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Digital power: How Big Tech draws its influence

Society needs new approaches to govern Big Tech because it is powerful in ways we haven’t encountered before.

In 2011, a series of protests erupted across the Arab World. Western commentators saw the young, digitally connected protesters using Facebook and other digital platforms to organise and ascribed them an emancipatory power. “Cell phones and social networks allow young people to connect and organise like never before,” said President Obama in a speech on the Middle East and North Africa at the time. “And so a new generation has emerged. And their voices tell us that change cannot be denied.”

The Snowden revelations of 2013 tarnished this optimistic view. Doubt led to scepticism, then to hostility. Now, world leaders are nearly unanimous in their belief that new regulatory mechanisms are needed to contain the tech giants.

Understanding Big Tech’s power will help society restore balance in the digital economy.
(Photo by Lionel Bonaventure/AFP via Getty Images)

“We must impose democratic limits on the untrammelled and uncontrolled political power of the internet giants,” said EU president Ursula Von der Leyen, in a speech marking US president Joe Biden’s inauguration. “New technologies must never mean that others decide how we live our lives.”

In the US, which has traditionally resisted calls for regulatory control over the largely US-based tech giants, the debate has shifted from whether new regulation is needed to how it should be designed. And after years of explosive growth in China’s internet sector, the government is now overhauling its antitrust regime to curtail the market power of its platform giants.

Why should this be the case? Societies have encountered big businesses before, and have long-standing protections for consumers, competition, the environment and more. But, in addition to their traditional commercial power, the tech giants can be said to be powerful in new ways: they have power that derives from their mastery of digital technology and which societies do not yet have measures to contain.

This digital power can be divided into three spheres: economic power, technological power, and political power – although these overlap and interact. The very existence of digital power is not necessarily cause for concern in itself – societies are ecosystems in which various forms of power coexist. Nor does it by itself mean digital power is being wielded to the detriment of society (although there are many indications that it is). But the first step in making sure Big Tech’s power is kept in balance is to understand how it is created and used.

Big Tech’s economic power

The tech giants are all businesses with commercial aims, and their most apparent form of power is economic. Five companies (Apple, Amazon, Alphabet, Facebook and Microsoft) are projected to account for a fifth of all earnings accrued by the S&P 500 by 2023 – a sign of how much economic potential is concentrated in the tech giants.

How did this come to be? The chief mechanism, researchers argue, is ‘platform power’. All of the tech giants have, to a greater or lesser degree, a platform business model, meaning that they connect suppliers to consumers, whether it is connecting advertisers to social network or search engine users, app developers to device owners, or vendors to online shoppers. By their nature, platform businesses benefit from network effects – the more consumers you acquire, the more appealing you are to suppliers – and so lead to ‘winner takes all’ outcomes.

Platform businesses are not new, but there are two features of the internet era that make them especially likely to lead to market dominance by one or two players. First, the global reach of the internet means that network effects can be extreme. Secondly, operating a digital platform brings a wealth of data about buyer and seller behaviour that provides another unassailable competitive advantage.

This data collection gives rise to another source of economic power for the tech giants: information asymmetry. While platform operators have enough data to predict how buyers and sellers will react to slight tweaks in platform design, those market participants get little insight into the platform’s rules and logic, making it harder for them to turn it to their advantage.

Together, this platform power and information asymmetry have given tech giants an unprecedented ability to determine the rules for large sections of the economy. “They define the conditions for other companies to operate in their ecosystem,” says José van Dijck, professor of media and digital Society at Utrecht University. “That is how they can function as a monopoly without being a monopoly.”

They define the conditions for other companies to operate in their ecosystem. That is how they can function as a monopoly without being a monopoly.
Professor José van Dijck, Utrecht University

This economic power is not just limited to the digital markets in which they have sprung, such as search engines or smartphone software. The logic of digital platforms is encroaching on all other sectors, from finance to energy, says Van Dijck. “There’s almost no sector in the world that can be seen independently of what is happening in the digital markets. They’re defining how these other markets are going to develop in the future.”

The tech giants therefore have an additional source of economic power: the latent ability to use their infrastructure, reach and data assets to enter and disrupt new markets. A vivid example of this is Facebook’s flirtations with digital currency. Its long-awaited Libra currency, expected to launch this year, is one reason why many central banks are considering their own digital currencies, which could have far-reaching consequences for how banking systems work. Even if Libra never launches, the very fact that Facebook announced its intention may have changed the nature of money forever.

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Technological power

All digital power derives from the use of technology but some of its dimensions are best understood as being intrinsic to the technology systems that the tech giants design, build and operate. As these systems become the infrastructure on which economic, social and political processes take place, the fact that the tech giants design and operate them gives them considerable power and influence.

The various facets of this power include what can be called the power of encoding. All digital systems incorporate models of reality – such as the way social interactions work, or how buyers and sellers interact. As masters of the dominant platforms, the tech giants design these models in their interests and impose them on other actors. Similarly, by designing the interfaces between participants on their platforms, the tech giants shape what actions are possible.

Currently, Big Tech’s most scrutinised form of technological power is algorithmic power. Decisions that determine outcomes for participants in digital platforms are, by their nature, automated, and so the algorithms that inform those decisions are the site of considerable influence.

Although automated decisions are not necessarily driven by artificial intelligence, the tech giants are at the forefront of AI research and the sophistication of their algorithmic decision-making far outstrips that of any other entity. This only adds to a defining feature of algorithmic power: its opacity, even to the companies that wield it.

Not all digital platforms are equally algorithmic, observes David Beer, professor of sociology at the University of York. “A platform like TikTok might be smaller but [users’ experience] is highly determined by the algorithmic structures within it,” he explains, “whereas WhatsApp is much bigger but not as algorithmically structured.”

These algorithms already have a considerable influence over our economic behaviours and social relationships, Beer says, and their reach continues to expand. In a forthcoming book, Beer and co-author Benjamin Jacobsen examine the way in which social networks resurface ‘memories’ (usually in the form of old posts), in turn influencing our self-image and our understanding of our own past. This is not a form of power the regulators who broke up Standard Oil could have foreseen.

The political power of tech companies

The political power of big business is nothing new. Companies ordinarily exert political influence by lobbying policymakers and by shaping industry self-regulation. The tech giants are certainly no slouches when it comes to lobbying: new research by the New Statesman data team revealed this week that tech is the fourth-highest-spending sector in US federal lobbying, spending $436m last year. Nearly a quarter of that was spent by just 15 companies.

These companies have made people’s lives so much easier through the innovation they’ve created, and that creates a tacit alliance with consumers.
Professor Pepper Culpepper, University of Oxford

But the tech giants also have another source of political power that is rare if not unique among other businesses: a highly engaged and often advocative customer base.

This power stems in part from the supreme convenience of digital services, says Pepper Culpepper, Blavatnik chair in government and public policy at the University of Oxford’s Blavatnik School of Government, whose research examines the political power of businesses. “These companies have made people’s lives so much easier through the innovation they’ve created, and that creates a tacit alliance with consumers,” Culpepper explains.

The tech company to make most explicit use of this political power is Uber, which has mobilised its user base to oppose regulatory changes around the world. But other companies have far greater customer bases to draw on should they wish to – Google and Facebook, for example, both reach more of the UK’s online population than national broadcaster the BBC.

The popularity of the tech platforms explains why regulatory powers, such as the European Commission, are more likely to push for regulation than parliaments, who depend on voter support, Culpepper says. Regulating the tech giants became more viable after the Snowden revelations, he adds, because they were made to look like allies of the state, not consumers. “That led to demands from the people on the parliament to change.”

This political power is not a danger in and of itself, says Culpepper. But governments “should be thinking about how firms [use] their power, which they secure politically, to potentially repress innovation and hurt consumers”.

A third form of political power that many of the tech giants have accrued is in shaping which media and other politically relevant information their users perceive. So far, the tech companies have clung to the defence that they are mere conduits for the information that others publish on their platforms, but Twitter’s decision to delete Donald Trump’s account has been seen as an acknowledgement that this is no longer the case.

Balancing the power of tech companies

How should Big Tech’s digital power be managed? That is a question world governments are currently wrestling with. Utrecht University’s Van Dijck offers a vision, if not a prescription for how to get there.

“In the ‘Rhineland’ model [of social-market political economy], you have the state, you have the market and you have civic society,” she explains. “But in the digital space right now, there’s only privatised, market space. There is no public space and there is no civil society.”

That leaves no space for the articulation of public values, such as privacy, security and the accuracy of public information, she adds. “But we could still change that. It will require some powerful actors, mostly from government and civil society.”

And there is more at stake than the digital markets that the tech giants currently dominate, says Culpepper. “They’re not just controlling markets now. They’re controlling the future.”

Pete Swabey

Pete Swabey is editor-in-chief of Tech Monitor.

Martín Harracá is a Postgraduate researcher and PhD candidate at the Centre of Digital Economy, University of Surrey.