Book Review : The Internet Trap – How the Digital Economy Builds Monopolies and Undermines Democracy

The Internet Trap – How the Digital Economy Builds Monopolies and Undermines Democracy is a deep dive in to the digital universe, and looks at the power exerted by trans national monopolies such as Facebook, Amazon and Google, in developing large pools of big data made up of consumer information, and the use of this data to influence our actions. 

Among hundreds of millions of sites on the web, the four largest internet firms—Google, Facebook, Microsoft, and Yahoo!—capture a third of all web visits.

As of mid- 2016, Google and Facebook together combined for more than 73 percent of digital advertising in the United States, a remarkable duopoly over a $60 billion-a-year industry

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According to Matthew Hindman, author of The Internet Trap, the promise of decentralised, digital choice that was to be delivered by the internet, has been upended by three major developments

  • larger sites are assumed to have economies of scale, both in the production of content and in their ability to turn traffic into revenue.
  • Users are assumed to have at least modest preferences for diversity.
  • users are assumed to face search costs or switching costs in seeking out new content.

Hindman’s submission is that a niche site with better content would do worse than a large site with mediocre content. In a digital world driven by advertising, the money you make is by the audience you sell. Consequently, you cannot monetise the audience you do not have. And, economies of scale – be it the kind of server farms that large sites are able to deploy, or the number of people they are able to hire, or indeed the amount of content they are able to bundle by producing a wide range of genres, impacts the numbers and therefore revenues. 

Google’s data centers represent a jaw-droppingly massive investment, larger than the gdps of more than one hundred individual countries.

Location 401, The Internet Trap

His outlook is especially bleak for the hyper-local segment. Looking at data, from the United States that had a thriving hyper-local news market, The Internet Trap looks at how very few hyper-local news sites survive, in the chase for large aggregated numbers. An advertiser is better off targeting the hyper-local consumer who uses a large site, than targeting them on hyper-local sites that attract a fraction of those numbers. 

He looks at the subscription model, and calls the Paywall a tourniquet on the bleeding news companies are facing in their core business. He looks at the NYT model and wonders if the numbers that have paid for subscription mitigated the numbers lost by putting up a pay wall. 

This is a must read book for any one in the digital content business, in general, and the digital news business in particular. It works with economic models to propose that the nature of the internet is to be controlled by those who control the most data. And, therefore the associated question, who regulates those who control our data?

The Internet trap
You can buy the book here

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