Additionally, you could keep backups in other formats elsewhere.

    I favor an open source software approach to achieving all of this p2p and privacy-respecting goodness.

  5. Alan

    Is it possible (would it be possible) for a facebook-LIKE
    system to grab all the stuff off of one’s facebook page,
    copy it all onto/into some new venue (say,
    PrivatePeoplesBook), then erase all the stuff off of the
    old facebook page, replacing it all with a link to the new
    PrivatePeoplesBook page? Of course, PrivatePeoplesBook
    would be more public-spirited, democratically-controlled,
    etc., etc., from the start. This would be a way to opt-out
    of facebook while still maintaining enough presence (the
    link out to the new page) to be findable/connectable.

    Just a thought… which some smart open-source type
    might be able to code in a few afternoons. 🙂


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