An Amazon River legend says that its famous pink river dolphins sometimes become shapeshifters and assume human form to seduce unwary travelers and lure them to a magical city called Encante. The catch is that this city is underwater. Once you’ve been there you can never go back home.
That’s the thing about myths: There’s always a catch.
Our society runs on a digital myth, which says that the technology-based economy is different, special and somehow not subject to the principles of mathematics and human nature that govern the rest of our lives. This myth tells us there is something called a “sharing economy,” a wealth-creating phenomenon with no downsides and no human costs. It tells us that we use services like Google and Facebook for “free.” And it insists that corporations like Amazon have unlocked magical technology secrets that allow them to bring the wonders of the world to our doorstep through something like prestidigitation.
The Amazon River myth has one major advantage over the Amazon Corp.’s: The dolphins may not be magical, but they are precious and beautiful and very real. The tech myth is nothing but illusions, all the way down.
Amazon was not the first
Don’t get me wrong. Being an Amazon customer can offer some very pleasant short-term gains. Books are inexpensive and instantly available, if you have a Kindle or iPad. Other products are cheap and convenient. A Prime membership comes with even more discounts, free two-day delivery and other advantages.
There’s no need to hate yourself if you take advantage of these conveniences. But it is important to ask yourself where they come from, who pays for them and what effect they’re likely to have on our economy and our culture.
Amazon is following a decades-long model for the tech industry. It begins with the rollout of cheap or "free" services – typically based on the efforts of others -- offered at minimal cost in order to capture a monopoly share of the market. Once that monopoly is obtained, the tech vendor uses it to extract usurious and typically unanticipated costs. These costs may be borne by its customers, its vendors (a condition more accurately characterized as “monopsony”) or society as a whole.
And then there was Microsoft
That’s the story of Microsoft’s operating system. It was reverse-engineered from another system called CP/M when IBM couldn’t close a deal with Digital Research, the company that owned it. IBM then turned to young Bill Gates for a replacement. As Gates himself acknowledges, he and his associates built MS/DOS by “taking Digital's manual and writing my operating system.”
IBM offered other operating systems with its new PCs, as well as Gates’. That move may have been intended to mollify the Justice Department’s antitrust division, which was considerably more aggressive in those days. But the Gates/IBM product was offered for only $40, while users who wanted CP/M were required to pay $240.
The die was cast. In his 1999 ruling against Microsoft, Judge Thomas Penfield Jackson included an extensive finding of facts. His remedies were overruled on appeal; partly because he was publicly outspoken about Microsoft’s bad behavior, a deal was cut with the new administration in late 2001. His findings remain compelling. Overall, Jackson found that:
First, Microsoft possesses monopoly power in the market for personal computer (PC) operating systems;
Second, Microsoft engaged in a wide-ranging effort to protect its operating system monopoly, utilizing a full array of exclusionary practices; and
Third, Microsoft’s actions were harmful to innovation and to consumers.
Jackson, it should be noted, was appointed by President Ronald Reagan.
Invisible – but deep – costs
The social and economic cost of this behavior is extensive, but difficult to measure. How do you quantify the jobs, consumer savings or new revenues that were lost because of innovations that never took place? Other costs, such as price-fixing, are easier to measure. Monopoly also expresses itself in an increased concentration of wealth, as fewer companies are able to compete for market share. That means worsening wealth inequality – about which Bill Gates, to his credit, recently expressed concern.
Then there’s the human cost of product inefficiency, which survives because it’s protected from competitors who might design a better product. Slow response times? Add-on products that are difficult to learn and hard to use? Virus problems? The “blue screen of death”? Each of these would likely have been reduced or eliminated by competition. Instead the overall cost – in productivity, the loss of precious free time, and frustration – is, in Microsoft’s case, enormous.
Fun with numbers: Windows has approximately 92 percent of the PC/laptop operating system market. According to the United States Census Bureau, 78.9 percent of this country’s 122 million households have a personal computer. That means there are more than 88 million households with one or more computers running Windows.
What’s the cost? If Windows wastes one hour of the household’s time per month – a very conservative estimate, given its various inefficiencies – that comes to more than a trillion hours lost each year in this country alone. (And that’s not counting lost business productivity.) Given the average lifespan in this country, that’s the equivalent of 1,500 human lives lost every year to Microsoft’s monopoly and resulting inefficiencies.
Traditions in both Judaism and Islam say that taking a human life is like murdering an entire universe. Think about that the next time you’re trying to get Outlook to work.
The children of Gates
The monopoly strategy is the tech industry’s deep, dark secret. And the amount of time, money and anguish it extracts from everyone else is ours.
But Microsoft’s approach, based as it was in the physical dimension of computer-embedded software, seems like a blunt experiment when compared to the monopoly/monopsony enterprises that followed.
Despite its self-promoted reputation for “disruption” and invention, Microsoft’s monopoly approach is Silicon Valley’s real business model – and it’s been faithfully followed, in one form or another, by all of the massively successful tech ventures that have come since. (As a note: We use “monopoly” as shorthand, although in many cases – including Microsoft’s – we’re also describing monopsony practices.)
Facebook is the textbook example. Although it was never distinguished by smart design or ease of use, Facebook moved aggressively to capture a monopolistic share of the social media market. Then came the ads, the interference, the invasions of privacy, manipulation of users’ news feeds for the corporation’s own purposes – not to mention invasions of privacy and the sale of personal data to third parties.
Facebook builds nothing, manufactures nothing, creates nothing. Instead it encourages its users to do the creating, then “charges” them in invisible ways – by redirecting their time and attention to produce profits for itself.
YouTube, like Facebook, never generated its own content. It built its monopoly position by offering free access to the creative work of others. Once firmly established on its monopolistic throne, it began forcing viewers to watch advertisements before viewing videos.
That’s the model: First lure them in and establish your monopoly, then monetize.
YouTube is now owned by Google, which also commands a monopoly share of its market. Unlike some of its less-gifted peers, Google is a genuinely inventive and talented company. But, like its peers, it has relied heavily on government-funded technology (the Internet, computers, smartphones) and government-funded research to capture its monopoly share. It has used its monopoly to redirect users’ attention, and to exert frightening levels of control over users’ experience of the world.
Now a new generation of would-be monopolies is on the move. The most aggressive of them is the martially named “Uber,” which recently distinguished itself by earning an “F” rating from the Better Business Bureau.
Uber is following the path laid down by its forebears: First, identify a core market. Second, establish a monopoly position. Then capitalize on that position, either by squeezing customers and/or vendors or by using it to expand into additional markets.
Uber’s CEO has already described his long-term vision for the company as that of an “instant gratification” service that could provide customers whatever they want, whenever they want it. That has led to publicity stunts like “Uber ice cream” delivery, “Uber roses” for Valentine’s Day, Texas barbecue, helicopter rides and even “Uber kittens,” which were delivered to customers for 15-minute snuggles. (Did anybody ask the kittens how they felt about that?)
As Paul Krugman has noted, Amazon is behaving more like a monopsony than a monopoly, using its market position to drive down vendor prices rather than jack up consumer prices. Uber’s doing both. It has been using market position to force drivers into accepting lower wages. And it has telescoped the “lure ‘em, then monetize ‘em” strategy into a very short time frame. First it attracts customers with low-cost rides, then it uses something called “surge pricing” to jack up charges at peak times (and, it has been charged, to make unseemly profits from Hurricane Sandy).
When Franklin Foer launched an anti-Amazon broadside in the New Republic last week, Annie Lowrey and Matt Yglesias were among those who argued that the Bezos outfit was not in fact a monopoly. Lowrey, offering the more balanced argument of the two, acknowledges that Amazon has “something like a monopoly” over the books market and that this position “has become harmful.”
But, Lowrey adds, “this is cherry-picking.” She goes on to observe that Amazon has only about 15 percent of the overall e-commerce market and “faces fierce competition from traditional retailers.”
That’s missing the point – although, to be fair, it’s a point that Foer never gets around to making. It’s true that Amazon isn’t a monopoly or monopsony in anything except books – yet. But it has demonstrated through its actions that it intends to become one in every market it serves. It has used its enormous cash flow – cash flow based on government-provided tax breaks – in order to act proactively and ruthlessly to eliminate future competitors. While it’s far from a monopoly in diapers, for example, it used its revenue base to engage in brutal price competition with Diapers.com (which it then acquired).
This strategy could be described as “serial monopoly” and “serial monopsony.” It enters a market, leverages an economic advantage (sales tax exemptions, revenues from other product lines) and then preys on competitors until it reaches something like a monopoly position. Serial monopolists are always thinking about the next market to be dominated. Today’s revenues are often directed toward that end, rather than to short-term profits.
That’s why arguments like Yglesias’ miss the mark. When Yglesias writes that “’low and often non-existent 'profits’ and ‘monopoly’ are not really concepts that go together,” he’s working from an old playbook. In the new “serial monopoly” model, they go together very well.
Uber’s leaders may not be as shrewd as Bezos, and their early move to “surge pricing” may have tipped their hand too soon. But “serial monopoly” is Uber’s model, too. That’s what those ice cream cones and kittens were really all about.
In one way the serial monopolists are a new creature, spawned from technology that allows them to enter new markets without initially manufacturing or warehousing the merchandise themselves. In another sense theirs is an old tactic, one that would have been familiar to the railroad tycoons who were setting the price of grain in 19th century America.
War of the worlds
It should come as no surprise that these third-variety tech companies share strategies and worldviews. They also share many board members, venture capital firms and social connections. Companies like Amazon, Facebook and Uber represent the culmination of Silicon Valley culture that has been developing over decades. This culture combines old-fashioned monopolistic practices with the latest technology – along with a kitten or two.
This new culture conflicts with more broadly held social values in a number of critical ways. Its leaders aren’t concerned with widely held values like competition or fair play. They’re even less interested in foundational principles like artistic freedom, personal privacy or unbiased access to information. These values, which are so elemental to the nation’s spirit, don’t fit with business models that depend on the manipulation and exploitation of your time, attention and personal information.
They’re extracting more old-fashioned social costs as well. Silicon Valley has colluded to drive down the cost of its own engineers, as Mark Ames and other have reported. And tech companies are forcing down wages for everyone from cleanup and security staff to warehouse workers and drivers.
The new order
These corporations are monopolists – and much more. They’ve quickly assumed extraordinary influence over our lives. They control what we know, what we see and how we spend our time. They decide who knows our most intimate secrets. They are acquiring the kind of power totalitarian governments of the past could only dream about.
Why have we been so quick to idolize the tech economy? Why have we accepted their claims so uncritically and paid so little attention to what they were actually doing? There’s the excitement of the new, and the cachet that comes with great wealth. There may also be an element of the phenomenon South American educator Paulo Freire called “the internalization of the oppressor consciousness,” where it becomes more comfortable to accept the values of the powerful than to confront the fear and sense of responsibility that arise when you challenge them.
Whatever its causes, our credulous embrace of the tech culture has left us vulnerable to its seemingly endless appetites and ambitions. Those ambitions, as expressed by everyone from its pundit and economist supporters to its own leading executives, add up to nothing less than the remaking of our economy and culture in their own neolibertarian image.
If that pink dolphin city is anything like the society the tech corporations are creating, then things we take for granted – things like privacy, competition and a thriving middle class – may not exist there. Google’s motto is “Don’t be evil,” and by its own lights these tech entrepreneurs probably aren’t.
Still, Silicon Valley represents a set of values that is amoral by commonly held standards. It’s rapidly taking control of the distribution systems for music, literature and arts. And it’s increasingly manipulating our access to information, even as it absorbs an ever-increasing share of our economy.
Scoff at the word “monopoly” if you like. But if these developments don’t concern you, you’re not paying attention.