Facebook investors brush off leaked $5 billion fine

It has been widely reported that Facebook will receive a record fine for privacy violations, but investors seems strangely pleased about it.

All the usual-suspect business papers seem to have received the leak late last week that the US Federal Trade Commission voted narrowly to fine Facebook $5 billion for data privacy violations related to the Cambridge Analytica thing. The FTC, like the FCC, has five commissioners, three of which are affiliated to the Republican party and two the Democrats. As ever they voted on partisan lines, with the Democrats once more opposing the move.

The FTC has yet to make an official announcement, so we don’t know the stated reasons for the Democrat objections. But since that party seems to have decided it would have won the last general election if it wasn’t for those meddling targeted political ads, it’s safe to assume they think the fine is too lenient.

Just because the Democrats have a vested interest, that doesn’t mean they’re wrong, however. Of course Democrat politicians have criticised the decision, but many more independent commentators have noted that the fine amounts to less than a quarter’s profit for the social media giant. Nilay Patel, Editor in Chief of influential tech site The Verge, seems to speak for many in this tweet.

That Facebook’s share price actually went up after such a big fine initially seems remarkable, but all it really indicates is that Facebook had done a good job of communicating the risk to its investors, so a five bil hit was already priced in. The perfectly legitimate point, however, is that as a punishment one month’s revenue is unlikely to serve as much of a deterrent from future transgressions.

Patel seems very hostile to Facebook, stating in his opinion piece on the matter “Facebook has done nothing but behave badly from inception.” A lot of this bad behaviour consists of exploiting user data, but what is really under attack seems to be Facebook’s core business model and, to some extent, the whole-ad-funded model on which sites like The Verge rely.

Debates need to be had about the way the Internet operates and monetizes itself, but identifying Facebook as a uniquely bad actor when it comes to exploiting user data seems disingenuous. Laws and regulations are struggling to catch up with the business models of internet giants and there are many other questions to be asked about how they operate.

The fact that Facebook’s share price has now largely recovered from the Cambridge Analytica scandal of a year or so ago, as illustrated by the Google Finance screenshot below, indicates that investors consider these issues to be just another business risk, to be weighed up against obscene profits. While we have always considered the scandal to be overblown, it also seems clear that, as a meaningful punishment, even a $5 billion fine is totally inadequate in this case.

Facebook share price July 19

Battle lines drawn ahead of White House social media summit

US President Trump has invited a number of social media commentators to a discussion about the current digital environment.

This is being largely interpreted as an anecdotal investigation into the nature of social media censorship, with Trump having repeatedly raised his concerns on the matter. The major social media platforms don’t seem to have been invited, however, instead a selection of independent journalists, commentators and activists will be asked about their online experiences.

The White House hasn’t published a list of attendees, so here’s our own, in no particular order, derived from information already in the public domain. We’ve also included the number of Twitter followers each attendee has to provide some measure of their online influence. The summit takes place tomorrow.

  • Tim Pool – YouTube Journalist – 352k
  • James O’Keefe – Independent Journalist – 548k
  • Ben Garrison – Political Cartoonist – 176k
  • Charlie Kirk – Activist – 1.16m
  • Ali Alexander – Activist – 95k
  • Scott Presler – Activist – 226k
  • Bill Mitchell – Broadcaster – 445k
  • Carpe Donctum – Activist – 122k
  • PragerU – YouTube Commentator – 271k
  • Heritage Foundation – Think Tank – 649k
  • Media Research Center – Media Watchdog – 157k
  • Christian Ziegler – Activist – 3k

It has not gone unnoticed that nearly all of those invited are at the conservative end of the US political spectrum and Trump is known to be concerned that online censorship tends to affect conservatives disproportionately. It’s presumably not a coincidence that most of these conservatives also seem to be committed Trump supporters.

The presence of the two journalists at the top of the list indicates this will be more than just a Trump supporter love-in, however. “This event will bring together digital leaders for a robust conversation on the opportunities and challenges of today’s online environment,” a White House spokesperson is widely reported to have advised.

Pool has probably been chosen due to his high-profile grilling of Twitter on the Joe Rogan podcast, in which he argued some of its rules on speech it permits  are demonstrably biased against conservatives. Similarly O’Keefe’s organisation Project Veritas has recently claimed to have exposed similar political bias at Google.

So it seems clear that at least one of the primary purposes of this summit is to enable the US government to gather evidence of bias in social media censorship. Earlier this year the White House opened a web form inviting people to submit such evidence, so it’s possible this will have influenced who was invited too.

While much commentary has focused on the perceived political agenda of this summit, the absence of not only the big tech companies but big media too indicates another angle. There is a growing body of anecdotal evidence that social media censorship is increasingly biased against independent commentators and thus in favour of corporate, institutional, establishment voices.

Leftist independent commentator David Pakman has alleged in the video below that the YouTube recommendation algorithm has been changed in order to favour corporate over independent media. Most of the independents he cites are also leftist, indicating this isn’t a predominantly political move.

 

It is well documented that YouTube has been anxious about the effect of some of its more contentious contributors on revenues for some time and has implemented broad censorship in an apparent attempt to appease big advertisers. If there is bias in the recommendation algorithm in favour of corporate media it’s probably because advertisers also favour them, but every piece of arbitrary censorship seems to create as many problems as it solves.

Meanwhile, Twitter is where Trump spends much of his time and so is probably the platform he scrutinises most closely. A US appeals court recently ruled that it’s unconstitutional for Trump to block people on Twitter, but this precedent had led to other US politicians who have blocked people on Twitter being sued. Elsewhere Twitter’s recent decision to ban any comment that ‘dehumanizes others on the basis of religion’ seems destined to raise questions about selective enforcement.

Not to be out-done Facebook recently updated its policy regarding ‘violence and incitement’ with the guidance shown in the screenshot below.

Facebook policy screen

This seems to say that it’s OK to advocate high-severity violence (un-defined) against anyone Facebook considers to be a ‘dangerous individual’ or anyone said to be a violent criminal or sexual predator. Since Facebook explicitly identified several individuals as dangerous recently, some of those people have understandably interpreted this move as hostile to them.

That there is a growing body of evidence of a deeply flawed approach by social media companies to policing their platforms is undeniable. To what extent this involves political bias remains unclear, but Trump seems to think it does and, with the next US general election imminent, he seems increasingly disposed to bring the full force of the state against any tech companies deemed to be acting against the public, and his, interest. Those companies will doubtless be following this summit with interest.

We’ll leave you with Pool’s take on the whole thing.

 

Instagram experiments with benign censorship in bid to tackle bullying

Social media platform Instagram has implemented a couple of new tools that aim to take a softer approach to protecting users from harassment.

The first is designed to ‘encourage positive interactions’ but, for once, this is less Orwellian than it sounds. Instagram is using artificial intelligence to identify comments that may be considered ‘offensive’ as they are written and then presents a notification to that effect, inviting the person to think twice before publishing the comment.

The second offers to ‘protect your account from unwanted interactions’ and is even given a name: Restrict. Once you ‘restrict’ another users it makes any comments they make on your Instagram posts invisible to everyone except themselves, as well as preventing them from knowing when you’ve read their direct messages or when you’re active on the platform.

Instagram seems to be trying to minimize harm without falling into the trap of the kind of draconian blanket bans that have reflected badly on its parent company. It’s also sensitive to the fact that, in the case of bullying, victims are often reluctant to report their abusers for fear of exacerbating the problem. So offering a tool that restricts contact with another person without them knowing makes sense, especially since it doesn’t offer the power of outright censorship.

The same could also be said for the offensiveness warning. A user is apparently free to ignore it but maybe just being forced to pause before posting will prevent a lot of the spite and vitriol that social media seems to facilitate from making its way into the public domain.

Striking the right balance between freedom and safety is a core dilemma facing all social media platforms. To date they’ve largely done a bad job and have tended to over-react to specific events rather than take the lead through their own policies and technology. This Instagram initiative seems to be an attempt to change that and so should be applauded.

The potential downsides, as ever, concern vague definitions and mission creep. The perception of a comment as being offensive in intrinsically subjective, so it’s at the very least unsettling to see such a call being made by machines. Also while such messages can be ignored now, who’s to say the enforcement of this offense filter won’t become more heavy-handed in future, once everyone has accepted it?

Finally there are also distinct surveillance and data privacy implications. Does Instagram keep track of how often a user posts something its AI has deemed offensive and how often it ignores its advice to be less so? Will there eventually be more severe consequences for such behaviour? The problem with imposing any restrictions, however initially benign, is that they create the thin end of the wedge. If Instagram starts punishing its users because its HAL-like AI disapproves of them this move could start to backfire significantly.

 

UK launches competition probe into digital advertising market

The UK Competition and Markets Authority wants to know if the digital advertising market is being corrupted by internet giants like Google and Facebook.

The investigation is being called the ‘Online platforms and digital advertising market study’ and it will look into the following:

  • To what extent online platforms have market power in user-facing markets, and what impact this has on consumers
  • Whether consumers are able and willing to control how data about them is used and collected by online platforms
  • Whether competition in the digital advertising market may be distorted by any market power held by platforms

So this seems to be a combination of a monopoly investigation and an audit of how digital platforms are handling personal data. The dominance of the Silicon Valley platforms over the digital advertising market seems clear, so the question is whether they abuse that dominance to unfairly crush competition. The matter of data privacy seems secondary, especially since there are already loads of similar investigations happening around the world.

“It is our job to ensure that companies innovate and compete,” explained CMA Chairman Andrew Tyrie. “And every bit as much, it’s our job to ensure that consumers are protected from detriment. Implementation of the Furman Report should help a lot. As part of the work announced today, we will be advising Government on how aspects of Furman can most effectively be implemented.

“Much about these fast-changing markets is a closed book to most people. The work we do will open them up to greater scrutiny, and should give Parliament and the public a better grip on what global online platforms are doing. These are global markets, so we should and will work more closely than before with authorities around the world, as we all consider new approaches to the challenges posed by them.

“The market study will examine concerns about how online platforms are using people’s personal data, including whether making this data available to advertisers in return for payment is producing good outcomes for consumers,” said CMA Chief Executive Andrea Coscelli. “The CMA will examine whether people have the skills, knowledge and control over how information about them is collected and used, so they can decide whether or not to share it in the first place.”

While they’re at it why don’t they do an investigation into how many people read the terms and conditions of using a service, let alone understand them. While there can be little doubt that online platforms have been very effective at monetising third party data, anyone who uses them for free and then claims to feel exploited is being disingenuous. Much more interesting will be the measures taken if they’re viewed as a harmful monopoly.

Walking the fine line between innovation and accountability

Almost everyone will agree the technology industry needs to be held accountable through regulation, but we are starting to wonder whether the sticky fingers of bureaucracy are getting too involved.

In today’s world, regulators and governments can’t do much right. Industry has proven it cannot be trusted in the light-touch regulatory environment of yesteryear, while the red-tape mazes woven by bureaucrats have often create significant challenges of their own. It is an equation which walks the tightest of tight-ropes, and we wonder whether civil servants are starting to over-compensate.

The latest example involves Facebook and the creation of its own cryptocurrency. In a letter from the House Subcommittee on Financial Services, Congresswoman Maxine Waters, who acts as the subcommittees Chairwomen, has asked Facebook CEO Mark Zuckerberg to pause developments on Libra until appropriate investigations have been concluded.

“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” Waters stated.

“During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Some might suggest this is a sensible move to protect consumers while others will point to an already bolted horse; cryptocurrencies have been operating for some time now. This is not necessarily a reason not to investigations but asking a single company to pause its R&D plans, as opposed to the segment on the whole, seems rather heavy-handed.

Of course, what is worth noting is that Facebook is a company which should be under the scope of scrutiny more than others. Numerous scandals over the last two years have demonstrated this is not a company which can be trusted to play nice in the light-touch regulatory environment.

But you have to wonder, are the politicians over-compensating for a poor approach to technology regulation? Politicians, especially in the US, are becoming increasingly involved in the technology industry. What impact will this have on innovation, exploration and the creation of new services?

The technology, or the internet-based technology industry to be more specific, is a young one. Facebook was founded in 2004, Amazon in 1994, Twitter in 2006, Google in 1998 and Uber in 2009. In fact, the modern internet as we know it today is only 25 years old. Realistically, this is an embryonic industry with so much left to explore.

However, it always worth exploring the other side of the argument. With so much left to explore, who knows what dangers lurk in the dark corners. We’ve barely scratched the surface of the potential of the internet and look at the number of privacy scandals which have emerged. Cambridge Analytica grabbed all the headlines, but numerous companies have been operating under a cloud of obscurity when it comes to monetizing personal data and monitoring the movements of users.

There certainly is evidence the technology industry needs to be held to higher standards of accountability, but this is where the conundrum presents itself; where should the line be drawn?

The technology industry has thrived in recent years mainly because the innovators of Silicon Valley have largely been left to themselves. This light-touch regulatory environment has led to the emergence of the fail-fast business model and numerous breakthroughs which have arguably made our lives better. Some might argue against this point, but we have faith in technology.

However, the fail-fast business model solely relies on the concept of exploration. Technologists are testing ideas which have not been conceived before and therefore are not under the restraints of regulation. Ideas have been tested and the good ones are taken forward. But it is the freedoms granted to innovators which has led to the success.

If the technology industry is being tied up in more red-tape, will this progress continue? Would internet banking have emerged if lawmakers had been paying more attention? Would Google Maps be the success it is today? Would Uber have revolutionised the way we get home from the pub?

We are not suggesting the technology industry should be offered free-reign to do whatever it wants, but where should the line be drawn? How much freedom should be offered and how much involvement should regulators have in the development of embryonic ideas?

An excellent example of this point can be taken from the grilling Facebook CEO Mark Zuckerberg testimony to Congress in the wake of the Cambridge Analytica scandal. Facebook and Zuckerberg were rightly held accountable for actions during this period, though on the other side of the interrogation, politicians demonstrated they were not up to speed when it comes to technological developments.

If the House Committee on Financial Services wants to hold an investigation to understand cryptocurrency, how long will it be before it arrives at a conclusion? Weeks? Months? Years?! And should Facebook be singled out? Should this investigation not be industry-wide, otherwise you are only preventing a single company from being competitive.

This is an incredibly complex equation to balance, and we wonder whether bureaucrats are over-compensating for perceived inaction during yesteryear, or if ill-prepared politicians are attempting to secure PR points by wading into a contextually relevant debate.

US lawmakers formally demand a halt to Facebook’s Libra cryptocurrency

As threatened a couple of weeks ago, the House Financial Services Committee has called for Facebook to halt its cryptocurrency plans.

The demand came in the form of a letter signed by the Chairwoman of the Committee Maxine Walters and a few other members of the House of Representatives that share her concerns. The letter was addressed to CEO Mark Zuckerberg, COO Sheryl Sandberg and CEO of Calibra, the company Facebook created to exploit the Libra opportunity, David Marcus.

“We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet,” opened the letter. “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”

The letter went on to detail quite how worrisome this disruption to the established way of things is and how little Facebook has done so far to allay these worries. The main concern seems to be similar to that attached to all cryptocurrency, that it will provide liquidity to ‘bad actors’. The difficulty of the US poking its nose into an organization based in Switzerland seems to be the main national security concern. They also spend a paragraph reviewing Facebook’s dodgy privacy track record.

“Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” concludes the letter. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Facebook and its partners must have anticipated this kind of reaction when they made their announcement. The Libra project is so grand in its scope and ambition they couldn’t possibly have expected authorities to adopt a laissez faire attitude, even if Facebook had a spotless reputation. It’s also hard to see how Facebook can do anything other than comply with the request and prepare itself for an exhaustive oversight process. Don’t expect to see Libra in the wild anytime soon.

US politicians alarmed by Facebook’s cryptocurrency masterplan

The announcement of a new currency led by Facebook has caught the attention of US law-makers and not in a good way.

The Chairwoman of the House Financial Services Committee, Maxine Waters, is alarmed by the prospect of a massive company with a patchy track record when it comes to data protection and censorship having control of a global currency. She published the following statement on the matter soon after the unveiling of Libra.

“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” said Waters. “It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a FTC consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.

“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users. The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies.

“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues.”

Waters isn’t the only representative to express concern and at least one Senator has joined the party, as you can see in the tweet below. Regulators are going through a period of realising they were very slow to acknowledge the magnitude of social media and they should be keen to show they’ll be less complacent about money than they were information. It seems likely that Facebook will have to jump through a lot more hoops to launch this product than it has had to previously.

Facebook leads corporate cryptocurrency initiative Libra

Social media giant Facebook has announced the launch of Libra, a ‘stablecoin’ apparently designed to revolutionise the digital payments market.

Such ambition would be highly questionable if it weren’t for the fact that Facebook has managed to get loads of other blue-chip companies involved, including Visa, Mastercard, PayPal and Coinbase. This gives the project a sense of scale and legitimacy that it wouldn’t have if this was just another gimmick to help Facebook exploit its users once more.

“Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world,” blogged Facebook CEO Mark Zuckerberg. It’s powered by blockchain technology and the plan is to launch it in 2020. This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone.”

Blockchain is a pretty complicated business, so to get how this works we recommend you go to the Libra site, read the Libra white paper and watch the videos below. Libra is described as a ‘stablecoin’, which means its value is pegged to regular currencies and thus won’t fluctuate like Bitcoin famously does. There’s also talk of almost no fees, so it will be interesting to see what incentive all the members of the Libra consortium have to participate.

Facebook’s own interests will be represented by a subsidiary called Colibra, which will produce a digital wallet that will be available in Facebook’s messaging apps as well as its own standalone one. “From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost,” said the announcement. “And, in time, we hope to offer additional services for people and businesses.”

This seems like a very ambitious project, the motives for which are still somewhat unclear. The narrative is all about extending financial services to the unbanked, but you have to assume Facebook expects to monetise this service eventually. The prospect of a company that unilaterally excludes any users it disapproves of being in control of a global currency is chilling.

 

Facebook gets big name backers for crypto project – report

Facebook has reportedly enlisted the support of a dozen organizations to underpin its cryptocurrency project and help keep the social media giant honest.

The majority of the blockchain project is being kept firmly under wraps, though the Wall Street Journal is reporting numerous technology heavyweights have been convinced to support the efforts. The likes of Uber, Visa, PayPal and Booking.com will allegedly each contribute $10 million to the project and then form a governance body which will oversee the cryptocurrency.

For the last year, Facebook has been working on the blockchain project to create its own digital currency. The digital currency will certainly help encourage more transactions on the social media platform, as well as enable Facebook to reach out to potential customers who do not have traditional bank accounts. Facebook has also claimed the creation of such an asset helps it to pivot to an organization which is more defined by privacy.

While the financial contributions towards the project and the governing body would be welcomed by Facebook, the support of these respected brands also tackles another challenge the social media firm is facing; trust and credibility.

Thanks to a few high-profile scandals and renewed enthusiasm across the world to tackle the data privacy violations from Silicon Valley, Facebook is lacking credibility. Mark Zuckerberg has been exposed as somewhat of an emotionless robot during investigations and testimonies, while fresh evidence keeps emerging suggesting the company does not care about the privacy right of its users.

Trust in Facebook is at a low-point at a time when it needs it most. Asking people to trust the firm with their digital profiles is one thing, but then suggesting they trust Facebook to be reliable and responsible with their money is a completely different question.

In bringing on brands which the consumer trusts with money, Facebook is crafting a PR win. The consumer trust in these brands might rub off on the social media giant, while it can also point to the fact its control and influence over the digital currency will be diluted through the presence of an oversight committee. If it turns out to be true, it is a clever move from Facebook.

Facebook moves to distance itself from Huawei

Social media giant Facebook is blocking the preinstallation of all its apps on Huawei phones according to a report.

Reuters got the exclusive, but seems to actually have official confirmation from Facebook rather than the ‘people familiar with the matter’ that are so common these days. The company told Reuters that it won’t be allowing the preinstallation of Facebook, WhatsApp and Instagram on Huawei phones.

The move doesn’t apparently extend to stopping people installing the apps themselves or somehow trying to prevent their use if they do, which would have set an interesting precedent. There’s also no mention of geographical parameters, implying Facebook has gone for a global ban just to make sure it doesn’t upset the US government. A person familiar with the matter was finally dug up to add weight to the sense that this is a global ban.

This just the latest metastasis of the heat the US has been laying on Huawei, superficially over concerns about security and industrial espionage, but more deeply as a proxy in the broader geopolitical dispute between the US and China. Any company that’s keen to stay on the right side of US authorities is now under pressure to ostracise Huawei and it would be surprising if other US tech companies didn’t follow suit.