Business

TECH LAB

Can Facebook or Google be regulated?

JOHN MCCAIN: The Arizona senator favors regulating online political advertising.
ANN HEISENFELT/ap
John McCain favors regulating online political advertising.

The frontier era of the Internet appears to be coming to a close at last, thanks in part to a wily veteran of the KGB.

By spreading fake new stories and purchasing a few hundred thousand bucks of ads through online giants Facebook and Google, Russian president Vladimir Putin not only undermined the credibility of a bitter US election. He also made it easier to think the once-unthinkable — that the Internet needs the federal government to keep itself honest.

A coalition of senators including Democrats Amy Klobuchar of Minnesota and Mark Warner of Virginia and Republican John McCain of Arizona proposed new legislation that would monitor Internet political advertising in much the same way TV ads are tracked. The Honest Ads Act is a relatively modest bill, but it comes 11 years after the Federal Election Commission rejected virtually all regulation of political campaign ads on the Internet. How times have changed.

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It’s the latest bid to regulate the online giants similar to the way old-economy titans of steel, oil, and railroading were reined in by federal law in the 20th century. For years, politicians rightly worried about stunting the newborn Internet with government mandates. But now that Facebook and Google are wealthier than many entire countries, politicians from the left and right are singing a different tune.

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“There is an emerging feeling in the country, especially among our leaders, that these companies have too much power,” said Nicco Mele, director of the Shorenstein Center at Harvard University’s Kennedy School. And so the backlash begins.

One bill would force Internet companies to shut down sex-trafficking ads. Another would require them to get explicit permission before collecting or selling our personal information, which could undermine the core business model of Facebook and Google.

Some critics, like President Donald Trump’s former chief adviser Steve Bannon, have called for regulating Facebook and Google as public utilities, like the old Bell telephone companies. Others want to use antitrust laws to impose strict limits on their business practices — the same fate that befell mighty Microsoft Corp. in the early 2000s. The European Union pointed the way earlier this year when it fined Google $2.7 billion and demanded a halt to advertising practices the EU deemed unfair.

Others, such as Minnesota Representative Keith Ellison, deputy chairman of the Democratic National Committee, favor a government-ordered breakup of these titans.

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Still, nobody has devised a unified strategy, mainly because tech companies are so different from the giant firms of old that it’s not clear how to regulate them.

Bala Iyer, a Babson College dean, recently coauthored an article on the problem for the Harvard Business Review. “I’m not a big fan of these regulation armies that people are proposing,” said Iyer. “How can you regulate something that you don’t understand?”

Traditional antitrust thinking focuses on a company’s share of revenue-generating markets. For instance, Google has a near-monopoly on Internet search advertising and Facebook dominates in social networking.

But to Iyer, what really matters are these companies’ immense stockpiles of personal data about billions of people. The sheer volume of this information gives Google and Facebook their unprecedented power.

“Follow the data,” said Iyer. “Make sure they don’t use the data in a manner that advantages only them.”

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One way: Whenever Facebook or Google acquire new businesses that collect data about users, they should face restrictions on how they use the data. For example, the Justice Department could have prevented Google from pooling its data with WhatsApp when it acquired the messaging service in 2014 for $19 billion. That would have reduced WhatsApp’s information advantage over competitors.

Though less intrusive than others, Iyer’s proposal is still well beyond where we were just a a few years ago. Applying a light touch to the Internet has paid off handsomely for the US, and I hate to see the Feds increasing the pressure. But when it’s a choice between the US Congress or Russian intelligence, that seems an easy call.

Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.