Facebook – The wizard of OZ

Facebook outplays the Australians in leveraging its network effect.

• Facebook has scored a big win in arriving at an agreement with the Australian government regarding paying for news from Australian sources with concessions that virtually guarantee that it will be business as usual from here on.
• Facebook has said that it is satisfied with the changes and guarantees that it has won from the Australian government which will now be included in the draft bill that will be put before parliament.
• These changes include:
  • First, Flexibility in designation: Facebook and Google will now have greater flexibility in how they are defined and may be able to avoid being hit with this bill in its entirety.
  • Second, Good faith negotiations: Facebook has committed to entering into “good faith negotiations” with the publishers and outlets for how they will be compensated when their news is featured on Facebook’s ecosystem.
• Prior to this “sudden” breakthrough, Facebook had cut off access for all Australian news outlets to its platform which provoked a large public outcry.
• Critically, the Australian news sites also took a big hit in internet traffic clearly demonstrating that Australian media needs Facebook more than Facebook needs it.
• Facebook has been accused of acting like North Korea in its actions, but I think that they are fully justified as Australia (and everyone else) seems to be viewing Facebook as a free public service rather than a business.
• As the news sites have quickly realised, their advertising revenues are likely to be lower without Facebook than with it even if Facebook pays them no money at all for their content.
• This clearly demonstrates that the current arrangement is better than no arrangement at all.
• This notion of free internet is the classic misconception that is held both by the general public and lawmakers and the sooner that this is dispelled, the sooner the correct working relationship can be established.
• Facebook’s action clearly demonstrates the value that it provides to the news sites and this will feature heavily in those “good faith negotiations”.
• Hence, I suspect that the “good faith negotiations” will result in commercial arrangements that are almost identical to the arrangements that already exist and that very little will change.
• Facebook has clearly demonstrated the power of the network that it has built and, in this instance, has clearly demonstrated the value that it provides to content providers simply by having their content on its network.
• This situation has been closely monitored around the world and I think that the coast is now pretty clear for the business models of Facebook and Google to continue as they were before.
• This is a major win for Facebook which takes Google along with it and Mr Pichai should buy Mr Zuckerberg (or Sheryl Sandberg) a beer.
• In general, I think that more regulation will only hurt competition and raise barriers to entry for the very competitors that the regulations are designed to encourage but then again having so much power concentrated in so few hands has the potential to become a major problem.
• Hence, I remain split on what action needs to be taken in order to strike the correct balance.
• Both Facebook and Google look fully priced after their great runs in 2020 and I am looking at the long-ignored, much-maligned value end of the market for my picks this year.