With Regulation on the Rise, is there a Future for the Online Marketing Industry?

Government regulation is not only seen in a much more positive light now, it is also widely regarded as an urgently needed fix for the digital woes our societies suffer from.

For quite a while, casts were clearly set: digital heroes like Apple, Amazon, Google, and Facebook were the good guys, and government regulators the bad ones, only spoiling the success of the digital revolutionaries. The tables have turned completely over the course of a mere 16 months. The election of Donald Trump as 45th president of the United States was the much-needed shock and reality check to move the compass needle.

Now, government regulation is not only seen in a much more positive light, it is also widely regarded as an urgently needed fix for the digital woes our societies suffer from. Winner-take-all markets have been on the rise for some time, but only recently the five big winners Apple, Amazon, Google, Facebook, and Microsoft have risen to the top of publicly listed companies, thus reflecting both their current dominance and expectations of future monopoly profits.

Ginormous network effects and the rules of the platform economy are scaring more and more people, and there’s a growing political will to intervene. Just to be clear, this doesn’t mean there will be any new government regulations in the US anytime soon, since Facebook seemingly was critical to win Trump the presidency (and Obama as well).

The public view: regulate

But public opinion has pretty much changed to be in favour of regulations, and if this change persists, policy changes will inevitably follow, since that’s the way Western democracies tend to work. While elections clearly don’t transform everything, they still have a significant impact, as for example both the election of Obama and of Trump have shown.

Free markets aren’t a given, they have to be created, by establishing some more or less basic rules, creating money and payment systems, providing safety, and safeguarding access, amongst other things. Historically, that was the role of governments and other public agencies. Regulation in the classic sense of the word does exactly that. But the behemoths of today are marketplaces themselves, and to a large extent unregulated. They set the rules others have to play by.

For a surprisingly long time, that worked well.

Google and Facebook, for example, sucked up most of the online advertising revenue, rendering ad-based business models like traditional mass media obsolete. That wasn’t a problem only until it was. Occasionally, regulators fiddled with Microsoft or Google to fight their monopolistic misbehaviour, but nothing serious. This is going to change dramatically. It is no surprise at all that Facebook can be used to influence elections. But where is the line between legit political advertising and illegit voter manipulation?

Manipulation breeds regulation

Obviously, there need to be some rules, and Facebook impressively failed to regulate itself. Besides blatant manipulation, there are other issues as well: the degradation of civil society, filter bubbles, the spread of fake news, hate speech, and respective measures that turned into a kind of semi-public censorship regime in Germany, just to name a few. Facebook as a company has been exceptionally bad at politics, probably for a number of reasons. There is now a perfect storm brewing that could severely damage the company.

And probably should.

Tracing the roots of this mess, we easily come to the advertising business as the culprit. Facebook and, to a lesser extent, Google have both optimised themselves for marketing purposes, gaining huge shares of the advertising markets. More and more voices now call for breaking up Facebook. In Europe, a new round of regulations becomes effective this May with the EU General Data Protection Regulation directive. On the tax front, the European Commission has just made some bad news for the big guys as well.

All of this leads to one question: Is there a future for the online marketing industry?

Photo by Nicolai Berntsen on Unsplash