Facebook Is Under Attack for Profiting While Improving Businesses

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In Human Action, Austrian School eminence Ludwig von Mises calmly observed that in the business world, the businessman who fails to use his capital to the “best possible satisfaction of consumers” is “relegated to a place in which his ineptitude no longer hurts people’s well-being.”

Interesting about Mises’s observation is that in the old Soviet Union, the businesses not operating in the black market were all defined by endless ineptitude. In The Russians, Hedrick Smith commented that while Americans agonized over gasoline lines in the 1970s (those lines a creation of price controls that emerged from a misunderstanding about how the dollar’s devaluation would impact gas prices), the Soviet citizenry suffered lines for everything; only to generally not be able to purchase what they wanted. 

More entertaining was Geoffrey Bocca’s re-enactment in The Moscow Scene of a visit to a Moscow restaurant during the U.S.S.R. days. Not only could the menu’s age be measured in decades (why change a menu in a country where profits aren’t allowed?), the restaurant didn’t really care what Bocca wanted. The journalist would be served not what might be featured on the menu, but what was available. During the visit described, Bocca wanted borscht but was told to order caviar. And while Bocca wanted beef fillet as his entrée, he was instructed to request Chicken Kiev.

Bocca’s description of the upside down world that was communism came to mind while reading about Facebook last week. A New York Times headline referenced a “a Cutthroat Tale” whereby the business “used the mountains of data it collected on users to favor certain partners and punish rivals, giving companies such as Airbnb and Netflix special access to its platform while cutting off others that it perceived as threats.” Yawn.

Really, what are Times scribes Adam Satariano and Mike Isaac trying to convey other than they possess little understanding of what it means to be in business. About this, businesses have shareholders. More important is that without those shareholders there would be no businesses. Unless there are individuals willing to forego consumption in favor of saving in order to gain a possible return on that saving, there are no businesses like Facebook.

It’s seemingly lost on Satariano, Isaac and all manner of other alarmists inside and outside media that Facebook wasn’t always Facebook. Lest we forget, as recently as 2006 News Corp.-backed MySpace was the giant of social media; so dominant that prominent technology writer Victor Keegan proclaimed in the Guardian that it was on the verge of attaining “natural monopoly” status on account of users having “invested so much social capital in putting up data” on the now largely forgotten site.

So Facebook aimed to vanquish rivals all the while favoring certain companies deemed useful for its overall mission of success? Yes, of course it did. There was a time when Facebook's very existence was imperiled by MySpace, Friendster and others. And if Satariano and Isaac don’t understand this, or find Facebook’s actions unseemly, they might draw up a business plan for venture capitalists in which they promise to not compete very aggressively given an expressed desire to strive for mediocrity. More interesting than their slanted reporting on Facebook would be a story about the reaction of VCs to a mission that’s all about being average….

In their reporting on the matter, Satariano and Isaac also wrote of how “Facebook executives treated data as the company’s most valuable resource and often wielded it to gain a strategic advantage.” Ok, and their point is what?

Of course Facebook treated user data as a valuable resource precisely because it was. And is. Crucial here is that consumers of all stripes gain from the willingness – better yet, eagerness – of over 2 billion of the world’s inhabitants to exchange information about themselves in return for a constantly improving social network that there's no charge for the use of. To understand why this is such a good thing, readers need only consider yet again Bocca’s visit to a Moscow restaurant in the Soviet ‘70s. The experience was miserable precisely because the restaurant didn’t understand its customers, and worse, didn’t care to understand its customers.

Thanks to Facebook, more and more businesses will have an idea not just of what billions want and need, but they’ll also be able to more expertly target small groups and individuals based on data mined about them. Translating what should be obvious, there will be a lot more borscht and beef fillet on the proverbial menu, and much less of the caviar and Chicken Kiev that customers don’t want. Businesses will understand us better, and thus they’ll be able to meet our needs much better.

We’re already seeing this with companies like Netflix and Amazon. Netflix has successfully created a great deal of award-winning content that’s also popular with its growing customer base. It was able to achieve the latter by virtue of learning what kind of television and movies its customers watched, and also how they watched them. As a result, we now increasingly enjoy better and better movies and television; television series more and more offered up to us as we desire them: all at once. It’s called binge-watching. Amazon serves more and more of the world, knows how more and more of the world buys things, and the result is that we increasingly get what we want in rapid fashion. While Amazon used to fulfill orders in a matter of days, it’s a safe bet that in the future many orders will be fulfilled in a matter of minutes.

So Facebook mines and sells data on its users? Thank goodness it does. No one is being forced to use the social network, but because billions do, fewer and fewer of us will suffer the ineptitude of businesses that don’t have a clue about what we want and how we want it. Translated, the future will thankfully be one mostly free of surly waiters forcing on us what we don’t want, and instead one defined by smiling waiters speedily delivering to us what we do. All thanks to data-gathering businesses like Facebook. Isaac and Satariano can relax. 

John Tamny is a speechwriter and writer of opinion pieces for clients, he's editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His new book is The End of Work, about the exciting explosion of remunerative jobs that don't feel at all like work.  He's also the author of Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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