Privacy International points GDPR finger at Facebook

An investigation from privacy advocacy group Privacy International on the flow of personal information has questioned whether Facebook and its advertisers are violating Europe’s GDPR.

To date there have not been any major challenges using the data privacy regulation. There have of course been numerous violations of user privacy, but as these incidents occurred prior to the implementation of GDPR, the old-version of the rules and punishments were used. This investigation from Privacy International could prove to be a landmark.

The investigation itself questions whether Facebook and the app-developers which use its platform for data collection and user identification is acting responsibly and legally. Using the Facebook Software Development Kit (SDK), data is automatically sent back to the social media giant, irrelevant as to whether consent has been collected, or even if the user has a Facebook book account.

“Facebook routinely tracks users, non-users and logged-out users outside its platform through Facebook Business Tools,” Privacy International states on its website.

“App developers share data with Facebook through the Facebook Software Development Kit (SDK), a set of software development tools that help developers build apps for a specific operating system. Using the free and open source software tool called ‘mitmproxy’, an interactive HTTPS proxy, Privacy International has analysed the data that a number of Android apps transmit to Facebook through the Facebook SDK.”

After testing dozens of different apps, Privacy International claims 61% automatically transfer data to Facebook the moment a user opens the app, while others routinely send Facebook data that is incredibly detailed. Some of these users may be logged out of the platform or might not even have a Facebook account in the first place. Developers tested include travel comparison app Kayak, job search company Indeed and crowd-sourced search service Yelp.

Looking at the Kayak example, not only was information transferred back to Facebook once the app was opened and closed, but also during each stage of the search process. In the example Privacy International gives, the user selected a flight from London Gatwick to Tokyo between December 2 and 5, Narita Airport was then selected, before another search was conducted searching for hotels for two adults in the city. All of this information was sent to Facebook without prompt, despite Kayak claiming, ‘don’t worry, we’ll never share anything without your permission’, when the user signs in.

Alone this information is useful, but not incredibly so. However, when you consider the huge number of apps which will be sending information back to Facebook, an incredibly detailed picture of the user can be built. Using the other apps tested in this investigation, Facebook could also learn or make assumptions about the user’s religion (Muslim Pro), music interests (Shazam), salary and disposable income (Indeed Job Search) and interest in physical activities (MyFitnessPal). All of this information could be used to feed incredibly personalised advertisements to the user.

The big question which remains is whether this could be perceived as a violation of GDPR. Facebook has stated it released an update to the SDK which allowed developers to suspend the automatic data transfers, though this was only for version 4.34 and later. With the Opt-out section (the Google advertising ID) automatically turned off, some might suggest the user is being led as opposed to asked.

Another factor which could work against Facebook is the collection of data on users who do not have Facebook accounts; this is much more suspect. As per GDPR, a company has to have a specific and justified reason to collect personal information. It does appear Facebook is collecting information on users despite having no purpose or valid reason to do so.

With fines for violating GDPR up to 3% of annual turnover, the stakes are very high. This could prove to be one of the first tests of the rules, designed to protect the privacy of the general public, and few will be surprised Facebook is a central character in the story. With the social media giant seemingly antagonising many governments around the world, we suspect there will be a queue forming to have a swing with the sharp GDPR stick.

Google bids adieu to Allo

Google has finally called it a day on Allo, its attempt to compete with WhatsApp, to focus on its Messages product.

The concept of Allo was an interesting one to say the least, but it never took off. Launched back in September 2016, Allo made use of the artificial intelligence capabilities in Google. The platform included a number of features geared around making the app smarter which, if used excessively enough, meant you wouldn’t even have to message someone yourself. The dream was to take the unnecessary you out of the conversation.

And it didn’t work out well for Google.

Investments in the platform were frozen earlier this year, with many of the features being migrated across to the Messages platform. This is a product area which will get more attention at the expense of Allo, Google’s version of 15 minutes of fame.

“Thanks to partnerships with over 40 carriers and device makers, over 175 million of you are now using Messages, our messaging app for Android phones, every month,” Google said on its blog. “In parallel, we built Google Allo, a smart messaging app, to help you get more done in your chats and express yourself more easily.

“Earlier this year we paused investment in Allo and brought some of its most-loved features – like Smart Reply, GIFs and desktop support – into Messages. Given Messages’ continued momentum, we’ve decided to stop supporting Allo to focus on Messages.”

Users can export any contacts and conversations to the Messages platform, but in March 2019, Allo will say goodbye.

As far as we can see Allo failed for one reason. Google tried to steal market share in the messaging space by over-engineering the idea. For a messaging platform to be successful, it doesn’t have to be overly complicated, it just has to work. WhatsApp is not complicated, but it works and has scale. Google tried to be Google, and it didn’t work.

The concept of simplicity winning over an industry should be a very familiar one for Google, as it is what the entire enterprise is built on. The Google search engine might be an impressive feat of engineering behind the scenes, but presented to the user it is a simple, functional and accurate search engine. Google has set its place in the search world with a simple product and no-one else can compete.

We wouldn’t want Google to stop experimenting with weird and wonderful ideas, some great products have emerged while the ludicrous Loon is starting to gather pace, but you have to take the rough with the smooth when you let your imagination run wild. This is one example of Google having better ideas.

UK Gov pulls back the curtain on Facebook data policies

With pressure mounting against Facebook over the last few months it was only a matter of time before a treasure trove of treachery was unveiled; the UK government has done just that.

Considering the breadth and depth of the information revealed by Damian Collins, a MP and Chair of the Digital, Culture, Media and Sport Committee, and the likelihood this is only scratching the surface, it’ll be some time before we discover the full impact. But, the door has been opened. For Facebook, the PR machine will have to find another gear as this will take some battling.

“As we’ve said many times, Six4Three – creators of the Pikinis app – cherrypicked these documents from years ago as part of a lawsuit to force Facebook to share information on friends of the app’s users,” Facebook said in a statement. “The set of documents, by design, tells only one side of the story and omits important context.”

Facebook is standing by changes made in 2014 which prevented developers seizing personal information of user’s friends, those who had not opted in. This is effectively the saga which kicked off the entire Cambridge Analytica scandal. Facebook argues Six4Three didn’t receive a temporary extension, allowing the app to continue operating while the changes were implemented, and the court case is manufactured revenge.

The Six4Three lawsuit is where Collins and his Committee managed to get their hands on the documents which have been unveiled here. Officials compelled Six4Three CEO Ted Kramer to hand over the documents while on a business trip to London. The documents were obtained as part of a legal discovery process brought about through Six4Three’s lawsuit against Facebook.

The documents are quite damning, suggesting Facebook used user personal information as a commodity, offering the team a useful bargaining chip to secure more attractive contracts, while also nipping any competitive threats before momentum was gathered. For Facebook, this should be considered a nightmare, and it seems investors agree. At the time of writing share price had dropped by 2.7% in overnight trading.

While these reports might not come as a surprise to those who work in the technology space, the general public are unlikely to find these reports very appealing. Facebook crafts an image of itself as a business which wants to help society, though these documents creates a perception of millionaires viewing the user as nothing more than a number, trading away information which doesn’t really belong to them. This idea will not be well-received by the general public.

Looking at the specifics of the documents, apps were invited to use Facebook just as long as it improved the Facebook brand, while some competitors were not allowed to use Facebook tools without the specific sign-off of CEO Mark Zuckerberg himself. One of these examples is Vine, which could be viewed as a means to obstruct rivals. Those who are legally-minded will know this could cause all sorts of problems for the social media giant.

Facebook has clearly recognised this is an issue as well. As part of its statement, Facebook has said it prevented apps which replicate the core functionality of its platform from reaping the full benefits, though it plans to remove this ‘out of date’ policy as soon as possible.

This is of course on concession Facebook is making, though there will have to be a hell of a lot more over the coming months. These documents are damning of the attitudes towards data privacy and also Facebook’s own policies. The lawmakers are sharpening their sticks and it won’t be long before they start taking more accurate aims at a firm which has done little to aid investigations, dodging meaningful questions like perfectly crafted PR ninjas.

One of the biggest recurring themes of the documents is the value which has been placed on data obtained through user’s friends. The idea of linking financial value to the developer’s ability to gain access to friend’s data is one of the key issues being raised by Collins. Some might suggest this goes against repeated statements from Facebook that it was unaware its platform was being abused.

This is the issue. Facebook has continually proclaimed its innocence, accepting criticisms that it should have done more, but ultimately the blame for abuse should be directed elsewhere. These documents suggest the social media giant was not only aware of the abuses but debated and understood the controversial nature. This does appear to be a complete contradiction of the firm’s previous stance.

Another example of this is an update made to changes to its policies on the Android mobile phone system, which enabled the Facebook app to collect a record of calls and texts sent by the user.

Perhaps this suggests a breach of trust during internal meetings and email exchanges, but it also damages the brand credibility of Facebook moving forwards. Facebook is in a hole right now, there’s no doubt about that.

Zuckerberg absent again; Facebook doesn’t seem to want to help itself

Facebook is a company which is consistently under fire for a rap sheet which seems to longer with each passing day, but you have to wonder why it seems to be constantly compounding the problem by irritating lawmakers.

A picture speaks a thousand words, and the tweet below is giving a very simple message to the world; Facebook is bigger and more important than your feeble politicians.

Of course, the company will contest this interpretation, insisting it is doing everything possible to help politicians understand how they can build a bigger and brighter digital world, but with CEO Mark Zuckerberg continuing to ignore calls to attend examinations, there is a bit of a contradiction appearing. All he is doing is agitating politicians and offering up ammunition for haters to attack the platform and its executives.

Some might suggest, as Lord Richard Allan, Facebook’s Director for Policy in Europe, has done that Zucks cannot commit to every request. He has attended a couple, though the Department of Digital, Culture, Media and Sport has played a blinder here. They have ensured the representatives of nine nations, representing almost 500 million people, are all in the same place at the same time. Surely Zucks could squeeze this one into his schedule as it is much more efficient? No, apparently not.

What we are seeing at the moment is a game of chess, and Facebook is losing. The rules are going to change in the future, governing how companies like Facebook can make money, and the longer Zuckerberg continues to irritate legislators and regulators with his absence, the less influence Facebook will have in crafting these rules. This short exchange between Lord Allan and Chairman of the DCMS Committee Damian Collins demonstrates this point very well:

Collins: I put it to you that you have lost the trust of the international community to self-police and that we have to start looking at a method of holding you and your company to account, because Mr Zuckerberg, who is not here, does not appear willing to do the job himself.

Lord Allan: Again, I am going to agree with you. One of the areas that I am working on right now is precisely to understand the kind of regulatory framework that is in everyone’s interest. We have accepted, and Mr Zuckerberg has said himself that we accept, that this requires a regulatory framework and action by responsible companies like ours. It is the two in tandem, and as we go on to discuss false news and elections, I think the regulatory piece is going to be a really important part of that.

Collins: I don’t think it is up to Facebook to determine what regulatory structure it should be under. It should be up to Parliaments to determine that and that is why we here.

This short exchange demonstrates the position Facebook is walking itself into. In years gone, when people liked and trusted Facebook, the team might have been able to influence regulation which dictated how the business could be run. But scandals and a persistent insistence to irritate politicians has changed this. Facebook is being pushed outside the tent, the politicians are building the case against the company and it doesn’t seem to want to repair the broken bonds.

Every single time Zuckerberg refuses to attend one of these sessions he is giving the impression that such tasks are below him. Send one of the minions instead with prompt cards emblazoned with “I’ll get back to you on that one”. That is a phrase which has been consistently repeated, though as several of the politicians in this affair pointed out, Facebook is going to have to get back to them eventually. They won’t simple forget and move onto the next scandal.

Ian Lucas, another MP on the committee, pointed out Zuckerberg had promised the US Senate Committee a list of companies Facebook had banned due to violations of the platforms rules. This promise was made months ago and the list is yet to emerge. The “I’ll get back to you on that one” answer has run its course, and will just become another irritation to the politicians. Soon enough Facebook will have to deliver on the promises.

This scandal is growing day-by-day and the Facebook public relations team is looking woefully underqualified. The absence of Mark Zuckerberg has been well documented here, but all it is doing is compounding the political and PR sh*t-storm which is swirling around the company. Politicians are building the public hatred and mistrust towards the brand, and Zuckerberg is burying his head in the sand.

Uber feels sharp(ish) end of Dutch and British stick

Following a data breach which exposed personal information of roughly three million European customers, Uber has been fined over £900,000 by Dutch and British authorities.

£900,000 does sound like a lot of cash, but let’s just put it into perspective for the moment. In the Netherlands, details of 174,000 customers and drivers were hacked, resulting in a €600,000 (roughly £532,000) fine, while the punishment for leaking details of 2.7 million customers and drivers in the UK was £385,000. In the US, where the exposure was admittedly significantly higher, Uber had to fork out $148 million. The numbers aren’t exactly consistent.

Uber should certainly consider itself lucky the incident occurred prior to the implementation of GDPR, though the fines simply demonstrate how important the new rules are in enforcing data protection requirements. Under today’s rules, Uber could have potentially been fined 3% of global annual turnover, and we suspect the fact it tried to cover up the incident meant it would have been held fully accountable.

“This was not only a serious failure of data security on Uber’s part, but a complete disregard for the customers and drivers whose personal information was stolen,” said Information Commissioner’s Office Director of Investigations, Steve Eckersley. “At the time, no steps were taken to inform anyone affected by the breach, or to offer help and support. That left them vulnerable.

“Paying the attackers and then keeping quiet about it afterwards was not, in our view, an appropriate response to the cyber-attack. Although there was no legal duty to report data breaches under the old legislation, Uber’s poor data protection practices and subsequent decisions and conduct were likely to have compounded the distress of those affected.”

While many found the implementation of GDPR a nightmare, this is an incident which demonstrates why new data protection rules were completely necessary. In our opinion, Uber got off lightly considering the severity of the breach and subsequent efforts to cover up the hack with ‘hush-money’.

Once the breach was discovered, Uber tried to sweep the incident under the rug. Instead of reporting the breach to authorities, customers and drivers, $100,000 was paid to the hacker, with the promise the data would be deleted, it was downloaded from a cloud-based storage system operated by Uber’s US parent company, and the hacker would keep quiet. As with all of these incidents, the truth eventually emerged. Here, it took a full year.

In both the Dutch data protection authority’s and the ICO’s investigations it was found the breach could have been avoiding if basic and appropriate data protection protocols were followed. Under GDPR, Uber is obliged to inform the relevant data protection authorities within 72 hours of discovery, which can mean fines can be avoided. If a company co-operates and is able to demonstrate it has put in place acceptable protections, authorities will not punish in the strictest of terms.

This is an aspect of GDPR which we like. Rule makers have accepted there is no such thing as 100% secure, and has created a framework which has in-built sympathy for those cases which cannot be avoided. As long as a company is proactive and honest, authorities are willing to work alongside industry to make customers and employees more secure.

This is not an example of this perfect scenario however. Uber acted completely irresponsibly and is incredibly fortunate the incident occurred during a time when data protection rules and punishments were woefully outdated. The whole incident does leave two questions remaining however…

Firstly, how many more incidents have there been which have been swept under the carpet, as we can almost guarantee there will be a few, and secondly, will the EU hold the guilty parties fully accountable to GDPR punishments? We need to know whether authorities are prepared to swing the very sharp stick GDPR hands them.

Apple finds the water is warming up in App Store legal battle

Apple has found itself in court once again, but Qualcomm is no-where to be seen. Instead, a few of its loyal iLifers are challenging the firm over whether the App Store is an illegal monopoly.

The case itself dates back to 2012 and will aim to understand whether Apple is operating an unjustified monopoly through the App Store. Right now the case is in front of the Supreme Court, where the nine judges will decide whether or not to allow the antitrust case to be heard by a District Court. The permission from five of the nine judges are needed for the case to proceed, and currently, it looks like only Chief Justice John Roberts is siding with the iGiant.

For Apple, this case could be a disaster. Permission to take the case to one of the District Courts, likely to be in one of the thirty states where the Attorney General is backing the iPhone users’ antitrust claims, and the door could be opened. Essentially anyone who has purchased an app from the App Store could claim grievances against Apple.

The case itself is relatively simple on the surface. As the App Store is the only place to download apps without breaking rules, should the 30% commission charged by Apple be viewed as the company unjustly profiting from a monopoly? One could argue prices are inflated due to the commission received by Apple, though its own counter-argument is based on legal precedent which dictates only those who have a direct billing relationship with a company can sue the firm.

In the Supreme Court’s 1977 decision in Illinois Brick Co. v. Illinois, the court stated only consumers who are direct purchasers of a product can bring a lawsuit seeking damages available for violations of federal antitrust laws. As customer purchase apps from developers, who in turn pay Apple the commission, Apple has argued there is no legal basis for iPhone users to sue the company, with the developers being the only ones who could make such claims. Chief Justice Roberts believes this argument, though spectators of the case have stated five of the judges are leaning the other direction. This could well develop into a very serious headache before too long.

On the other side of the aisle, the iPhone users, led by chief plaintiff Robert Pepper, argue prices would be lower if there were greater choices of app stores. This is a perfectly logical conclusion, though the developers might not like it. As it stands they have a captive audience with all iPhone users in one marketplace. Yes, they do have to pay Apple a premium, but this might well be a pill worth swallowing compared to the complications of working with multiple partners and a disaggregated audience.

As with many lawsuits in the digital economy, this is the first time such arguments are being considered by the courts. Precedent will be set which is what makes this case particularly interesting. Should the courts side with the iPhone users, the doors could be opened for lawsuits against other eCommerce giants such as Amazon or Facebook. Anyone who takes a commission based on a percentage could be viewed as falsely inflating prices in the pursuit of profit, or so the argument would be.

Apple has argued opening this door could stifle the growth of the burgeoning eCommerce sector, which is a negative consequence of course, but not an adequate reason for the case to be dismissed. Just because there is significant consequence does not mean unjust activities should be allowed to continue.

The App Store has started to generate some considerable income for Apple. On the financial side of things, over the last three months the services division, which include the App Store, produced revenues of $9.9 billion, up 17% year-on-year. With smartphone growth slowing globally, and the iPhone not proving the success some might have hoped in emerging markets, the services segment will become ever more important to the iChief.

A decision on whether the case can be heard by one of the District Courts will be made in the near future, though there will be quite a few eye balls on this one. The splash could be quite considerable for Apple, though the ripples through the rest of the digital ecosystem will be just as concerning.

Apple shares fall 5% on weak forecast

With Apple pointing the finger at fluctuating currency, poor performance in emerging markets and supply issues, its busiest quarter might not be as busy as investors had hoped.

While CEO Tim Cook has defended the soundness of the supply chain, worries over whether the business can keep up with demand over the final quarter leading into Christmas seem to have spooked investors. Combined with warnings over performance in emerging markets as well as volatile currencies around the world, the team has stated it might miss guidance over the next three months, sending share price down 5% in afterhours trading.

“The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia,” said Cook. “These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see.”

India should be seen as quite a worry for the iChief’s as while the country has been undergoing its own digital revolution over the last 18 months, Apple seem to be missing out on the biggest rewards. With India now being the second-largest smartphone market in the world, but with half the penetration of China, the opportunities are clear. Despite attention from Apple, it’s opening new production facilities and shops across the country, according to data from Canalys it is yet to break into the top-five smartphone brands.

Shipments in India across the most recent quarter dropped by 1%, though Xiaomi grew 31.5% year-on-year to claim the number on spot, at the expense of Samsung, where shipments dropped 1.6%. Vivo, Oppo and Micromax complete the top five, while the ‘others’ saw shipments decrease 34%. The Chinese brands seem to have found the right recipe to appeal to the Indian user, while Apple is still searching for the sweet spot.

“To give you a perspective in of some detail, our business in India in Q4 was flat,” said Cook. “Obviously, we would like to see that be a huge growth. Brazil was down somewhat compared to the previous year. And so I think, or at least the way that I see these, is each one of the emerging markets has a bit of a different story, and I don’t see it as some sort of issue that is common between those for the most part.”

One market where this isn’t the case is China, with the business growing 16% year-on-year. On the money side of things, it certainly is a different story. Total revenues across the business grew to $62 billion, an increase of 20% over the same period in 2017, though guidance is not as positive. Cook expects Apple to pocket between $89 billion and $93 billion over the next three months, though Wall Street has generally been hoping $93 billion would be the bottom end of the guidance.

Looking at the explanation, CFO Luca Maestri has pointed to four areas. Firstly, the team have launched products in reverse order compared to last year. Secondly, with many international currencies depreciating against the US dollar, Maestri anticipates a $2 billion headwind as a result. Thirdly, due to the number of products Apple has pumped into the market, the team is nervous about supply/demand. And finally, at the macroeconomic level in some emerging markets consumer confidence is not as high as it was 12 months ago.

Heading back to the positives, Apple is making more money now than it was a year ago. Despite there being no shipment growth in any of the major product lines (iPhone was flat year-on-year, iPad was down 6% and Mac was down 2%), Apple is still a money making machine. iPhone revenue increased 29% thanks to ridiculously high unit costs, while the services business was up 17%. This is an area which will be of significant interest to investors, as there is only so much Cook and co. can increase the price of iPhones to compensate for flat growth.

As part of the services division, the App Store has been trundling along positively, though with companies like Netflix and Fortnite stating they would be circumnavigating both the App Store and Google Play, all involved will hope this does not encourage others to do the same. Cook pointed out that the largest developer only account for 0.3% of revenues at the App Store, losing one or two won’t matter, but if the trend spreads too far the product might find troubling times ahead.

Overall, Apple is still in an incredibly dominant position, though the inability to capitalise on opportunities in the developing markets should be a slight worry.

Apple Financials

Apple Products

Google attempts damage control on privacy regulations

Google has unveiled its ideas on the regulatory framework of tomorrow in what looks like an attempt to influence legislation and restrict the long-arm of government intervention.

On the whole, the internet players of Silicon Valley have largely been left to do what they want. This is not to say there are no regulations or consumer protections, but the breadth and depth of regulatory red-tape is no-where near the same scale as the telco industry. In airing its ideas on what the regulatory environment of the data economy should look like, Google is seemingly trying to maintain this status quo.

“Today, we’re sharing our view on the requirements, scope, and enforcement expectations that should be reflected in all responsible data protection laws,” said Keith Enright, Chief Privacy Officer at Google. “This framework is based on established privacy frameworks, as well as our experience providing services that rely on personal data and our work to comply with evolving data protection laws around the world.”

The three page document, which you can see here, is largely what you would expect from one of the internet players. Commitments to collect data responsibly, transparency for the user, limitations on collection and usage, offering control to the user, accountability of third-parties and interoperability are all aspects, but this is not what the helpful commentary is about. This is not about protecting the user, it is about Silicon Valley maintaining control of its own destiny.

With the US Department of Commerce’s National Telecommunications and Information Administration evaluating new legislation, the Senate about to start grilling tech executives and the White House preparing meetings with industry, the future is clear. The US Government intends to take a firmer grasp of activities in Silicon Valley, offering a more stringent rulebook and more protections to the consumer. This is not good news for the internet players.

To date, the internet players have made fortunes in the grey areas. There are more freedoms to use personal information and create advertising solutions as these are organizations which have slipped between the regulatory cracks. They have resisted the same rules as telcos, much to the frustration of the traditional communications industry, though this is not necessarily a bad thing. These are different types of businesses, applying the same rules as telcos is the square-peg-round-hole situation. These are businesses which are creating new services and innovating with data in ways some could not imagine, and need the flexibility to do so. That said, they should still be held accountable to regulation.

In releasing its ideas, Google is seemingly practising its own version of damage control. If new rules are on the horizon they’ll need to be influenced. A number of these practises are already in place at Google, meaning the business can continue to generate billions without a huge disruption to operations. That cannot be said its neighbours in Silicon Valley, but this is of little concern to the Do-No-Evilers.

Another interesting aspect to this announcement is perception. The industry has been hit hard by privacy scandals over the last few months, the Facebook/Cambridge Analytica saga is the biggest example, though Google has been collecting location data on users who have opted-out; it is far from innocent. In making these suggestions public, Google is putting a friendly face back onto the brand; its helping with the data privacy issue, not compounding it, will be the PR message here.

While this perception of helpfulness will help with its consumer reputation, it will also aid its grilling from the Senate. Enright is one of several executives who have been summoned to testify in front of several politicians to discuss how social media companies work and data privacy is secured. In demonstrating proactive enthusiasm prior to the grilling it might gain some much needed favour after Google left its chair empty during the Senate Intelligence Committee testimony.

The wild-west internet is slowly being swallowed up by the steady progress of regulation. The rules will never get in front of technological advancements, but to protect its billions, Google and its Silicon Valley neighbours will have to put on big smiles to influence rule makers.

Facebook creative culture questioned as Instagram founders exit

In a move which should have Instagrammers all around the world worried, co-founders Kevin Systrom and Mike Krieger have decided to take their leave from the popular social media platform.

With a short and sweet statement, Systrom has announced he and Krieger would be leaving the company they founded in 2010 to take a break and find themselves. While it might sound like the pair are readying their backpacks for a couple of months sipping beers and relaxing in hammocks, the wording does not suggest the Facebook business is in a particularly healthy state.

“We’re now ready for our next chapter,” wrote Systrom. “We’re planning on taking some time off to explore our curiosity and creativity again. Building new things requires that we step back, understand what inspires us and match that with what the world needs; that’s what we plan to do.”

This of course might mean nothing in particular, though it does seem to suggest the pair need to move elsewhere to flex their creative muscles. Is Systrom indirectly accusing Facebook and its legions of employees of lacking creativity and the absence of an environment to experiment with new ideas?

Having launched in 2010, the app proved to be an instant hit collecting one million users within the first two months. By the end of the first year, 10 million accounts had been created, a number which increased to over 800 million by the end of 2017. The platform was acquired in by Facebook in April 2012 for $31 billion in cash and stock, with CEO Mark Zuckerberg announcing in the most recent earnings call the one billion user mark had been passed. The last couple of quarters have seen commercial activity on the platform increase notably.

While those who own such platforms are perfectly entitled to monetize their ideas, Instagram has been protected from the over-commercialised approach which has plagued the Facebook platform and destroyed the user experience. A balance has to be struck between advertising and maintaining a platform which entertains and engages users. The Facebook platform risks running the wrong direction.

In retaining the services of the two co-founders, perhaps this was the protection the platform needed from money-hungry Zuckerberg. With these two exiting the business what will become of the Instagram platform?

The Facebook platform has been suffering recently. While it is certainly a money making machine, this drive towards profitability has seemingly impacted user experience and the appeal of the platform. User growth has been slowing, with some questioning whether the glass ceiling is fast approaching, though there does seem to be a lack of creative spark in the platform. New features have been remarkably similar (some might suggest identical) to that of competitors, suggesting there is more of a focus on sweating assets for profitability as opposed to creating a platform which is attractive and engaging for users.

Research also supports the premise competitors are doing better at engaging younger audiences than Facebook. The Pew Research Centre has suggested only 51% of US teens aged 13-17 use Facebook today, with only 10% listing it as their preferred social media platform, compared to Instagram (72% use), Snapchat (69%) and YouTube (85%). In the Center’s 2014-2015 survey of teen social media use, 71% of teens reported being Facebook users, while 52% said they had an Instagram account and 41% for Snapchat.

With Systrom and Krieger leaving the business, citing a search for creativity as the reason, the assumption of a lack of creativity is being reinforced. The big question which remains is what is in store for Instagram?

With one billion accounts, low-advertising penetration in comparison to other platforms and a focus on younger demographics, this would certainly be an attractive proposition for any advertisers. The team has also done a much better job of capitalising on the video trend than parent-company Facebook, offering more opportunity to engage the motion-hungry users.

As co-founders, Systrom and Krieger would have certainly been influential on the development of the platform, though how much of the commercial tides were the pair holding back? Once replacements have been lined-up we’ll have a better idea as to whether this is a transition from Instagram 1.0 to Instagrabcash 2.0. We suspect Zuckerberg and the rest of the Facebook executives will be eyeing up Instagram to bolster year-on-year advertising numbers.

Only time will tell whether Zuckerberg will be able to over-commercialise this platform and destroy customer experience once again, but Systrom’s indirect critique of the environment does not suggest the best of scenarios.

Angry Birds longevity can’t prevent Rovio decline

Consumers might be spending more each year in the app economy, but Rovio’s struggles prove just how difficult it is to be a success in the cut-throat world of mobile gaming.

With the app economy becoming increasingly more mainstream, there are opportunities to make cash, though innovation is key. As consumers are faced with a tsunami of content and apps, cutting through the noise is becoming more difficult. Investing heavily to create a franchise seems to be the winning formula; the quality versus quantity argument. Rovio has one of the digital world’s most well-known titles in Angry Birds, but it seems not even this is enough to take the firm to the next level.

Looking at the numbers could be deemed a slightly depressing read. For the first six months of 2018, revenues were €137.5 million, down 9.9% in comparison to last year, operating profit was €15.2 million, down 21.4%, while the number of employees was also down 12%. Perhaps worrying even further was capital expenditure of €300,000 over the first half, down from €5.8 million across the same period in 2017. With so little being spent, you have to wonder whether there is anything new in the product pipeline.

With the abundance of choice on the app market stores, consumers get easily bored. The Angry Birds franchise has served the team very well over the years, it was initially launched in 2009, and continues to make money. But without new titles to support and eventually succeed the cash-cow, these profits will eventually erode to nothing. Nothing lasts forever, just as Nintendo as Mario finds his place in the memory banks alongside dial-up modems and the floppy disk.

Rovio is doing a remarkable job of sweating the Angry Birds brand, but the pressure is beginning to tell. Having released 17 iterations of the game and four spin-offs, growth is still there, but it’s getting smaller and smaller. Revenues derived from games was €122.1 million, an increase of 3.5% year-on-year, but this is nothing compared to the 56.7% rise in H1 2017 compared to H1 2016. Not many companies will have the pleasure of experiencing such a vast boom in revenues, though it does seem Rovio has not been able to capitalise on this momentum with launches to support the success of Angry Birds.

This is an excellent example of sweating assets, films have been launched and also three seasons of TV content, though this can only go on for so long. Licensing revenues were down significantly, though investors were warned this would be the case. Slow erosion does appear to be the trend of the day here. Share price has not moved notably, though considering it fell off a cliff following a profit warning in February, perhaps investors are expecting little from Rovio aside from dividends. With most internet companies asking investors to forget about today’s financials, instead concentrating on the potential of the business, it is an interesting approach from Rovio.

Angry Birds will continue to make money, but Rovio needs to produce more titles to stimulate growth and the profit column. The risk is just being known as an ‘also ran’ in the digital race, and with so little being allocated to the capital expenditure column, we suspect it will only continue down this route.

Rovio execs seem to be happy with the 15 minutes of fame and have no ambition for anything greater.