Facebook and Google dominate more than half the world’s internet advertising market, wielding incredible power over how we engage online. But the regulation debate is heating up.

By Xische Editorial, February 6, 2019

After more than a year of intense scrutiny, negative media coverage, and concerns over revenue growth, Facebook shocked Wall Street with record profits in the last quarter of 2018. For many analysts, the steady trickle of bad news made Facebook a dangerous investment. Facebook’s surprise revenue growth, however, demonstrates how the technology giant has cornered the online advertising market. While many around the world are increasingly concerned over Facebook’s collection and handling of data about its billions of users, the company hasn’t skipped a beat in monetizing that data.

Along with Google, Facebook dominates the online advertising world. According to the research firm eMarketer, Facebook controls roughly 20.5% of the digital advertising market, just behind Google, which controls roughly 31.3%. Two companies dominate more than half the world’s internet advertising market. Given the centralized nature of their power over the market, it is easy to see why Facebook is able to keep beating analyst estimates for revenue despite increasingly hostile views of the company among mainstream consumers.

From tracking our online searches to how we move around the city, technology companies acquire massive amounts of data that reveal patterns in our daily lives. It is fed into powerful algorithms driven by machine-learning with the power to predict with increasing accuracy what we might want to buy, do, or view. For advertisers, such information is staggeringly lucrative. That is precisely why Facebook, Google, and other companies are racing to collect as much of it as possible to ensure they have the edge in this brave new marketplace.

With that type of market power, these companies are able to wield incredible power over how we individually engage with the internet. What we see, how we see, and the amount of data we share is largely up to their whims. For example, Facebook decided to weigh video content more heavily in its news feed several years ago. The results was the media outfits also pivoted to video and print publication were forced to close or completely change their business model. But things are starting to shift about the power of these companies.

The issue is not whether regulation is needed – it is – but who is going to craft the rules and how will they be implemented. When Mark Zuckerberg was brought before a special US senate committee in 2018 to talk about his company and the fallout from the Cambridge Analytica scandal, one senator famously asked the CEO how his company makes money. As the hearing room chuckled, Zuckerberg responded sheepishly, “we sell ads, sir”. Given the clear lack of understanding in parts of the US Congress, the debate about regulation in the US is going to be a tough one. The core problem is how to ensure consumer safety in the radical new world of data surveillance and social media without stifling innovation.  

As we have described, government regulation will be led by three primary actors: the United States, Europe, and China. With most leading technology companies are based in America, the US Congress has a defacto leading position from which it can draft impactful legislation and regulation that balances consumer protection with sustained economic growth. The European Union is already trying to find the right balance with its recently passed data protection law. While critics have been quick to point out the flaws of the law and the fact that many major companies have simply refused to take it seriously, the transformation must start somewhere.

On the other end of the spectrum, China has been able to implement remarkably strong safeguards but at the expense of truly free tech companies. Because the Chinese internet is so heavily controlled by the government, regulation is easy. The downside is that the Chinese internet is nowhere near as free and open in comparison to  its counterparts in the rest of the world.

All of these attempts at regulation have their own advantages and disadvantages. Small countries like the UAE and Estonia might hold the key to the right mix. They are able to borrow policy from a variety of different markets to find the best balance that protects consumers and allows for innovation. Historically, governmental action has been too slow in coming. Here again, small countries driven by young, innovation-minded governments have an opportunity to take the lead.

The dominance, and influence, of companies like Facebook and Google are evidence that the internet is already controlled by private companies. As the regulation debate heats up, we will do well to keep an eye out for solutions emerging from these small, agile markets. Without the burden of attention placed on them as you find in the US or China, small markets have more wiggle room to experiment. It is experimentation, after all, that will help crack the code.