Now Reading:
Facebook is an Example of How Private Regulations Work
Full Article 7 minutes read

Facebook is an Example of How Private Regulations Work

Facebook isn’t a regulatory agency, right?

So why is Facebook the answer to private regulations? What do they have in common with private regulatory companies?

It all comes down to one question about private regulations.

Why would companies voluntarily subject themselves to regulations?

It’s a real problem that needs to be addressed. If the incentive to self-regulate doesn’t exist, self-regulation falls to the wayside.

It’s all voluntary. No government fines needed.

No bureaucracy needed. Which usually slows down the process anyway, not to mention raises costs.

I won’t get into the nitty-gritty of private regulatory benefits (if you have any questions about it just leave a comment below or tweet me), but needless to say the benefits are pretty legit.

But back to our main question; why would companies subject themselves to private regulations?

It’s simple.

Private regulatory companies would have to take a page out of Facebook’s rise to internet dominance.

They’d have to become indispensable.

How Did Facebook Become so Integral to Our Online Lives?

Facebook is everywhere. You can sign into a host of profiles, websites, and tools with your Facebook account.

Websites even replace their comment systems with Facebook comments.

A lot of communication is done through Facebook’s messaging app.

It’s uncouth to not have a Facebook account. I say I don’t have a Facebook and it’s followed with gasps and odd looks.

It’s socially weird to not have a Facebook.

How did Facebook get so much social market share? How did they become such a big part of our lives?

They provided something of value. Then leveraged it into something they could incorporate into their users’ everyday lives.

Facebook is more than a social network. It’s a globally recognized connection tool. It connects people to people, and people to businesses.

This is what private regulations do. They become integral. They’re relied on thanks to the value they provide.

How do Private Regulatory Companies Become Integral?

How do they take a page from Facebook’s book?

Facebook relies on the value of connection, right? The more users they have, the more valuable their connection is. The more websites that offer Facebook logins and comments, the more valuable their platform is.

For private regulatory companies, their value comes from trust. That trust comes from how effectively they review new products, and how well those ratings live up to reality.

The more companies they “regulate” the more valuable their trust is. The more products that live up to their ratings, the more valuable their trust is.

Just like Facebook, private regulatory companies have to interact with both people and businesses.

If the regulations aren’t valued by consumers, they lose trust. If their guidelines and procedures aren’t tailored for specific industries, they lose trust from businesses.

Regulatory companies have to provide value to both consumers and businesses. They do it by offering reliable tests, procedures, and ratings.

A good track record of keeping consumers safe (and taking care of harmful products) is key to a successful private regulatory company.

So, all we need to do to make sure private regulations gain market traction is to let them enter the market and build trust.

Being Integral Means You can’t be Ignored

Facebook is no longer a college specific network. It’s worldwide. It can no longer be ignored.

Integral = recognized

Once a private regulatory company hits critical mass (i.e. is widely used and trusted), they become difficult to ignore.

Consumers use and trust their ratings. Companies trust that their testing is fast and reliable. More and more companies will find it hard to refuse their service.

If you want more social shares, install the Facebook share button. If you want your brand to be trusted, get your products tested by private regulations.

Once you’re company has proven that it can fairly and effectively regulate a market, you start to grow. Your growth needs to hit critical mass before it can be integral.

How do you become integral? You provide value to both consumers and companies. Which is what any private regulatory firm should be doing.

Being integral means holding up your part of the bargain. We’ll review your products to make sure they’re safe for consumers, and you’ll get brand approval (more consumers will buy your stuff because they trust our ratings).

Final Thoughts: Answering Any Questions

Private regulations are under-appreciated, not to mention mostly unknown by the public.

I have to remind people that private regulation exists. You just rarely see it.

Why?

Because it lurks behind the scenes. It’s not looking for fame or “funding” (cough cough government cough cough).

It has nothing to prove because it’s already accepted by businesses.

But that acceptance hasn’t moved into the public mind. Which is why I’m going to answer some basic questions about private regulations. Some of these were submitted by readers and friends. Others are just ones I’ve come across while talking to people.

Look through them, get your questions answered. If you have a question that isn’t there tweet me and I’ll answer it for you.

How Legitimate are Private Regulations? Pretty legit actually. Private regulations are accepted in many different markets (e.g. the tech world). Most regulation is private, and enforced via independent parties and trade associations. As I’ve mentioned before, these companies rely on trust. If they’re not trusted, they lose market power. Ultimately falling prey to competition.

Do Government Regulations Crowd Out Private Regulations (i.e. Crowding Out Effect)? I haven’t researched this subject much, but it would depend on the industry and how much government regulation there is. I can see it happening due to the involuntary aspect of government regulations and the excessive costs associated with them. Obviously, rolling back government regulation would incentivize private ones to take its place.

Are Private Regulations Unsafe? Private regulations are built on safety. Without safety, trust would be lost. Also, just because the government runs it doesn’t mean it’s safer. Private regulations comprise industry standards, product quality, warranties, consumer information, etc.

What About Bribes? There’s always the possibility for a private regulatory company to accept bribes. But this is where competition is so important. If consumers find out a company is accepting bribes to push products through, that company will lose its business. However, if consumers find out that the FDA is taking bribes to review drugs faster, nothing can be done. A regulation monopoly encourages bribery. It’s the only option a company has to legitimize their products. And if they want a fast review, they have no choice but to offer bribes.

Why would a company voluntarily regulate themselves? Brand approval is one thing. Having that sticker of approval from a trusted product review company can do wonders for your business. A lot of industries won’t deal with products if they haven’t been tested by the leading regulation company. There’s the benefit of saying “our product has undergone thorough testing to make sure it’s safe.” It’s all about trust.

Do Private Regulations Exist? A few examples of prominent private regulatory firms include, Underwriters Laboratories, Microsoft, American Dental Association (ADA), Green Seal, Kosher Food, and Good Housekeeping. Also, many internet ratings are private.

How Would Private Regulations Keep Companies in Line? This can be done with fines, publicity (telling consumers about unsafe products), or private sanctioning (like banning products from store shelves, etc).

In the end, private regulations exist. This isn’t some fantasy libertarian utopia. This is reality, people.

Input your search keywords and press Enter.