Enclosing the market

Despite increasing criticism of Big Tech, the business models of leading digital companies are still widely admired. That’s a problem.

With the Covid-19 pandemic, Big Tech finally attracted positive headlines again. Amazon secured the distribution of facemasks, disinfectants and toilet paper. Alphabet’s Verily established a virus-testing scheme in California. Apple and Google together enforced a privacy-friendly solution for national contact-tracing apps. 

This sounds like good news, yet these incidents not only manifest Big Tech’s ever-growing infrastructural power but also its appropriation of the ‘foundational economy’ of goods and services critical to the daily reproduction of society. This is the sphere, conventionally, of public goods—non-rival and non-exclusive, delivered by public institutions rather than private corporations.

What has happened in the course of the pandemic does not however come as a surprise. If leading companies of digital capitalism tap into the public domain it does not evoke bewilderment any more. A while ago, a manager of the German public railway company, Deutsche Bahn, told me in all sincerity he feared the large-scale involvement of Amazon. The German automotive industry has been discussing such scenarios, with reference to Google and others, for years.

Cashing in

The idea of an unstoppable expansion of Big Tech is basically just the extension of everyday experience: an ever greater part of our time awake is screen time, which we spend glued to our smartphones. With every act of consumption there, we participate in a world controlled by one of the leading companies. 

If we search for products or news on Google, the company cashes in on the producers of these goods through targeted advertising. If we pay for something in Apple’s App Store, the company retains 30 per cent of the turnover. If we buy something on Amazon from a third-party supplier, the retail giant demands its take. 

Other companies are increasingly imitating this logic. The entire business model of the ‘gig economy’—the intermediation of formally independent activities via digital platforms—is based on the same rent-seeking from market transactions. The ride-sharing start-up Uber, for example, takes the typical 30 per cent of the turnover generated by drivers via its platform. Established companies such as Daimler play the same game with applications such as Free Now and this logic is threatening to gain a foothold in the context of industrial platforms as well.

The profits generated in this manner are simply rents—unproductive incomes. Once the digital infrastructures of the platforms have been set up, the costs incurred for further development, maintenance and expansion no longer bear any relationship to the profits: it costs Facebook practically nothing if a new user registers on the platform but every extra user generates additional profits. This non-correlation has made the platforms the darlings of investors worldwide.

Paradigm of transformation

Despite being the cause of resentment in some sectors (the taxi industry in protest against Uber and the like), this logic is increasingly the paradigm of transformation of late industrial capitalism. Companies such as Google, Apple or Amazon are not sufficiently understood as digital marketplaces. Via the progressive integration of new product categories and third-party suppliers, as well as via aggressive acquisitions, these companies are in fact appropriating the markets they serve. 

Take Google: the company has relied on ever-increasing variety within its product range to integrate users into its network. The search engine was complemented—partly via company purchases—by the map service, the free email account, the social network Google+ (now discontinued), cloud storage and numerous other applications. A milestone was the purchase of Android Inc (2005), with the presentation of the first Android operating system for mobile devices (2008) as well as the associated App Store. 

Today, Android has a global market share of around 80 per cent of smartphones. The operating system and the App Store serve as the basis for various in-house services, but above all as a place where an ever-growing number of third-party providers launch their own products. This is a market for a constantly and systematically expanding product range.

On the demand side, the meta-platforms rely on different strategies to lock in consumers. On the one hand, their own systems are continuously optimised for maximum convenience, to reduce the need to switch to another system. On the other hand, they make it as difficult as possible for users to use certain services outside their own ecosystem. 

From this perspective, the widely-admired new business models of the internet giants turn out to be a programme for the appropriation of markets. The leading companies of the commercial internet do not really operate in markets: they are these markets.

Forms of control

Compared with the classic, producer monopolies, primarily blamed by economic theory for consumer-damaging price-fixing, this power of market appropriation materialises in four distinguishable forms of control. The often-criticised information control, through Big Tech surveillance, is only the first step. The control of access, prices and performance comes on top. 

Regarding the producers, platform companies have the power to decide which competitors they want to allow in or keep out. On the consumer side, they can control who gets to see which offers at which prices (access control). 

This creates a separate field of business, algorithmic pricing, and enables the platforms to pursue a lucrative strategy of price control. In contrast however to what is expected by monopoly theory, this has so far worked to the advantage of consumers—not at their expense—because the power over the supply side enables market owners to optimise competition between market participants in the service of their own profits. 

In addition, there is performance control—the ability of market owners to dictate the conditions under which producers provide their services. In the end these strategies are aimed primarily at the producers. It is with them—not consumers—who really feel the market owners power.

Source of inequality

Thinking this development through exposes Big Tech as a source of social inequality. The leading companies of digital capitalism offer the blueprint for the transformation of our economy and welfare system. Their key business innovation is proprietary markets, with the help of which they extract rents from the economic cycle. 

The tributes producers pay the market owners are hardly taxed and pile up in gigantic cash reserves, where they aren’t available for distribution in wages. 

So far, this has steered activities of political regulation in several arenas towards anti-trust legislation. While this could proof useful for taming Big Tech’s power in the short run, the political lessons to learn in the end might be quite different. In the context of the ‘double crisis’ of capitalism, economic and ecological, without deep interventions in markets a social and environmental transition has little chance of working out. Neoliberal market design alone won’t do. 

Big Tech presents the template for a deep and efficient governance of markets. We need to think about using it not for the sake of rent-seeking but to achieve democratically agreed goals.

This is part of a series on the Transformation of Work supported by the Friedrich Ebert Stiftung