Why digital empires are here to stay

Amazon once again beat analysts’ revenue forecasts as it announced its latest quarterly results. Over $600bn-worth of goods passed through its online market last year - more than most countries’ entire gross domestic product. It collected far more money in marketplace and logistics infrastructure fees than most governments earn as taxes. Apple, Google, and Microsoft likewise further entrenched their positions.

How did we end up here? According to internet visionaries and Silicon Valley technologists, the internet was supposed to free us from powerful institutions. It was supposed to cut out the middlemen and overcome the gatekeepers - to make states obsolete and supersede gigantic corporations. This is what we were promised. And for a while, publishers celebrated how Amazon freed them from bricks-and-mortar gatekeepers like Barnes & Noble.

But then Amazon started turning the screws on its publishers and third-party merchants. “Amazon is really predatory towards successful third-party sellers,” one merchant recently summed up the situation on an Amazon sellers’ forum. Small businesses and consumers realised that the internet platforms themselves had become the new gatekeepers - and that these new gatekeepers were vastly more powerful than the previous ones.

Why was the internet’s promise betrayed? The most straightforward explanation is that all that talk about technology as a means to liberation was always just a ruse. “Jeff [Bezos] is good at making it sound as if he’s baring his soul, that he’s telling you what’s really going on… but this is still all part of the big plan,” said Amazon’s second employee in late 1990s, according to journalist Robert Spector. According to this explanation, the real objective of the digital revolution was always just domination and disenfranchisement. “Competition is for losers,” said PayPal founder and Facebook investor Peter Thiel in the Wall Street Journal in 2014.

But while Bezos and Thiel may have had domination in mind from the start, other early founders genuinely wanted to use technology to liberate people from hierarchy. Ebay founder Pierre Omidyar tried very hard to create an economy on the internet that was underpinned by community instead of central authority. He failed: one seller interviewed by researcher Corentin Curchod and colleagues recently described the site as “Siberia… You do as you’re told or [Ebay’s administrators] beat you hard.”

Cyber libertarians like Omidyar thought that informal social norms would be enough to keep people honest in their dealings with others. But such informal order broke down quickly when sites like Ebay and Amazon grew from tiny communities to megacities with millions of market- goers. Fraudsters hiding among the crowds preyed on traders, and the market came close to unravelling. Begrudgingly, Omidyar assumed the role of the central authority that he had tried to make obsolete and began policing participants - allowing his market to grow to unprecedented riches.

Today, the internet is dominated by Ebay, Amazon and other digital giants for the same reason that the real world is dominated by such centralised institutions: they are capable of providing order and security at scale. Alternative forms of social order - anarchic communities, self-organising networks - remain on the internet economy’s fringes for the same reason as they remain on the fringes elsewhere. Computer-mediated communities are subject to the same problems of social order that trouble all human societies. It stands to reason that the solutions will be similar.

Just as the centralised state has proved to be a resilient form of social order, so digital institutions like Amazon are likely to retain their position in the internet economy. As with states, the real challenge is how to ensure that these institutions serve the interests of their members.

Vili Lehdonvirta is professor of economic sociology and digital social research at the Oxford Internet Institute at the University of Oxford, and author of ‘Cloud Empires: How Digital Platforms Are Overtaking the State and How We Can Regain Control’, published by The MIT Press.