Tech and the Fake Market tactic
By: Anil Dash
Tags: Sharing Economy, Apps, Uber, Tech

It seems this “market” has some awfully weird traits.

Consumers can’t trust the information they’re being provided to make a purchasing decision. A single opaque algorithm defines which buyers are matched with which sellers. Sellers have no control over their own pricing or profit margins. Regulators see the genuine short-term consumer benefit but don’t realize the long-term harms that can arise.

This is, by any reasonable definition, no market at all. One might even call Uber a “Fake Market”. Yet, by carefully describing drivers in their system as “entrepreneurs” and appropriating the language of true markets, Uber has been welcomed by communities and policymakers as if they were creating a new marketplace. That has serious implications for policy, regulation and even civil rights. For example, we can sincerely laud Uber for making it easier for African American passengers to reliably hail a car when they need a ride, but if persistent patterns of bias from drivers arise again in the Uber era, we’ll have a harder time regulating those abuses because Uber doesn’t usually follow the same policies as licensed taxis.

These pseudo-market patterns also mask patterns of subsidy, like the fact that Uber’s current operations are subsidized by investors to the tune of $2 billion per year. That’s a cost that will be immediately passed along to consumers as soon as Uber succeeds in displacing conventional taxis.

The Financial Times states the implications of this economic arrangement very clearly:

[A]ll this equates to is an economic transfer from the working class over to urban metropolitan elites, which benefits one particular corporation over others. This is plainly crazy.

These new False Markets only resemble true markets just enough to pull the wool over the eyes of regulators and media, whose enthusiasm for high tech solutions is boundless, and whose understanding of markets on the Internet is still stuck in the early eBay era of 20 years ago.

Fake markets don’t just happen in traditional products and services — they’re coming to the world of content and publishing, too. Publishers are increasingly being incentivized to use platforms like Facebook’s Instant Articles and Google’s AMP format. Like Uber’s temporarily-subsidized cheaper prices and broader access to ride hailing, these new publishing formats do offer some short-term consumer benefits, in the form of faster loading times and a cleaner reading experience.

But the technical mechanism by which Facebook and Google provide that faster reading experience happens to incidentally displace most of the third-party advertising platforms — the ones that aren’t provided by Facebook and Google themselves. Facebook publishers who use these new distribution channels are incentivized to use Facebook’s advertising platform, where payment rates and profit margins can be unilaterally changed at any time. Just as Uber subsidizes fares during the phase when they’re displacing regulated taxis, Facebook subsidizes publishers’ ad rates during the phase when they’re displacing third-party advertising networks.

In addition to making publishers even more dependent on the two tech titans for revenues, there’s the issue of the algorithms used to discover content. Almost everyone who uses Facebook has become aware that its algorithm for showing content is opaque, to both publishers and readers. As a result, there are fewer understandable tricks that publishers can use to ensure that readers will see their content — and publishing in the Instant Articles format is one of the few that’s known to work. It also happens to require a publisher to invest scarce resources in supporting the Facebook format, with the result of that publisher becoming even more dependent on Facebook for distribution.

So: Neither readers nor publishers know why Facebook shows a particular story in a feed. And media regulators and policymakers can’t see past the short-term benefit of faster-loading stories.

The Fake Market for content looks like this:

Readers can’t trust the information they’re being provided to make a content decision. A single opaque algorithm defines which readers are matched with which publishers. Publishers have no control over their own ad rates or profit margins. Regulators see the genuine short-term reader benefit but don’t realize the long-term harms that can arise.

4. After Markets: Self-Driving News

But wait, it gets worse. Next we replace the sellers in the market.

What we have in ride sharing or content publishing is a rapid move to locked-down systems controlled by one, or at most two, privately-held corporate players. But even in these fake markets, there are currently multiple providers offering their services within the ecosystem. The providers are those Uber drivers or Facebook publishers being lauded as independent entrepreneurs thriving on the platform.

But Uber has already plainly announced its roadmap: Self-driving cars. The much-lauded independent driver-entrepreneurs will be replaced by completely automated service providers as quickly as possible, and not only will those new self-driving cars not have drivers who need to be paid, they will all be owned by Uber itself. When this transition happens over the next decade, we’ll have entire markets of independent contractors displaced by the transition, precisely at the point when the social safety net is being dismantled. In the meantime, politicians across the political spectrum have been presenting these “gig economy” non-jobs as the future of work.