The Data Economy: The True Cost of the GAFAMs

"It's free and always will be.” For over a decade, this slogan greeted Facebook users — projecting the idea that somehow, the social media platform was globally accessible at no cost to the consumer. The real question is, how does one build an $858 billion corporation without charging users? 

In truth, the business model that allows for such massive valuations remains opaque. With a revenue structure based on advertisement sales across its different platforms, Facebook —like many of its fellow GAFAM (Google, Apple, Facebook, Amazon, Microsoft) members — generates revenue in large part by collecting user data and leveraging it to sell targeted ads. In Q3 2020, Facebook reported 10 million active advertisers on its platform. These are the social media giant’s real customers, and user data is what is being monetized. In other words, users are the resource, and the digital giants are mining corporations extracting a precious mineral: their data. Nonetheless, if individuals offer their consent through the use of these platforms, what might the issue be? The heart of the problem lies within questions of property rights, and the profound impact that the extraction and exploitation of user data have on society at large. Having legislation that acknowledges private ownership of data calls for ample safeguards and taxation mechanisms on those who currently exploit it.

During the fourth quarter of 2020, Facebook’s average revenue per user reached $10.14 USD, up from $4.23 in Q1 2017. The Canadian market — with its 25.19 million users (2020) — would represent a potential pool of revenue worth well over $255 million USD in Q4 2020 solely for Facebook’s flagship service. Across all its Canadian operations (Facebook also owns platforms Instagram and WhatsApp, among others), Université du Québec à Montréal professor Jean-Hugues Roy reported that Facebook inc. had generated $924 million USD in revenue for the first two quarters of 2020 alone. Were Facebook a Canadian firm, there would be no way around paying its fair share of taxes — however, that is not the case. Of the social media giant’s astronomical revenues, virtually nothing made its way into the coffers of the Canadian Revenue Agency. Similar scenarios unfold across several other GAFAM platforms, notably Google. Returning to the analogy of mining corporations, these firms are mining Canadian resources, generating tremendous amounts of revenue only to escape paying their due share of taxes on Canadian soil. To that end, many now argue that data is the new oil, with a 2017 headline from The Economist, “The world’s most valuable resource is no longer oil, but data”, sending shockwaves around the globe. The issue of data mining, however, goes beyond taxation.

As argued in a previous article on our national telecommunications industry, Canada has an oligopoly problem. From telecoms to Big Tech, massive players dominating their respective industries harm consumers in the long run. Only a handful of firms command the world of online information, and the ad revenues generated, stifling income for the news media and harming the plurality of the media landscape. The case of Australia’s plight with Facebook highlights the difficulties governments will face in attempting to impose compensation mechanisms onto the GAFAMs, companies who profit off the publication of news content on their platforms but refuse to give credit where credit is due.  This saga highlighted major differences in attitude between the internet giants, with Google quickly accepting to negotiate compensation schemes with Australian media organizations while Facebook opted for a standoff. The social network suspended all Australian news publications on its platform for several days, before backtracking and following in Google’s footsteps. It is now clearer than ever that the ongoing journalism crisis represents a threat to democracy itself; it alone justifies the need for stronger legislation.

 Faced with the threat of the GAFAMs extractive practices, several potential solutions present themselves. Under a traditional taxation scheme, Big Tech would see the profits their assets generate off of Canadian users imposed by revenue agencies. The Canadian Parliamentary Budget Office estimates that this would generate upwards of  $800 million CAD in yearly taxation revenue. However, should Canada act as a trailblazer and recognize personal data as a modern-day natural resource owned by individuals, the federal revenue agency and provinces alike could levy royalties on their constituents’ mined data. Implementing these policy changes would also imply greater accountability in terms of how consumer data is handled. The Cambridge Analytica scandal embodies in part what we risk by overlooking the need for appropriate legislative safeguards. Furthermore, government-mandated compensation mechanisms negotiated between the media and the platforms benefitting from their published content would offer much-needed support to the lifeblood of democracy. Governments should use the Australian example as a template to inspire policies as well as to learn from the difficulties they faced in implementing their own.

Allowing mining corporations to extract natural resources without any safeguards or royalties would be political suicide in 2021 — why tolerate this happening online? It’s time for Canada’s legislation and taxation system to reflect the complex realities of the 21st-century economy. This begins by seeing our data for what it is — a precious resource with political ramifications, pillaged for far too long.