*Strip the company down to its essence – to the actual thing that it does better than any of the other tech companies out there – and what you’re left with is a social network built on bidirectional personal ties. (You “friend” someone on Facebook; you “follow” someone on Twitter.) It replaces the rolodex or the address book. It does a much better version of what those technologies did… The thing is, that core functionality is hard to find in Facebook these days.
The trouble with Facebook is, more broadly, the trouble with the entirety of Silicon Valley and its particular version of techno-capitalism. You could imagine a profitable company that does what Facebook is actually good for. But it’s not a trillion-dollar company… If the profit expectations of the little-college-social-network-that-could had been less ambitious from the outset, then we would have a better company and a better internet today.* Dave Karpf, What Facebook Is Good For, and Why It Can’t Be Good Anymore
He calls this phenomenon “Big Money Ruins Everything”, and attributes it to “the specific version of capitalism that has taken hold within Silicon Valley.” However, I would argue that it goes much deeper than this.
The problem begins with the way companies are funded. VCs invest millions in a large number of companies, expecting most to fail. In order to recuperate their losses, they expect to get a return of 100x or more of what they invested from the companies that do succeed. (Related to: Regenerative Investment)
Most of this return comes through an ‘exit’ which takes two forms: either the startup is bought and absorbed by a competitor or they sell their shares on the stock market through an IPO. Either way, startups are rewarded based on how much money they can extract, not how much value they provide to their users. This system not only incentivizes companies to prioritise profits over all else, it also allows those with existing privilege to grow their wealth without offering anything of value.
Because of this, gig economy businesses such as Uber have been able to succeed. They’ve used the big paychecks from VCs to create unmatchable introductory prices, while keeping prices artificially low. They further lower prices by removing the benefits that most employees have, therefore leaving workers at the whim of the algorithm.
While fairer platforms have sprung up, often using cooperative models, they find it hard to compete precisely because they are not able to offer such low prices, and don’t have the same level of resources that these giants have. (Related to: Cooperatives & Community Exits)
In fact, VCs and companies themselves do whatever they can to stifle competition. Many of these companies are funded by the same people, so if there is too much competition in a market they will just close one company or merge it. If there is a new competitor on the block, they will be bought.
It used to be against the law to form monopolies like these and buy out competitors, but with the removal of these regulations have come tech behemoths which have made market choice an illusion. Additionally, other regulations have been introduced that protect businesses’ against interoperability, the very thing that makes it easier for competitors to come into the market and help the transition to new platforms. Platforms have even taken governments to court for trying to protect their citizens, and won.
Dive Deeper
Topic relates to:
Regenerative Investment Cooperatives & Community Exits