BEIJING — Only in China could there already be a Museum of Internet Finance. Though most Americans have barely adopted the term “Fintech,” online banking is already old hat in Beijing. On Thursday I toured the museum with its founder, Wang Wei, who delighted in showing me exhibits like a bitcoin ATM. The cryptocurrency is just eight years old. In today’s China, that’s ancient enough to belong in a glass display case.
Sometime soon, Europe needs a similarly designed Museum of Political Idiocy. In its glass cases I would like to exhibit stuffed specimens of the politicians who have so completely failed to understand the implications of the information technology revolution.
There are three essential points to grasp about the IT revolution. The first is that it was almost entirely a US-based achievement, albeit with contributions from computer scientists who came to Silicon Valley from all over the world, and Asian manufacturers who drove down the costs of hardware.
The big breakthroughs in software that made mass personal computing possible were made in America — think Microsoft and Apple. The Internet, too, was made in America. Online retail was made by Amazon, founded in 1994 in Seattle. Online search based on PageRank: made by Google, founded in 1996, originally housed in a garage in Menlo Park, Calif. Online social networking: made by Facebook, founded in 2004 at Harvard. YouTube (2005), Twitter (2006), the iPhone (2007), Uber (2009), Snapchat (2011). . . . You get the idea.
Point two: The most important of these companies are now mind-blowingly dominant. In Facebook’s Little Red Book, written to indoctrinate (sorry, train) new employees, it is written: “The quick shall inherit the earth.” Mark Zuckerberg has certainly inherited quite a chunk of this planet. His social network now has 1.17 billion active daily users, or 1.79 billion if you count those who use it at least once a month. In the United States, 82 percent of adults aged 18 to 29 use Facebook, along with 79 percent of those aged between 30 and 49.
Google and Facebook are predicted to increase their combined share of all digital advertising this year to 60 percent. Google has 78 percent of US search advertising. Facebook has nearly two-fifths of online display advertising.
Third point: This dominance translates into crazy money. Facebook will make $16 billion from display advertising this year. The business is valued today at around $400 billion, including a $30 billion cash pile. That equips Zuckerberg to buy up pretty much whatever comes along that he likes the look of — Instagram, for example.
It is, when you think about it, an amazing state of affairs. Consider the functions these companies perform. Google is essentially a vast global library. It’s where we go to look things up. Amazon is a vast global bazaar, where more and more of us go to shop. And Facebook is a vast global club. The various networking functions these companies perform are not new; it’s just that technology has made the networks both enormous and very fast. The more interesting difference, however, is that, in the past, libraries and social clubs did not make money from advertising. They were nonprofits, funded out of donations or subscriptions or taxes.
In other words, the truly revolutionary fact is that our global library and our global club are both making money from advertising, and that the more we tell them about ourselves, the more effective the advertising becomes, sending us off to Jeff Bezos’s bazaar with increasing frequency. Not for nothing is the investor’s acronym for Facebook, Amazon, Netflix, and Google FANG. These guys really have got their teeth into us.
Confronted with this American network revolution, the rest of the world had two options: (a) capitulate, or (b) compete. The Europeans chose the former. You will look in vain for a European search engine, a European online retailer, a European social network. The FANG has been well and truly sunk into the EU.
The Chinese, by contrast, opted to compete. By fair means and foul, they made life difficult for the Americans. And they encouraged their own entrepreneurs to build businesses that now rival the giants of Silicon Valley. The acronym of the moment in Beijing is BAT: Baidu (the search engine), Alibaba (Jack Ma’s answer to Amazon), and Tencent (which is the nearest thing to Facebook). These companies are much more than clones of their US counterparts; each has shown itself to be innovative in its own right. A good example is Tencent’s ubiquitous messaging app WeChat, which is fast replacing the once mandatory Asian business card with easy-to-snap QR codes.
Needless to say, Silicon Valley gnashes its fangs at being shut out of the vast Chinese market. But I have to say I admire how China took on Silicon Valley and won. It was not only smart economically; it was smart politically and strategically, too. In Beijing, Big Brother now has the big data he needs to keep very close tabs on Chinese netizens. And good luck to the US National Security Agency as it tries to get through the Great Firewall of China.
Museums are where history’s victors display their trophies. What I learned this week is that China may be winning the latest battle in the IT wars — the battle to take money itself online. And if you don’t believe me, I’ll bet you one bitcoin — or $1,133, if you only accept old money.
Niall Ferguson is a senior fellow of the Hoover Institution at Stanford University.