On May 15th, 1911, the United States Supreme Court ruled against Standard Oil Co. of New Jersey, a subsidiary of petroleum giant Standard Oil that had engaged in anticompetitive business practices to monopolize the country’s fossil fuel resources.
Using its authorization under the Sherman Antitrust Act, the court tore the company apart geographically, creating regional corporations that eventually competed against each other in true capitalistic fashion.
Fast forward one hundred years, and the biggest American oil firms still dominate the list of most valuable corporations in the country. New breakthroughs in fossil fuel extraction and the massive discovery in North Dakota have fueled domestic production. To top it off, the U.S. repealed its ban on fuel exports in December 2015, meaning the market for American fuel now stands without bounds. The first delivery of Bakken Light reached Asia at the end of April thanks to a Swiss energy trader.
But the same factors that made gargantuan oil companies bad for the U.S. economy – i.e., total control of infrastructure, price gouging, etc. – do not color our understanding of Big Data, a sector that’s on trend with advertising execs as “the new Big Oil.” This is partly because traditional anti-monopoly ideas do not affect data companies and their interactions with consumers in the same way. Related: Why Goldman Thinks You Should Go Long On Oil
Most data-driven companies – Facebook and Google, for a couple of quick examples – do not use their size to squeeze money out of their users. Key revenues come from other businesses who advertise their products and services to billions of people via the data company’s reach. In this way, users may end up spending more money unintendedly, but those funds go into the accounts of third parties, not Facebook or Google. Creating a profile or performing a quick search are both free services. In essence, the two companies are their own marketplaces, where other firms can invest their dollars on sponsored posts and social media campaigns in a fashion that mirrors touting a microphone or buying a flashy new sign in a physical rendition of the same space.
The value derived by the user from Facebook and Amazon also grows as corporate scope skyrockets. Amazon’s end goal since day one has been to develop the infrastructure for one-day or same-day shipping. This requires huge investments now, for big bucks in the future.
Similarly, Facebook users will only stay on Facebook until their friends continue to log on. If millennials check out - which they seem to be doing, opting for more intimate apps like SnapChat instead – then the future of the social media wing of FB looks precarious. But Mark Zuckerberg is smart; he has diversified the company into research and development for artificial intelligence and virtual reality technologies using data derived from his user base of billions. Related: OPEC Confident In U.S. Shale’s Lack Of Longevity
As the Internet of Things (IoT) takes over the world, new companies will set up their own data systems, meaning the ownership of a true monopoly over a nation or the world’s data will be nearly impossible. But having data from users all over the world has its own advantages in the cutthroat telecommunications world. Facebook purchased WhatsApp – a messaging company of just 60 employees - for a whopping $22 billion in 2014 because it leveraged usage data to spot a fierce future competitor that would cause a loss in active users that would cost way more to future FB operations than the modest buyout. It is just one of many examples of the quantity of data stifling competition.
Governmental trustbusters lag behind in their ability to regulate emerging industries, a fact that’s been as true in the industrial era, when steel and oil companies practiced “horizontal integration,” as it is in the internet era. Energy regulations are constantly under flux, but as a commodity industry, agents in the oil sector know how big they can get without arousing suspicion. I wonder if that will even happen for Big Data.
By Zainab Calcuttawala for Oilprice.com
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