long . lines and ripples

Accounting for the Middleman in the Pandemic

Early in the 2020 Coronavirus Pandemic, it became clear that the major American technology companies (most of the so-called "FAANG") were going to do OK. Most faced little to no interruption in their business model, and some saw a huge uptick in use of their systems. A few ascendant companies like Zoom became big hits. Most technology became more essential than it was before. As the in-person option for much of daily life disappeared, the tech giants managed to insert themselves in our daily activities with new persistence. They became middlemen like no other middleman in history.

As the most successful tech companies are rewarded with practically endless streams of cash from their position in the middle, I can't help but think that this windfall is also due to a collective failure to account for just how valuable the middleman position is. There must be some design flaw in American markets, a blind spot in American regulation, an attribution error in American thinking-that leads these technology companies to take so many rewards for their middleman position.

Problems:

  1. The middleman lives off of a torrent of small transaction fees that become, in aggregate, gigantic. Because these companies are in a position to see and track the entire chain of a transaction (i.e., seller to customer, product discovery to purchase, purchase to delivery), there are innumerable opportunities for them to extract fees along the way. We're not doing a good enough job asking whether a market that allows one actor to demand a cut of so many transactions is actually fair. If, no matter how little you charge, the aggregate is still a lot, maybe a cut of transactions is the wrong model, and needs to regulated further. More work needs to be done comparing current online markets to transaction models and middleman structures of eras past.
  2. Being in the middle has other benefits that monetize over the longer term. We need a more complete picture of these. If you want to build a record of a transaction, or generate comprehensive data about a group of people, the middle is where you want to be. The middle generates the most data. The modern internet is built on the premise that data is so valuable, you can afford not to charge the part of your market that generates it-e.g., Facebook's users. These days, companies want data so badly that they are willing to capture it before they know what to do with it. A more complete accounting of the other benefits of being in the middle would help us understand whether these are traditional private actors at all, or something more like unrecognized utilities.
  3. The middle is not just a facilitator, it is (or threatens to become) the thing itself. In a sense, the fee, and even the data, are just a part of what these tech companies are now. The bigger problem is they become the stand-in for all sorts of activities, goods and services that benefit very little from their business model. When a service goes online, it doesn't necessarily continue to exist in the same way that it did before. The online correlate is what people see even while it represents and is supported by real-life activity (e.g., manufacturing, logistics, research). The digital makes it harder to touch what's behind the scenes, so it becomes easier to overvalue the digital part of the experience-and pay those people-at the expense of everyone else. We need better illustrations of how this works, so that we can see how the reward of being a middleman is as much a fact of how we perceive value, as it is a factor of more basic and grounded economic processes like scarcity or demand.