Instagram’s garden is starting to blossom

Just as Facebook’s core platform is beginning to wilt, Instagram is launching an assault on the shopping market built on the walled garden business model which bloomed in by-gone years.

A few people might have scoffed at Facebook handing over $1 billion for Instagram in 2012, but this acquisition is looking to be a clever bit of business. Facebook’s core social media platform, and the business model which underpins it, might be looking a bit jaded after recent attacks, but Instagram is maturing into a very attractive proposition.

Launched today (March 19), users can now purchase products from certain brands in the Instagram app. The team has been working hard to create a marketplace in Instagram over the last 12-18 months, and while the digital advertising model has been paying off, you get the impression the narcissistic tendencies of the app lend itself well to the online shopping arena, especially when it comes to fashion.

“When you tap to view a product from a brand’s shopping post, you’ll see a ‘Checkout on Instagram’ button on the product page,” the team said in a blog post. “Tap it to select from various options such as size or color, then you’ll proceed to payment without leaving Instagram. You’ll only need to enter your name, email, billing information and shipping address the first time you check out.”

For retailers, this could be a very interesting route to potential customers, both old and new. Instagram has proven to be a very effective tool for brands to engage consumers from a brand marketing perspective, but in terms of direct sales, the risk of navigating to another website comes with shopping carts being abandoned. Through in-app purchases, one purchasing hurdle is removed, simplifying the buying process.

Customer information will be stored with Instagram, and while it has been reported the details will not be pre-populated in other Facebook platforms, it would not surprise us if this is in the pipeline. Instagram will receive payments as a percentage of the total spent in-app, though in Facebook’s typically transparent fashion, the waters have been muddied with the team not revealing how much this percentage is.

This is perhaps another perfect example of Facebook’s ability to create a walled garden and charge third-parties to access the cultivated digital customers.

For years, Instagram has been creating an incredibly user-orientated platform, which is simple but very usable and addictive. The only way for users to access these users, to try and pry open wallets, is to strike a deal with Facebook. Facebook is not monetizing its users directly but charging third-parties entry at the gate. This model worked incredibly well for years, putting Facebook is the dominant and influential position it is in today.

The beauty of this plan is that Facebook/Instagram seems to have struck at the right time. Users are becoming increasingly used to using the app as an online catalogue, geared around window shopping not purchases. Another update launched last year, allows users to click on products which might features in posts or stories to see more information. Taking it one step further is a logical step, as long as its not done too aggressively.

While the raw materials are certainly there, the challenge which Instagram will face is not to over commercialise the platform. This is what happened with Facebook’s core social media platform, the focus was less on engagement and more on advertising revenues, resulting in the new generation ignoring and traditional users spending less time on it. If Instagram has learned from prior mistakes, this could be a very interesting proposition, with plenty of room for growth.

That said, learning from mistakes is one thing but keeping under-pressure executives in-line is another. Slowing growth figures have put the Facebook management team under pressure from investors, while scrutiny placed on the traditional business model in ever-increasing. New regulations to remove some of the freedoms granted in the data-sharing economy put profits under threat, and as with any other publicly traded company, they will have to be replenished somehow.

Recent attempts to carve out new revenue streams, such as Watch or Today In, have seemingly not produced the hoped-for bonanzas. In the case of news app Today In, the team is ironically struggling because Facebook and Google effectively destroyed the commercial viability of so many regional news sources. The ‘locusts are complaining there is no more corn’ one Twitter user commented.

Another development which is worth keeping an eye on is the change in management. After 14 years working for Facebook and Instagram, Chief Product Officer Chris Cox announced he was leaving last week. A replacement has not been announced, but the experience of this individual might give some insight as to how aggressively commercial elements of Instagram will appear.

Despite criticisms which might be directed towards Facebook and Instagram, this looks to be an excellent strategy. The team have been cultivating this audience for some time and seem to have created the perfect conditions for growth… just as long as the team learn from previous mistakes.

Of the many challenges Facebook faces its intrinsic parasitism is the biggest

Facebook has recently bemoaned the decline in US local news sources, but a major reason for this has been the collapse in media advertising revenues.

Two companies are largely responsible for this decline: Google and Facebook. As digital replaced analogue as the primary way of consuming media, advertising moved to the main online content aggregators, specifically its dominant search engine and its dominant social media service. Not only did this suck revenue away from traditional media, it forced many media to resort to low-quality ‘clickbait’ journalism in order to drive the volumes of traffic its remaining advertisers increasingly demanded.

By definition aggregators don’t produce their own content and are entirely reliant on a steady flow of third party to keep its users active and the revenues it makes on the back of their searching and sharing flowing. This model is, therefore, intrinsically parasitic and comes with the major problem that parasites eventually kill their hosts.

Facebook has belatedly recognised this dilemma and launched a new initiative called ‘Today In’ late last year, that was designed to bring greater attention to local stuff on the site. On top of that it also said it would throw millions of dollars at local news earlier this year. Despite this, however, Facebook yesterday was moved to lament the existence of ‘news deserts’ in the US and is contributing to research to find out what is the cause of them. Some people seem to think that’s somewhat redundant.

facebook locust tweet

There are, of course, plenty of other threats to Facebook’s business model. The Cambridge Analytica scandal raised profound concerns around the use of all this personal data we’re sharing with Facebook. Meanwhile its role in a wide range of high-profile events ranging from elections to terrorist atrocities have put it under enormous pressure to curate and censor its content much more quickly and thoroughly than it currently does.

The parasitic business model is also at the core of a lot of this. In many ways Facebook operates like a very large media organisation, as it makes money by serving ads against traffic to content on its side. But since it doesn’t produce that content it is currently treated as a platform rather than a publisher, with a consequent freedom from direct responsibility for what it presents to its users.

It’s becoming increasingly clear that websites designed to host user-generated content are neither platforms nor publishers, but something in between. Politicians and regulators are increasingly calling for new rules and laws to address this paradox and it seems highly probable that these will both threaten revenues and significantly increase overheads for these companies.

So great are these challenges to Facebook that the company is already publicly contemplating a fundamental shift in its business model, with more controlled, private sharing as its new focus. This coincides with a its core revenues base, US Facebook users, clearly peaking, as you can see in the following slides from Facebook’s recent quarterly earnings presentation.

Facebook DAUs

Facebook ARPU

While user engagement has peaked in the US, Facebook still derives a disproportionate amount of revenue from that market thanks to its much higher ARPU there. But there is growing evidence that this may be increasingly coming from Instagram rather than the core Facebook product and mobile now accounts for nearly all of its revenues. All this points to the distinct possibility of Facebook, as we know it, being unrecognisable a decade from now as the legacy platform undergoes a managed decline.

Which brings us back to the parasitism issue. Facebook’s long term strategy seems to be to completely exhaust its current host while at the same time cultivating a new one. It’s hard to view all this hand-wringing about traditional media as anything more than a pretence at seeking a symbiotic relationship with it while it bleeds it dry. Independent journalist Tim Pool, as ever, has an instructive take on the broader situation.

 

Facebook reportedly facing criminal charges over data sharing

Facebook’s day started off with a major outage and, should reports turn out to be true, it is ending with the social media giant facing a criminal investigation from Federal prosecutors.

According to the New York Times, a grand jury in New York has obtained records from two smartphone manufacturers, via subpoena, which will detail the data sharing partnerships in or previously in place with Facebook. Sources has retained anonymity and it is not exactly clear who the subpoenaed parties were, though Facebook did have more than 150 such relationships in place before winding-down over the last couple of years.

Although the investigation has not been officially confirmed, it will come as a surprise to few considering the scrutiny those dominating the data-sharing economy are facing. Over the last few months, there have been numerous attempts to weaken the influence of the internet giants, with some even suggesting legal force to break-up the empires. The internet giants created a cosy position, but this is certainly under threat.

That said, while the scandals over the last 18 months might lead some to presume the practice of selling personal data would be scaled back, there seems to be little evidence of this. A recent Motherboard investigation suggests various US telcos are still reaping the benefits, and in some cases, scaling up the practice.

What is worth noting is the concept of selling personal information is not illegal, as long as the right consent has been obtained from the end user. This is what Facebook, and the third-parties who entered into such arrangements, are facing criticism for today. Accusers suggest proper content was not obtained or done so in such a complicated fashion it should not be considered valid.

The data-sharing economy is gaining validity across the world, but only when the practice is managed in a fair and responsible manner. This is what GDPR and other regulations intend to enforce. The idea is not to stop the practice, but to ensure the companies involved act in a responsible manner, with the user properly informed and in control of the situation. The data-sharing economy can work, and can benefit everyone involved, as long as no single party abuses their position.

The partnerships which are reportedly being investigated here, however, have come under criticism for some time. Privacy campaigners suggest the partnerships violate a 2011 consent agreement between Facebook and the FTC, after allegations the social media giant had shared personal information in a way that deceived users. At one point, there were more than 150 such partnerships in place, though Facebook has been phasing out most of the agreements over the last few years.

Although this is a retrospective investigation into the company, it could potentially contradict statements from CEO Mark Zuckerberg and other executives suggesting the business was being more transparent and managing user data responsibly. Facebook has been making this statement for several years. This case could prove Facebook mislead the world with these claims as well.

There is a general feeling of ‘if’ not ‘when’ here. Politicians, governments and regulators are seemingly scouring the Facebook business for any cracks, allowing them to slap a significant fine and parade the streets with a victory on behalf of consumer privacy. Facebook’s lawyers have done a pretty good job of wriggling so far, but there is a bit of a feeling the dam could burst at any point.

Nick Clegg defends Facebook’s business model from EU’s privacy regulation

Facebook’s head of PR reportedly had a series of meetings with EU and UK officials aiming to safeguard the social network’s business model heavily relying on targeted advertising.

Sir Nick Clegg, the former UK Deputy Prime Minister, now Facebook’s VP for Global Affairs and Communications, met three EU commissioners during the World Economic Forum in Davos and shortly after the event in Brussels, according to a report by the Telegraph. These commissioners’ portfolios include Digital Single Market (Andrus Ansip), Justice, Consumers and Gender Equality (Věra Jourová), and Research, Science and Innovation (Carlos Moedas). Clegg’s mission, according to the Telegraph report, was to present Facebook’s case to defend its ads-based business model in the face of new EU legislation related to consumer privacy.

According to a meeting minutes from the Ansip meeting, seen by the Telegraph, “Nick Clegg stated as main Facebook’s concern the fact that the said rules are considered to call into question the Facebook business model, which should not be ‘outlawed’ (e.g. Facebook would like to measure the effectiveness of its ads, which requires data processing). He stated that the General Data Protection Regulation is more flexible (by providing more grounds for processing).”

In response, Ansip defended the proposed ePrivacy Regulation as a complement to GDPR and it is primarily about protecting the confidentiality of consumers’ communications. In addition, the ePrivacy Regulation will be more up to date and will provide more clarity and certainty, compared with the current ePrivacy Directive, which originated in 2002 and last updated in 2009. Member states could interprete and implement the current Directive more restrictively, Ansip warned.

Facebook’s current security setup makes it possible to access users’ communication and able to target them with advertisements based on the communications. Under the proposed Regulation, platforms like Facebook need to get explicit consent from account holders to access the content of their communications, for either advertisement serving, or effectiveness measuring.

There are two issues with Facebook’s case. The first one is, as Ansip put it, companies like Facebook would still be able to monetise data after obtaining the consent of users. They just need to do it in a way more respectful of users’ privacy, which 92% of EU consumers think important, according to the findings of Eurobarometer, a bi-annual EU wide survey.

Another is Facebook’s own strategy announced by Zuckerberg recently. The new plan will make it impossible for Facebook to read users’ private communications with its end-to-end WhatsApp-like encryption. This means, even if consumers are asked and do grant consent, Facebook in the future will not be able to access the content for targeted advertising. Zuckerberg repeatedly talked about trade-offs in his message. This would be one of them.

On the other hand, last November the EU member states’ telecom ministers agreed to delay the vote on ePrivacy Regulations, which means it will be highly unlikely that the bill will be passed and come into effect before the next European Parliament election in May.

The office of Jeremy Wright, the UK’s Secretary of State for Digital, Culture, Media and Sport, did not release much detail related to the meeting with Clegg, other than claiming “We are at a crucial stage in the formulation of our internet safety strategy and as a result we are engaging with many stakeholders to discuss issues pertinent to the policy. This includes discussions with social media companies such as Facebook. It is in these crucial times that ministers, officials and external parties need space in which to develop their thinking and explore different options in a free and frank manner.”

The Telegraph believed Clegg’s objective was to minimise Facebook’s exposure to risks from the impending government proposals that could “place social media firms under a statutory duty of care, which could see them fined or prosecuted” if they fail to protect users, especially children, from online harms.

It is also highly conceivable that the meeting with the UK officials was related to influence post-Brexit regulatory setup in the country, when it will not longer be governed by EU laws. Facebook may want to have its voice heard before the UK starts to make its own privacy and online regulations.

Zuckerberg’s vision for Facebook: as privacy-focused as WhatsApp

The Facebook founder laid out his plan for the next steps how Facebook will evolve with a focus on privacy and data security, and promised more open and transparency in the transition.

In a long post published on Facebook, Mark Zuckerberg first recognised that going forward, users may prefer more private communication than socialising publicly. He used the analogy of town squares vs. living rooms. To facilitate this, he aims to use the technologies of WhatsApp as the foundation to build the Facebook ecosystem.

Zuckerberg laid out principles for the next steps, including:

  • Private interactions: this is largely related to users’ control over who they communicate with, safeguarded by measures like group size control and limiting public stories being share;
  • End-to-end encryption: this is about encrypting messages going through Facebook’s platforms. An interesting point here is that Zuckerberg admitted that Facebook’s security systems can read the content of users messages sent over Messenger. WhatsApp is already implementing end-to-end encryption and is not storing encryption keys, which makes it literally impossible for it share content of communication between individuals with any other third parties including the authorities. Zuckerberg recalled the case of the Facebook’s VP for Latin America being jailed in Brazil to illustrate his point.
  • Reducing Permanence: this is mainly about giving users the choice to decide how long they like their content (messages, photos, videos, etc.) to be stored, to ensures what they said many years ago would not come back to haunt them.
  • Safety: Facebook will guard the data safe against malignant attacks
  • Interoperability: Facebook aims to make its platforms interoperable and may extend to be interoperable with SMS too.
  • Secure data storage: one of the most important point here is Zuckerberg vowed not to save user data in countries which “have a track record of violating human rights like privacy or freedom of expression”.

To do all these right, Zuckerberg promised, Facebook is committed to “consulting with experts, advocates, industry partners, and governments — including law enforcement and regulators”.

None of these principles are new or surprising, and are an understandable reaction to recent history when Facebook has been battered by scandals of both data leaking and misuse of private data for monetisation purpose. However there are a couple of questions that are not answered:

  1. What changes Facebook needs to make to its business model: in other words, when Facebook limits its own ability to penetrate user data it weakens its value for targeted advertisers. How will it convince the investors this is the right step to take, and how will it to compensate the loss?
  2. Is Facebook finally giving up its plan to re-enter markets like China? Zuckerberg has huffed and puffed over the recent years without bringing down the Great Wall. While his peers in Apple have happily handed over the keys to iCloud and Google has working hard, secretly or not so secretly to re-enter China, how will the capital market react to Facebook’s public statement that “there’s an important difference between providing a service in a country and storing people’s data there”?

Social media censorship continues to escalate

In recent days another round of restrictions have been imposed across YouTube and Facebook, with social media companies increasingly being used as proxies in a culture war.

Most recently YouTube announced several new measures related to the safety of minors on YouTube. The main driver seems to be the comments people post on videos, which anyone who uses YouTube knows often range from unsavoury to downright deranged. The specific issue regards those comments on videos that feature minors, so YouTube has disabled all comments on tens of millions of such videos.

On top of that millions of existing comments have been deleted, and a bunch of channels judged to have produced content that could be harmful to minors have been banned, which indicates this is not a new issue. YouTube tends to take its most strident action when its advertising revenues are threatened and a recent exposé on this topic prompted major advertisers, including AT&T, to cancel their deals, hence this announcement.

While YouTube has always been quick to protect its ad revenues, it has historically been less keen to censor comments or ban creators outright, so this definitely marks an escalation. The same can’t be said for Facebook, which seems to be the major platform most inclined to censor at the first sign of trouble. An endless stream of scandals over the past year or two have taken their toll on the company, whichis now in a constant state of fire-fighting.

Facebook’s most recent piece of censorship concerns Tommy Robinson, a controversial UK public figure who concerns himself largely with investigating the negative effects of mass immigration. He recently published a documentary criticising the BBC on YouTube, and presumably promoted it via Facebook and Facebook-owned Instragram, because the latter two platforms decided that was enough to earn him a permanent ban.

 

In a press release entitled ‘Removing Tommy Robinson’s Page and Profile for Violating Our Community Standards’, published the day after Robinson released his video, Facebook explained that he had repeatedly violated its Ts and Cs by indulging in ill-defined activities such a ‘organised hate’. This seems to be a neologism for some kind of rabble-rousing combined with perceived bigotry.

“This is not a decision we take lightly, but individuals and organizations that attack others on the basis of who they are have no place on Facebook or Instagram,” concludes the press release. This sets an interesting precedent for Facebook as a significant proportion of the content generally found on social media seems to match that description. As is so often the case with any censorship decision, one is left wondering why some people are punished and others aren’t, as YouTuber Argon of Akkad, recently kicked off micro-payments platform Patreon, explores below.

 

There is a growing body of research that points to many of these decisions having a political or cultural bias. Quillette, an independent site that publishes analytical essays and research, recently ran with a series entitled ‘Who controls the platform’, which culminated in a piece headlined ‘It Isn’t Your Imagination: Twitter Treats Conservatives More Harshly Than Liberals’.

The piece detailed some statistical analysis undertaken by the author to see if there is any solid evidence of bias. Using stated preference for a candidate in the 2016 US presidential election, it was concluded that Trump supporters are four times more likely to be banned that Clinton ones. The piece also highlights some examples of apparently clear braking of Twitter’s rules that nonetheless went unpunished, once more calling into question the consistency of these censorship decisions.

Investigative group Project Veritas, which had previously claimed to have uncovered evidence of ‘shadowbanning’ – i.e. making content from certain accounts harder to find without banning them entirely – has now moved on to Facebook. From apparently the same inside source comes the allegation that Facebook indulges in ‘deboosting’, which seems to amount to much the same thing. You can watch an analysis of this latest report from independent journalist Tim Pool below.

 

Nick Monroe, another independent journalist whose preferred platform is Twitter, recently reported that “A UK group called Resisting Hate is trying to target my twitter account.” Resisting Hate apparently compiles lists of people it thinks should be banned from various platforms and then coordinates its members to send complaints to the platforms about them.

 

It seems likely that this mechanism is a major contributing factor to any imbalance in the censoring process. All social media platforms will have algorithms that identify certain stigmatised words and phrases and automatically censor content that contains them, but as even the UK police have shown, that is a very crude without the ability to understand context. They therefore rely heavily on their reporting mechanisms, a process that intrinsically open to abuse by groups with a clear agenda.

And it looks like calls for censorship are starting to spread beyond just single-issue activist groups into the mainstream media – the one set of people you would previously have imagined would be most opposed to censorship. Tim Pool, once more, flags up a piece published by tech site Wired that, quite rightly, flags up the inconsistency of the censorship process, but then takes the step of calling out some other ‘far right activists’ it thinks Facebook should ban while it’s at it.  

Twitter CEO Jack Dorsey recently did the interview rounds, including with several independent podcasters. While he was generally viewed as being a bit too evasive, he did concede that a censorship process which relies heavily on third party is flawed and open to abuse. The problem is there is now so much commercial, regulatory and political scrutiny on the big social media platforms that they have to be seen to act when ‘problematic’ content is flagged up.

You don’t need to spend much time on social media to realise that it’s the battle ground for a culture war between those in favour of (selective) censorship and those who want speech to be as free as possible. There is unlikely to ever be a clear winner, but there is little evidence that censorship ever achieves the outcomes it claims to desire: protecting people from harm.

Nobody is forced to consume any content they don’t like and censorship never changes anyone’s mind – it just drives speech and ideas underground and, if anything, entrenches the positions of those who hold them. To sign off we must give a nod to the hugely popular podcaster Joe Rogan, who recently conducted a 4-5 hour live stream with Alex Jones, a polarising figure that has been kicked off pretty much every platform. You can watch it below or not – it’s your choice.

 

UK sets out battle plan to tackle Silicon Valley’s ‘Digital Gangsters’

Facebook is only the tip of the iceberg, but Parliament is coming after Zuckerberg and his Silicon Valley cronies in the long-standing battle to understand and curb the influence of social media.

Featuring representatives from both sides of the political aisle led by the Department for Digital, Culture, Media and Sport (DCMS), this perhaps set the scene for one of the most aggressive stances against the social media giants. If all the recommendations are followed up on, there could be some major disruption on the horizon.

New regulations, new definitions for the business model, a new regulator, new fines, new competition investigations and new levies against the internet players, the outcome certainly justifies the months spend investigating the complex and diverse tapestry of social media and its impact on today’s society.

“We hope that the Government will include these considerations when it reviews the UK’s competition powers in April 2019, as stated in the Government response to our Interim Report,” the report states in its concluding statements. “Companies like Facebook should not be allowed to behave like ‘digital gangsters’ in the online world, considering themselves to be ahead of and beyond the law.”

Such is the pace of the legislative machine, nothing will change in the immediate future, but this is an important first step into the red-tape maze of regulation. This parliamentary committee, and the subsequent report, are laying the foundations for the future. The scene has been set, with the committee painting a complex picture of deception, greed and mistrust, readying bureaucrats for an assault.

To understand how we have gotten to this point you have to go back to Cambridge Analytica scandal. Until this point the data economy was thundering along relatively undisturbed, free from the worries of regulation and oversight, however this scandal pulled the curtain back ever so slightly. The data machine was slightly exposed, but ever since politicians have been clawing to understand the cogs and levers.

But what does this report recommend? Firstly, new regulatory mechanisms. The parliamentary committee has suggested the formation of a new regulatory body, which will be funded by levies placed on the internet companies wishing to operate in the UK, which would have greater insight and powers to pry open business models and processes. Another interesting recommendation is the creation of new definitions for the internet economy.

This is part of the issue today and the reason internet giants have so much freedom. Rules have been designed for different types of organizations for a bygone era. To compensate for the inadequacy of the rulebook, new clauses have been built on top. The issue has been compounded, creating a complicated red-tape maze with loop holes, secret corridors and grey areas for lawyers to expose. The shaky foundations have not provided a suitable mechanism to hold the segment accountable.

The report states what many already know but little has been done to correct. These social media companies are no-longer simply ‘platforms’ and neither are they ‘publishers’, therefore they should not be regulated as such. A new definition should be created, with rules specific to this segment. It’s amazing to think it has taken this long to come to this conclusion, but the committee is pushing for specific rules for specific circumstances.

The report also calls for a new ‘code of ethics’, designed by independent experts and overseen by the newly created regulatory body, to hold the internet giants accountable. Using the same principle as Ofcom uses for the regulation of broadcasters, these rules would be specific to the case. It would be a square peg for a square hole.

This new approach may also be extended to the murky world of political campaigning also. After the ICO called for a pause of political spending during election periods last year, the committee has responded by suggesting new powers which would:

“…define digital campaigning, including having agreed definitions of what constitutes online political advertising, such as agreed types of words that continually arise in adverts that are not sponsored by a specific political party.”

Again, this is a criticism of the sluggish nature of regulation, not recognising the world has evolved. New rules should reflect the new digital landscape, the changing methods of promoting messages and microtargeted political campaigning. More transparency will be suggested, “clear, persistent banners on all paid-for political adverts and videos, indicating the source and the advertiser”, as well as new transparency metrics for campaigns to declare such activities.

Perhaps a more dangerous area which has finally been addressed is the in-direct campaigning which benefits or detracts from parties and individuals. These are organizations such as Leave.EU, which had no direct link to political bodies but presenting questionable materials to individuals through the hyper-targeted advertising model offered by social media companies. This takes the committee into the nefarious world of foreign influence also.

Finally, the committee is also tasking the Competition Markets Authority (CMA) to conduct an extensive investigation into the power and influence of the social media companies. Again, this means little for the moment, but it could be the first step towards identifying potential ‘monopolies’, providing justification to break up the gathering empires.

This aspect of the report leans on documentation sourced by Six4Three, a tech company which is suing Facebook for in-appropriately influencing the success of its products.

“Given the contents of the Six4Three documents that we have published, it should also investigate whether Facebook specifically has been involved in any anti-competitive practices and conduct a review of Facebook’s business practices towards other developers, to decide whether Facebook is unfairly using its dominant market position in social media to decide which businesses should succeed or fail,” the report states.

The content of this report should not be dismissed as busywork for boresome bureaucrats but a direct threat to the success of Silicon Valley. The internet companies should be very worried about the content of this report, the conclusions these politicians have drawn and the potential implications of any recommendations. This is a political hot point right now, and we suspect there is enough ill-feeling towards the internet players to take these suggestions forward.

Facebook is the company which is constantly attracting the headlines, but this company is just one of many. The mentality has spread throughout the digital ecosystem, but Facebook is the scape goat. Unfortunately for all those involved, Facebook CEO Mark Zuckerberg has continued to antagonise politicians by refusing to show up to briefings, compounding the problem and rallying political enemies towards a single cause.

Although these recommendations are only the first steps into the complicated world of regulation, there is potential for significant disruption. With GDPR bubbling away in the background, and further privacy regulations in the pipeline, the basic business model of the internet giants is being challenged here. This document could be a defining factor in the future of the digital economy.

Germany has a swing at Facebook advertising platform

German regulator Bundeskartellamt has made a fresh attempt to curb the powers of the internet giants, this time targeting the data processing capabilities of Facebook.

The case built by Bundeskartellamt is based on what it has deemed market abuses by the dominant social media player in Germany. With Google+ shutting down, the regulator believes Facebook has a dominant position in the market, though it has not effectively informed users about the process of combing third-party data sets with information taken from the core Facebook platform to improve the detail of user profiles for advertising purposes.

This has been deemed inappropriate and Facebook has been ordered to shut down the process. This is not the first time this practise has been criticised by the regulator, but this is the first concrete ruling to for Facebook to desist.

“With regard to Facebook’s future data processing policy, we are carrying out what can be seen as an internal divestiture of Facebook’s data,” said Andreas Mundt, President of the Bundeskartellamt. “In future, Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts.

“In future, consumers can prevent Facebook from unrestrictedly collecting and using their data. The previous practice of combining all data in a Facebook user account, practically without any restriction, will now be subject to the voluntary consent given by the users. If users do not consent, Facebook may not exclude them from its services and must refrain from collecting and merging data from different sources.”

Facebook has already stated it will appeal the decision with the Düsseldorf Higher Regional Court, though this should come as little surprise considering the attack on the foundations of the social media giants business model. The reason companies like Facebook and Google have been so successful in the early days of the data-sharing economy is because of the accuracy of advertising. This ruling could have a notable impact.

Not only does Facebook collect information about you from its core platform, but by supplementing this picture with more detail from third-party sources, a hyper-targeted advertising platform can be created. It’s seemingly one of the reasons advertisers have stuck by Facebook despite numerous scandals over the last couple of years; there are very few other platforms or businesses which can offer advertising services on par.

Although it is now common knowledge platforms such as Facebook sell ‘you’ to advertisers to fuel the spreadsheets, Bundeskartellamt believes the firm should obtain consent from the user should it want to use additional information to create a more detailed user profile. This data could be taken from sister platforms such as Instagram or WhatsApp, or third-party websites and applications which have ‘like’ or ‘share’ buttons embedded.

“By combining data from its own website, company-owned services and the analysis of third-party websites, Facebook obtains very detailed profiles of its users and knows what they are doing online,” said Mundt.

The practise becomes a bit more nefarious however. Even if there is no Facebook symbols or embedded buttons on the page or application a user is viewing, data might still be flowing back to the social media giant. This is not what anyone would consider transparent and should be addressed in all markets, not just Germany.

Overall, the Bundeskartellamt believes Facebook is abusing its dominant market position to the detriment of the other side of the equation, the user. While this will be escalated to higher courts, should the regulator win favour from the judges Facebook would have to obtain consent from every single one of its 32 million German users. It certainly will be able to obtain consent from many, but it would be a dent to the increasing under-fire advertising machine.

This is of course not the first time Germany has taken a run up at the internet giants. Germany has consistently been one of the leading nations attempting to tackle the power and influence of the internet players, creating a more tightknit regulatory framework which you would naturally expect in business. However, the social giants and their slippery lawyers are doing their best to resist.

Back in 2016, Facebook was told to stop collecting WhatsApp data from users and delete all the information it has already collected, due to the fact proper consent had not been obtained. It has also been investigating whether the Google+ data breach during the latter months of 2018 violates GDPR. Germany has also been one of the leading voices in the prolonged battle to ensure the internet giants pay fair and reasonable taxes across the European bloc.

What we are seeing in this case is another example of a regulator cracking down on the freedoms granted to Silicon Valley. For years, the internet players have been sliding between rules designed to parallel industries, exposing the grey and unregulated areas, as rule makers consistently struggle to keep pace with technological progress. There are numerous governments attempting to create more accountability, though it has been an uphill struggle so far.

The next couple of months will certainly be an interesting period in Germany. With judges considering the Facebook appeal, a win for the Bundeskartellamt could at as a springboard to wrap up the OTTs in more red-tape. We hope there is enough wiggle room left to innovate, but the last two years of scandals have shown the dire need to more strictly regulate Silicon Valley.

Europe pats US internet giants on the head for being good censors

In just the third year of the EU’s Orwellian online speech purge it looks like the major platforms are largely submitting to its will.

The EU Code of Conduct on countering illegal hatespeech online has been going since 2016 as “an effort to respond to the proliferation of racist and xenophobic hate speech online.” The EU seemed to have decided that if you stop people saying horrid things online then you’ll also stop them having horrid thoughts and doing horrid things.

To implement this theory the EU needed the cooperation of the major platforms run by Facebook, Microsoft, Twitter and Google. It will have done the usual thing of threatening vindictive regulatory action if they didn’t comply so sensibly they have. They are now assessing 89% of content flagged as hatespeech within 24 hours and removing 72% of it.

Definitions of hatespeech seem to be pretty consistent across the EU, which is presumably no coincidence. Here’s the European Commission’s one:

Certain forms of conduct as outlined below, are punishable as criminal offences:

  • public incitement to violence or hatred directed against a group of persons or a member of such a group defined on the basis of race, colour, descent, religion or belief, or national or ethnic origin;
  • the above-mentioned offence when carried out by the public dissemination or distribution of tracts, pictures or other material;
  • publicly condoning, denying or grossly trivialising crimes of genocide, crimes against humanity and war crimes as defined in the Statute of the International Criminal Court (Articles 6, 7 and 8) and crimes defined in Article 6 of the Charter of the International Military Tribunal, when the conduct is carried out in a manner likely to incite violence or hatred against such a group or a member of such a group.

Instigating, aiding or abetting in the commission of the above offences is also punishable.

With regard to these offences listed, EU countries must ensure that they are punishable by:

  • effective, proportionate and dissuasive penalties;
  • a term of imprisonment of a maximum of at least one year.

With regard to legal persons, the penalties must be effective, proportionate and dissuasive and must consist of criminal or non-criminal fines. In addition, legal persons may be punished by:

  • exclusion from entitlement to public benefits or aid;
  • temporary or permanent disqualification from the practice or commercial activities;
  • being placed under judicial supervision;
  • a judicial winding-up order.

The initiation of investigations or prosecutions of racist and xenophobic offences must not depend on a victim’s report or accusation.

Hate crime

In all cases, racist or xenophobic motivation shall be considered to be an aggravating circumstance or, alternatively, the courts must be empowered to take such motivation into consideration when determining the penalties to be applied.

If you couldn’t be bothered to read all that, the TL;DR is that you can’t say horrid things online if race, nationality, belief, etc comes into it, or even join in if someone else does. If you do all sorts of punishments will be inflicted on you, including a year in prison (as maximum of at least one year? That doesn’t make sense). The victim of such hatespeech doesn’t even need to have accused you of anything and the court reserves the right to determine your motivation for doing stuff.

“Today’s evaluation shows that cooperation with companies and civil society brings results,” said Andrus Ansip, Vice-President for the Digital Single Market. “Companies are now assessing 89% of flagged content within 24 hours, and promptly act to remove it when necessary. This is more than twice as much as compared to 2016. More importantly, the Code works because it respects freedom of expression. The internet is a place people go to share their views and find out information at the click of a button. Nobody should feel unsafe or threatened due to illegal hateful content remaining online.”

“Illegal hate speech online is not only a crime, it represents a threat to free speech and democratic engagement,” said Vĕra Jourová, Commissioner for Justice, Consumers and Gender Equality. “In May 2016, I initiated the Code of conduct on online hatespeech, because we urgently needed to do something about this phenomenon. Today, after two and a half years, we can say that we found the right approach and established a standard throughout Europe on how to tackle this serious issue, while fully protecting freedom of speech.”

Those statements are perfectly Orwellian, insisting as they do that censorship is free speech. The really chilling thing is that they clearly believe that imposing broad and vague restrictions on online speech is vital to protect the freedom of nice, compliant non-hateful people. The EC even had the gall to berate the platforms for not offering enough feedback to those it censors. This could easily be resolved with a blanket statement along the lines of “We’re just following orders.”

As you can see from the tweet below extracted from the full report, the types of things that qualify as hatespeech have increased since the above definition was written. This kind of mission creep is made all the more inevitable by the complicity of Silicon Valley and complete absence of dissenting media, so there’s every reason to assume the definition of hatespeech will continue to expand indefinitely.

 

Apple slaps Google and Facebook on the wrist

One day after Facebook had its enterprise developer certificates revoked by Apple, Google ran into similar troubles with the iOS and App Store owner.

It turned out that Facebook was not the only naughty player attempting to circumvent Apple’s rules to forbid apps developed under enterprise certificates to be distributed outside of the company. Google was found to have distributed a data monitoring and survey app called Screenwise Meter. The app comes with Apple’s enterprise developer certificate granted to Google and has been distributed to a “panel” selected and maintained in partnership with the research firm GfK. The panel may include users as young as 13, or with the parents’ consent, those under 13 though the data monitoring method will be modified.

It is not clear if it was a reaction to the revocation of Facebook’s certificates, but Google stopped the distribution of Screenwise Meter before Apple acted. “The Screenwise Meter iOS app should not have operated under Apple’s developer enterprise program — this was a mistake, and we apologize,” Google said in a statement on Wednesday. “We have disabled this app on iOS devices. This app is completely voluntary and always has been. We’ve been upfront with users about the way we use their data in the app, we have no access to encrypted data in apps and on devices, and users can opt out of the program at any time.”

However, Google’s developer certificates were still made invalid by Apple on Thursday, reported first by The Verge. This resulted in Google’s pre-release beta apps as well as employee-only apps, for example those for using Google’s shuttle bus or coffee shops, stopping working. (One cannot help but wondering how many employees in Google, which controls Android and releases its own Pixel smartphones, are using iPhone as their primary devices.) The tone from Apple, however, was much reconciliatory. “We are working together with Google to help them reinstate their enterprise certificates very quickly,” said the statement from Apple to BuzzFeed.

In comparison, Apple was much sterner when pulling the plug on Facebook. “We designed our Enterprise Developer Program solely for the internal distribution of apps within an organization. Facebook has been using their membership to distribute a data-collecting app to consumers, which is a clear breach of their agreement with Apple.”

To look at the two cases together, there are two types of issues Apple needs to deal with. To borrow the economics jargons, one is normative, i.e. based on principles, another is positive, i.e. based on facts. On the normative side, Apple should clarify whether Facebook and Google were punished for launching apps gathering users’ private data or for distributing the apps under the wrong type of certificates and through unofficial channels, i.e. not using the App Store.

Although most media coverage was focused on the Facebook app gathering user data, it looks that Apple was more annoyed by the fact that Facebook (and Google) has abused its enterprise developer certificates. It said in the statement related to Facebook: “Any developer using their enterprise certificates to distribute apps to consumers will have their certificates revoked, which is what we did in this case (of Facebook) to protect our users and their data.”

However, what drove Facebook to distribute “Facebook Research”, the app in question through unorthodox channels, looks to be that Apple has banned apps to gather user data as detailed as app history, private messages, and location, from being listed in the App Store. In its “App Store Review Guidelines”, Apple stated “5.1.1 Data Collection and Storage: (iii) Data Minimization: Apps should only request access to data relevant to the core functionality of the app and should only collect and use data that is required to accomplish the relevant task. Where possible, use the out-of-process picker or a share sheet rather than requesting full access to protected resources like Photos or Contacts.”

The rule above would be caught in a paradox in cases where the “core functionality” of an app is to gather detailed user data and is explicit with it. That was the case with “Facebook Research”. Facebook said in its statement: “Key facts about this market research program are being ignored. Despite early reports, there was nothing ‘secret’ about this; it was literally called the Facebook Research App. It wasn’t ‘spying’ as all of the people who signed up to participate went through a clear on-boarding process asking for their permission and were paid to participate. Finally, less than 5 percent of the people who chose to participate in this market research program were teens. All of them with signed parental consent forms.”

As an aside, despite the repeated furore towards Facebook recently, neither users nor advertisers seem to be deterred. The Q4 results recently published showed that in Europe, where GDPR went into effect mid-2018, Facebook’s monthly active users went up from 375 million in Q3 to 381 million, and the average revenue per user in Europe jumped from $8.82 in Q3 up to $10.98.

If Apple was unhappy with companies distributing apps developed under enterprise certificates to users outside of the enterprises, there would come the positive side of the issues, i.e. related how Apple implements the rule. Whether Apple was punishing Facebook and Google as a deterrent to other companies that have or might have distributed apps externally using enterprise certificates, or it will go after all offenders, remains to be seen.

If it was the former tactic, an old Chinese saying that goes “Kill the chicken to scare the monkey” would summarise it well, though the two chickens Apple has put the knife in are much fatter than most monkeys. On the other hand, if Apple were true to its word that it would act on “any developer using their enterprise certificates to distribute apps to consumers”, it may find a long line of chickens (or monkeys) standing in the line. Alex Fajkowski, a Twitter user and iOS app developer, suggested that both Amazon and DoorDash were distributing apps to recruit temporary deliverers. Then a longer list of companies suspected of doing the same thing was drawn up, including companies like Square and Sonos (though Sonos looks to have removed the page recently).

Looking at it either way, it is clear that Apple is tightening the control over its already tightly controlled ecosystem. With Services becoming increasingly important, Apple would not want to see any loss of revenues from iOS apps distributed outside of App Store, nor would it want to be seen complacent or even complicit in any comprise of users’ privacy. Or, standing up to the internet giants which have been on the receiving end of much anger, could score a PR victory for Apple.

Both Facebook and Google had their enterprise certificates restored by Thursday evening.