Introduction

Direct, private messages are a hallmark of online social media platforms. However, relative to adverts or organic content, this aspect of social media has received little regulatory attention. With increased scrutiny and the likelihood of regulation or the structural break-up of technology firms, this article proposes a set of regulations that are likely to be efficacious in increasing competition in the online messaging platform market. Specifically, this article argues that interoperability between messaging platforms would be a more effective mechanism for increasing competition in the personal online messaging platform market than structural break-ups of technology firms. Interoperability would shift the network effect from the platform level to the underlying communication protocol. These effects, however, are less likely to be effective for enterprise messaging platforms. Relative to structural break-ups, these policies in tandem better address the underlying forces that result in oligopoly markets.

First, this article will provide an overview of the defined market, its distribution of market share, and the consequences for consumers. Then, I will argue that enforcing interoperability between online messaging platforms would shift the network effects from the platform to the underlying protocol, making the market less likely to tip towards a single firm. These policies will then be contrasted against the structural break-up of technology firms, demonstrating how such an approach would fail to address the underlying market dynamics. A major criticism of interoperability is that it will entrench protocols that would soon become outdated and disincentivize innovation. This will be addressed by introducing an open-sourced framework for interoperability. Finally, the limitations of interoperability will be assessed.

Online Messaging Platforms

Before a market can be regulated, it must first be defined. This section sets the boundaries for what is considered the online messaging platform market, and its two submarkets: enterprise messaging and personal messaging. Then, it assesses the disconnect between the distribution of market share and the approval ratings of the market’s dominant firms. In doing so, it becomes clear that the online messaging market is overly concentrated, posing harms to consumers, and would benefit from greater competition.

While social media platforms are multi-faceted and are comprised of varying features, a core component are direct, real-time, private messages. While “TikToks” and “Tweets” have substantially different content parameters and interaction functionality, direct messages are structurally similar across platforms, making them a particularly attractive case for interoperability. This article defines the relevant market as any online platform that has functionality for direct, private messages for general use. This includes firms like Facebook’s Messenger, WhatsApp and Instagram, as well as Twitter, Snapchat, TikTok, Telegram, Signal, WeChat and others. Furthermore, we can distinguish between messaging platforms used by enterprises, like Slack and Microsoft Teams, from the personal messaging platforms listed above. Platforms like Etsy or Airbnb, however, would be excluded from this market definition despite offering a message service as their messaging services are purely a means for facilitating transactions and not for general communication purposes. As will be discussed in the following section, these submarkets show different dynamics.

While individuals may substitute TikTok’s messaging service for Facebook Messenger, they would not be able to for a platform like Airbnb – highlighting the importance of this market distinction. Additionally, it may be the case that individuals use enterprise messaging platforms for personal use, and personal messaging platforms in their private lives. While this is possible they are not equivalent. Enterprise platforms generally first require defining the organizational network before invited users can message one another. Conversely, creating an account on a personal messaging platform allows the user to message all users on the platform, provided they know the user handle and have user-specific permissions to do so. Additionally, enterprise and personal messaging platforms are explicitly marketed as such, regardless of how users may use them. In order to avoid a “one-size-fits-all” approach to regulation, this article will predominantly focus on personal messaging platforms.

Low fixed costs and little physical infrastructure mean that there are few barriers to entry in this market. And while there are multiple firms that offer messaging services, the distribution of market share is grossly uneven. Globally, Facebook’s core platforms – WhatsApp, Messenger and Instagram – are used by 2 billion, 1.3 billion, and 1.1 billion users each month respectively (Kemp, 2020). In the United Kingdom, this translates to 81% of adults using WhatsApp and 75% using Messenger, with the next largest share being held by Snapchat, which is only used by 25% of adults (Statista, 2020). Among all social media firms, most of which would also fall under the above market definition, Facebook has a market share of 61% in the US, followed by Pinterest capturing 20% (Statista, 2021). However, despite such a large and stable market share, approval of Facebook’s approach to privacy and business practices have steadily been dropping. 47% of American adults think that the government should increase the regulation of major technology companies, and 72% of American adults feel that these firms have too much power and influence (Pew Research Centre, 2020).

While it may seem rational for users to switch platforms if they are not satisfied with the product, this has not been the case. As will be discussed presently, network effects lock users into the dominant platform of the day. The consequence is that users have to make the Faustian trade-off between communicating with others, and engaging with platforms they distrust and dislike. Thus, from a consumer welfare point of view, more viable entrants into the market would likely be beneficial, but doing so requires addressing the underlying market dynamics that lead to oligopoly.

Interoperability and Network Effects

This section will make clear how online messaging platforms demonstrate network effects, how interoperability addresses network effects in the market, how this would encourage firms to compete within the messaging platform market, rather than for the market, and draw on the historical analogy of the telecommunications industry.

A product demonstrates network effects if its utility is, in part, a function of how many others use it. These are common in various industries, but are especially relevant for firms that parlay in communication technologies. Online messaging platforms, as currently conceived, exhibit strong network effects. As more users join these platforms the intersection of people they might like to communicate with, and people they can communicate with, grows. This differs in the case of enterprise messaging platforms, like Slack, which demonstrate indirect network effects at the firm level. Indirect network effects arise if “adoption is complementary because of its effect on the market.” (Klemperer, 2006). If a firm uses Slack as their messaging platform, then everyone within the relevant network (i.e. all the employees) would be able to communicate. However, platforms like Slack allow for third party plugins, a complementary good that increases the utility of the product. Evidently, one would be more likely to develop plugins for a widely used platform, or rather, be unlikely to for a platform that no firms use. Given this important difference, the enterprise messaging market would likely need different remedies than the personal messaging market. Since personal messaging platforms plainly rely on others using them to be useful, and thus exhibit direct network effects, they will be the core focus of the proposed regulations.

Markets that exhibit strong network effects tend to benefit early-entrants and large, recognizable firms (Katz & Shapiro, 1994, p. 107). They also have the potential to reduce innovation as network effects create inertia that newer, more-innovative firms, must overcome (Katz & Shapiro, 1994, p. 108). This, in part, could explain Facebook’s dominant and stable share of the personal messaging market, despite sinking approval ratings and growing mistrust (Pew Research Centre, 2020). Demand-side economies of scale often imply that multiple systems will compete for market share until the market “tips” resulting in an oligopoly or monopoly market (Katz & Shapiro, 1994; Katz & Shapiro, 1985). While users often utilize multiple messaging platforms for different purposes, they are generally beholden to the largest ones. Otherwise, they would be severely limiting the pool of individuals they can communicate with (Graef, 2015).

While break-ups would reduce the market share of a firm like Facebook, they would fail to address the underlying structural forces that lead to oligopoly outcomes. Interoperability among messaging platforms would allow for individuals to message across platforms through a common communication protocol. Thus, the size of the messaging platform has no effect on one’s ability to message others, as all firms are operating on a common protocol. In essence, the demand-side economies of scale are accrued at the protocol level, rather than the level of the firm. As Katz and Shapiro note, “the central feature of the market that determines the scope of the relevant network is whether the products of different firms may be used together.” (1985). With interoperability, the relevant network would expand to all firms that provide direct messaging services. This raises the gross consumption benefits enjoyed by consumers, as fragmented networks are reconciled and individuals are able to communicate with those they previously could not (Katz & Shapiro, 1995, p. 109). Firms then would no longer be able to “rest on their laurels” and instead innovate, reduce costs, or differentiate along other axes (Shelanski, 2012). This would eliminate the dynamic where individuals dislike a firm, and would prefer to not navigate between multiple messaging services, but are obligated to multi-home in order to communicate with others.

Geroski defines competition within a market as competition between firms who operate on the same standard. This is contrasted with competition for a market as competition between standards (2003, p. 153). Standards enable other firms to develop complementary goods to interface with. With technology firms, this is generally done through application programming interfaces (APIs). Facebook, for example, offers a software development kit for its messaging app, Facebook Messenger. Standards allow for economies of scale, network effects and introduce norms and best practices into a market (Geroski, 2003). While multiple standards can exist within a market, Geroski argues that this is often temporary and that competition for a market often leads to entrenched, dominant firms (2003, p. 156; Shelanski, 2012). Within this framing, enforcing interoperability through a common communication protocol standard would situate competition between online messaging platforms within a common market, rather than for the market itself. Setting a common standard, with associated norms and best practices, could introduce a more robust communication network with clear benchmarks for privacy, latency, and security that all firms would adhere to. As will be discussed presently, this form of interoperability accrued large benefits in telecommunications and serves as a useful analogy for online messaging platforms.

Historical Analogy: Telecommunications

An example of where interoperability has had success in a similar market is the telecommunications industry. In the European Union, it was mandated that telecommunication networks must interoperate to allow calls across different phone providers (Graef, 2015). This regulatory framework states that “it is necessary to ensure adequate interconnection within the Community of certain networks and interoperability of services essential for the social and economic well-being of Community users” (Recital 5, Directive 97/33, 1997). At the turn of the century, telephones were the dominant means of personal communication – and would clearly be considered essential in emergencies and in daily life. As a result, the fragmentation of telecommunication networks was considered socially undesirable – with the remedy being to increase competition by addressing the direct network effects that lead to oligopic outcomes.

While it is true that there are many communication alternatives to personal messaging platforms, this does not imply that they are non-essential for the social and economic well-being of community users. The importance of social media platforms and their messaging counterparts are most salient during natural disasters (Carly et al., 2016), riots (McCreadie, Macdonald & Ounis, 2015), and domestic terrorist attacks (Huang et al., 2015). In all of these cases, social media and personal messaging platforms are widely used and relied upon to spread information beyond an individual’s personal network. Similarly, the dominance of messaging platforms in everyday life is indicative of their broader societal importance (Statista, 2020).

While the case of the telecommunications industry shows that interoperability can be enforced for its societal benefit, Microsoft v. Commission demonstrates precedence for interoperability as a competition issue (Microsoft, 2004). Here, the European Commission found that “Microsoft abused its dominant position in the market for client PC operating systems by denying to share interoperability information with competitors” (Graef, 2015). The relationship between abuse of market power and the social and economic well-being of the communities’ social media firms serve are necessarily intertwined. As the share of communication that takes place online continues to be swallowed up by a small number of firms, it would be wise to ensure that communities are not fragmented. While it is true that there exist alternatives, regulation ought to meet communities where they are. A lack of interoperability can lock-in individuals and groups to segregated messaging platforms which can be addressed through regulation.

Competition Policy and Regulation

While this article has argued for the regulation of the personal messaging platform market, another often cited remedy is to use competition policy to enforce structural break-ups of firms. This takes place on an ex post basis after anti-competitive behaviour has occurred, where as regulation occurs on an ex anti basis to prevent harmful conduct from occurring in the first place. In doing so, a firm like Facebook which operates multiple platforms under our market definition – Messenger, Instagram and WhatsApp – would be spun off into separate firms. While far from mutually exclusive, structural break ups at their core do not address the network effects that lead to oligopoly outcomes and are less likely to be effective. Thus, the emphasis out to be on addressing the underlying market dynamics to allow for more entrants to the market.

As noted above, structural break ups would break large firms like Facebook in to multiple, smaller messaging platforms. While initially reducing the market share of Facebook, this is unlikely to be a long-term remedy to the lack of competition in this specific market. As Frank notes, this may be because social media users largely avoid multi-homing that is necessary to sustain competition (2020). Thus breaking up large messaging platforms is unlikely to fundamentally alter the market’s nature, leaving it equally likely to tip in the future. That being said – the anti-competitive, or ‘killer’ acquisitions of Instagram and WhatsApp by Facebook are attracting retrospective scrutiny by the US and EU (Holmström et al., 2018). Therefore, there may exist other reasons for the structural break up of large technology firms, even if such action is unlikely to alter the underlying market dynamics.

Open-Sourced Interoperability

While standards allow for economies of scale and reduced barriers to entry in the market, they are not a panacea. It could be the case that once a standard is formed it would become integrated such that it is hard to modify if needed (Geroski, 2003). The fear, then, is that artificially dictating a standard communication protocol may reduce the ability for newer, more innovative standards to be introduced (Katz & Shapiro, 1994, p. 108). While this is a concern, the growing disapproval of today’s dominant messaging platforms suggest that there is room for innovation along a host of other axes. Entrants to the messaging market with new values, privacy policies, security features, business models, tools and price points are much needed forms of innovation beyond the mechanics of how a message gets from one user to the other. However, the fear of entrenched standards does point to the need for thoughtfulness and technical expertise when introducing interoperability, which could be addressed through an open-sourced framework.

One way in which interoperability can be achieved without entrenching a communication protocol would be to introduce interoperability standards through an open-sourced framework. There is a strong tradition of open-source software and standards in the technology industry. Open-sourced technology makes the standards or source code publicly available – and, in the case of software, allows individuals or organizations to take the source code (called cloning the repository), make changes, and then request that they be integrated with the original repository (called a “pull request”) (Lundell et al., 2017). That request can be inspected and verified by trusted contributors before being accepted. Open-source technology is largely the mechanism that has allowed different hardware architectures to run different operating systems, which execute snippets of code written in hundreds of different programming languages, all without a strong central overseeing body (Bissyandé et al., 2013). An open-source approach to interoperability would have two core benefits then: it would allow for standards that evolve alongside technological innovation, and it would allow for secondary markets to develop complementary goods for messaging platforms.

First, an open-sourced interoperability introduces dynamism to the proposed standards. Given the rapid pace of technological innovation, an open-sourced standard gives innovators the ability to adapt standards as needed, with trusted contributors ensuring backwards compatibility (Almeida, Oliveira, & Cruz, 2011). In addition, major technology companies have a history of “open sourcing” important frameworks and tools – as is the case with Facebook’s web development framework React or Google’s machine learning library Tensorflow. The majority of technology companies rely on and make use of open-sourced standards and protocols as well, like HTTP (Almeida, Oliveira, & Cruz, 2011). The plethora of open-source technologies save firms millions of dollars every year in infrastructure and communication costs (Almeida, Oliveira & Cruz, 2011). While firms are not able to directly profit off of open-source software, which could reduce incentives to innovate, it is common to certify compliance of standards for a fee (Almeida, Oliveira & Cruz, 2011). For example, an open-source communication protocol may have varying degrees of security depending on the use case. Firms that introduce a secure, encrypted version of the protocol could then charge a certification fee if another platform would like to verify and advertise their correct, secure implementation. Therefore, in addition to reducing barriers to entry and friction through common, transparent standards – an open-source approach to interoperability would not stagnate innovation, allowing innovators to build upon a common foundation.

Second, open and flexible standards allow for the development of complementary goods. These plugins are already common among various personal messaging platforms, but as of now each complementary good is platform-specific and often needs to be redeveloped for a new platform. Reconciling fragmented communication networks with a standard communication protocol would have the added benefit of reconciling the market for these complementary goods. This represents an indirect network effect in the personal messaging market. As the number of users communicating through this protocol increases, the incentive to develop these useful complementary goods does as well.

Limitations

While interoperability is likely to address the persistent network effects that have resulted in a small number of messaging platforms dominating the market, questions still remain. Briefly, this section will discuss how a standard protocol may be set, whether increased competition may discourage investment in the messaging platform market, concerns over data usage, and the global nature of today’s technology firms.

First, given that large firms have little incentive to interoperate, it is likely that regulators would have to play a substantial role (Katz and Shapiro, 1985). However, as Graef notes, there exists a precedent for enforcing interoperability in the European telecommunications market in 1998 (Graef, 2015). Additionally, technology firms frequently introduced procedures for interoperability. These are generally standardized APIs that allow advertisers to programmatically buy and target ads or post organic content, but are indicative of the technological feasibility of interoperability. As discussed earlier, an open-source approach to interoperability has been massively successful in other software projects, like operating systems, and is well within the reach of today’s technology firms. Thus, this does not indicate a radical departure in government oversight, but rather a logical extension of regulation in response to advances in communication technologies.

Additionally, enforcing interoperability between messaging platforms could discourage investment in the market. As discussed earlier, one way to make a communication protocol standard would be through open-source technology. However, a key tenant of the open-source framework is that contributors are not able to directly profit off of their contributions to the code base. If firms are not able to profit off of their innovations then this could discourage the implementation of the standard and instead may lead to firms adopting wholly different technologies. However, the vibrancy of open-source software over the past 40 years suggests that this is not an insurmountable hurdle, and can be overcome through strong norms. Additionally, the ability to charge certification fees partly remedies firms’ inability to profit off of their innovations.

Interoperability in the personal messaging platform market allows for communication between platforms. This, in many ways, is similar to communication between telecommunication providers. However, in the case of messaging platforms there exist greater concerns over the usage of data between an individual, and messaging platforms’ that individual is not a part of. This is because if an individual is a user of messaging platform A, and sends a message to someone using messaging platform B – the data containing that message is retained by both firms A and B. As Graef notes, this represents a legal relationship between individuals and third party providers which is not well delineated (2015). This is distinct from the relationship between an individual and a third party telecommunication’s firm, where there only exists a legal relationship between the two for the duration of the call (Graef, 2015). Yet, such is also the case for other forms of digital communication like email, which could potentially serve as a framework for interoperating messaging platforms.

Finally, while this article does not specify a specific jurisdiction that these policy proposals may be enacted in, geographic considerations are still relevant. Most major messaging firms are global in scope, and thus may pose extra-territorial issues. Drawing on the EU’s General Data Protection Regulation (GDPR), Article 3(1) states that the regulation applies to firms operating in the EU ‘whether the processing takes place in the Union or not.’ When enforcing interoperability, similar provisions would likely be necessary as otherwise firms would have large incentives to avoid regulation by establishing themselves outside the jurisdiction of interest.

Conclusion

If it is decided that government ought to intervene in an uncompetitive market, the regulatory path must address the underlying dynamics that lead to such outcomes. In the case of online messaging platforms, network effects and switching costs are structural forces that have entrenched firms that the public dislikes and distrusts with few viable alternatives. This is particularly noticeable given the few barriers to entry relative to other oligopoly markets like energy or telecommunications. After scoping the market, this article argued that an open-sourced approach interoperability would mitigate these structural forces by allowing users to move freely between platforms. A common standard would shift the network effects from the firm to the underling protocol, allowing for newer, innovative firms to enter the market and enforce norms and best practices, leading to a more robust communication network. After discussing precedent for such actions in the communications sector, these regulations were contrasted with structural break-ups as a mechanism for introducing competition into the market. While not mutually exclusive, ultimately, breaking up a firm does not address these market dynamics, leaving the market just as likely to tip. This offers a clear path forward for policy makers and presents a more nuanced, precise tool rooted in an understanding of market dynamics relative to the bluntness of structural break-ups.

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