The World’s Most Valuable Resource

A new commodity spawns a lucrative, fast-growing industry, prompting antitrust regulators to step in to restrain those who control its flow. A century ago the resource in question was oil. Now similar concerns are being raised by the giants that deal in data, the oil of the digital era.

These titans—Amazon, Apple, Facebook, Google and Microsoft—look unstoppable. They are the five most valuable listed companies in the world. Their profits are surging: They collectively racked up more than $25 billion in net profit in the first quarter of 2017. Amazon captures half of all dollars spent online in America. Facebook and Google accounted for almost all the revenue growth in digital advertising in America last year.

Such dominance has prompted calls for the tech giants to be broken up, as Standard Oil was in the early 20th century. Size alone is not a crime, however, and the giants’ success has benefited consumers. Few want to live without Google’s search engine, Amazon’s one-day delivery or Facebook’s newsfeed.

Nor do these companies raise the alarm when standard antitrust tests are applied. Far from gouging consumers, many of their services are free—users pay, in effect, by handing over yet more data. Take offline rivals into account, and their market shares look less worrying. Moreover, the emergence of upstarts such as Snapchat suggests that new entrants can still make waves.

There is cause for concern, however. Internet companies’ control of data gives them enormous power. Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the “data economy.” A new approach is needed.

What has changed? Smartphones and the internet have made data abundant, ubiquitous and far more valuable. Whether you are going for a run, watching television or even simply sitting in traffic, virtually every activity creates a digital trace—more raw material for the data distilleries. As devices from watches to cars connect to the internet, the volume is increasing: Some estimate that a self-driving car will generate 100 gigabytes per second.

Meanwhile artificial-intelligence techniques such as machine learning extract more value from data. Algorithms can predict when a customer is ready to buy, when a jet-engine needs servicing or when a person is at risk of a disease. Industrial giants such as General Electric and Siemens now sell themselves as data companies.

This abundance of data changes the nature of competition. Technology giants always have benefited from network effects: The more users Facebook signs up, the more attractive signing up becomes for others. With data there are extra network effects. By collecting more data, a company has more scope to improve its products, which attracts more users, generating even more data, and so on. The more data Tesla gathers from its self-driving cars, the better it can make them at driving themselves—part of the reason that the company, which sold only 25,000 cars in the first quarter, is now worth more than General Motors, which sold 2.3 million. Vast pools of data can act as protective moats.

Access to data also protects companies from rivals in another way. The case for being sanguine about competition in the tech industry rests on the potential for incumbents to be blindsided by a startup in a garage or by an unexpected technological shift. Both are less likely in the data age, however.

The giants’ surveillance systems span the entire economy: Google can see what people search for, Facebook what they share, Amazon what they buy. They own app stores and operating systems, and rent out computing power to startups. They have a “God’s eye view” of activities in their own markets and beyond. They can see when a new product or service gains traction, allowing them to copy it or simply buy the upstart before it becomes too great a threat.

Many think that Facebook’s $22-billion 2014 purchase of Whats­app, a messaging app with fewer than 60 employees, falls into this category of “shoot-out acquisitions” that eliminate potential rivals. By providing barriers to entry and early-warning systems, data can stifle competition.

Rebooting antitrust for the information age will not be easy. It will entail new risks: More data sharing, for instance, could threaten privacy. If governments don’t want a data economy dominated by a few giants, however, they will need to act soon.


© 2017 Economist Newspaper Ltd., London (May 6). All rights reserved. Reprinted with permission.


Image credits: Nuvolanevicata |


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