The GDPR and Facebook and Google, Intelligent Tracking Prevention, Data Portability and Social Graphs

Good morning,

My apologies about the extra email notification last night, and its awkward wording: I knew for a fact that some number of mails were directed into spam, and wasn’t trying to guilt anyone into clicking! In fact, open rates for Stratechery mails are extremely predictable. Even so, I do appreciate everyone who responded to assure me that they read my notes. I didn’t mean to beg for compliments but it’s still nice to hear!

As far as yesterday’s topic, I have been predicting for years that the tech giants were going to face regulatory pushback at some point in the future; the rub, as I’ve noted, is that generally these companies succeed by offering consumers a product they like for free, which is helpful politically. That, though, is why these Russian ads are so interesting despite the tiny amount of money at play: to say that the last election inflamed passions that have yet to die down is perhaps the biggest understatement in the history of Stratechery; said passions — on both sides — may be enough to overcome the inherent bias the public may have to support Facebook and Google, which means the question of what sort of regulation might work is an increasingly pressing one.

To that end, my goal yesterday was to further define exactly what these two entities in particular are, and why they are unprecedented: without understanding, regulation can have unintended consequences.

On to the update:

The GDPR and Facebook and Google

At the very end of yesterday’s article I noted that, generally speaking, regulation often acts as a moat for incumbents, and used the EU’s General Data Protection Regulation (GDPR) as an example:

There is lot of excitement about how this regulation will limit Google and Facebook in particular, by, for example, limiting the use of personal data and enforcing data portability (and not just a PDF of your data — services will be required to build API access for easy export).

The reality, though, is that given that Google and Facebook make most of their money on their own sites, they will be hurt far less than competitive ad networks that work across multiple sites; that means that even more digital advertising money — which will continue to grow, regardless of regulation — will flow to Google and Facebook. Similarly, given that the data portability provisions explicitly exclude your social network — exporting your friends requires explicit approval from your friends — it will be that much harder to bootstrap a competitor.

I received some amount of pushback on this point, with folks wondering why it is that Google and Facebook would have opposed many of the provisions in GDPR if, as I argue, it will in fact secure their position?

To quickly review, the General Data Protection Regulation is a massive new set of regulations set to go into effect in the European Union next spring, that significantly limits what companies can do with your private data without explicit consent (i.e. not generic user agreements) and, on the flipside, mandates that your data be easily portable. Sounds bad for Google and Facebook, right?

Indeed it is; this article from PageFair has a decent overview of which Google and Facebook businesses will be impacted; DoubleClick and Facebook Audience Network are most at risk because using user data to target ads on 3rd-party websites is clearly not what users agree to when they sign up for Google or Facebook accounts, which means said permission has to be granted explicitly. Good luck with that!

The problem with that article, though, is the title: “How the GDPR Will Disrupt Google and Facebook”. Leaving aside the fact that this perhaps the most inappropriate use of “disrupt” yet, the unacknowledged reality is that the GDPR is going to devastate nearly every other ad network. This drawing from 2015’s Popping the Publishing Bubble explains why quite nicely:

The entire point of advertising networks is to, instead of using sites as a proxy for users, target users directly. Said ad networks, though, have no relationship with the users they are tracking, so how can they ask for permission? And are individual sites really going to want to bear the burden of asking for permission for these third party services? Keep in mind, “ad networks” is dramatically simplifying the web of ad-tech companies that go into service ads, all of which will now need explicit user permission.

Google and Facebook, meanwhile, will still have their core businesses — search ads and News Feed ads — which, quite obviously, run on their own sites and rely on data integral to those same sites; for logged-in users in particular it is likely that targeting data will only be subject to an opt-out provision, not opt-in (and in the case of Google, the most important piece of data — user intent — isn’t protected data at all). To use another image from that article:

The net result should be obvious: GDPR will be a pain for Google and Facebook, but it will be lethal for many of their competitors, which means digital ad revenue post-GDPR…will go to Facebook and Google. That, of course, is already happening, which is why Google and Facebook haven’t embraced GDPR; it’s not like they need the help in building a moat, but they will get it none the less. Meanwhile, the inexorable shift of users to digital services and away from traditional advertising venues — which will result in the shift in advertising dollars to digital — is not going to slow down.

Intelligent Tracking Prevention

This analysis, by the way, applies to iOS 11’s Intelligent Tracking Prevention, which further limits (and will sometimes remove) third-party cookies in Safari; advertising groups wrote an open letter complaining that Apple was breaking the economic model of the web.

Guess whose models aren’t broken, though? These limitations won’t have any effect on advertising on Facebook and Google properties, and while their 3rd party networks could again be affected, both have far more plausible workarounds given how often people use their sites (visiting the top-level domain of a cookie is necessary for that cookie to be used in a 3rd-party context, so Google, for example, could theoretically change the top-level domain of DoubleClick cookies to, a domain most visit daily).

To be clear, I’m not saying GDPR is good or bad, or Intelligent Tracking Prevention for that matter (as a user both sound quite attractive). What I am saying is that, like most regulation, it is the incumbents that are most able to bear the costs, and, at least in the case of GDPR, simply survive (as someone concerned about Facebook and Google’s relative power, that sounds much less attractive!).

Data Portability and Social Graphs

In Manifestos and Monopolies I suggested a number of ways that Facebook’s power could be weakened; the first said that Facebook should not be allowed to buy another network-based app, and the third said that Facebook’s data collection practices should be easier to opt out of (to the GDPR’s credit it addresses this point, and I should have mentioned so at the time).

The second one, though, is both the most powerful from a remediative point of view, but also the most problematic:

Secondly, all social networks should be required to enable social graph portability — the ability to export your lists of friends from one network to another. Again Instagram is the perfect example: the one-time photo-filtering app launched its network off the back of Twitter by enabling the wholesale import of your Twitter social graph. And, after it was acquired by Facebook, Instagram has only accelerated its growth by continually importing your Facebook network. Today all social networks have long since made this impossible, making it that much more difficult for competitors to arise.

Several folks have suggested that the GDPR’s requirements around data portability, including that it be machine accessible (i.e. not just a PDF) will help new networks form, but in fact the opposite is the case. Note this section from the Guidelines on the right to data portability:

Third condition: the right to data portability shall not adversely affect the rights and freedoms of others

With respect to personal data concerning other data subjects:

The third condition is intended to avoid the retrieval and transmission of data containing the personal data of other (non-consenting) data subjects to a new data controller in cases where these data are likely to be processed in a way that would adversely affect the rights and freedoms of the other data subjects (Article 20(4) of the GDPR).

Such an adverse effect would occur, for instance, if the transmission of data from one data controller to another, would prevent third parties from exercising their rights as data subjects under the GDPR (such as the rights to information, access, etc.).

The data subject initiating the transmission of his or her data to another data controller, either gives consent to the new data controller for processing or enters into a contract with that controller. Where personal data of third parties are included in the data set another legal basis for the processing must be identified. For example, a legitimate interest may be pursued by the data controller under Article 6(1)(f), in particular when the purpose of the data controller is to provide a service to the data subject that allows the latter to process personal data for a purely personal or household activity. The processing operations initiated by the data subject in the context of personal activity that concern and potentially impact third parties remain under his or her responsibility, to the extent that such processing is not, in any manner, decided by the data controller…

Therefore, to prevent adverse effects on the third parties involved, the processing of such personal data by another controller is allowed only to the extent that the data are kept under the sole control of the requesting user and is only managed for purely personal or household needs. A receiving ‘new’ data controller (to whom the data can be transmitted at the request of the user) may not use the transmitted third party data for his own purposes e.g. to propose marketing products and services to those other third party data subjects. For example, this information should not be used to enrich the profile of the third party data subject and rebuild his social environment, without his knowledge and consent. Neither can it be used to retrieve information about such third parties and create specific profiles, even if their personal data are already held by the data controller. Otherwise, such processing is likely to be unlawful and unfair, especially if the third parties concerned are not informed and cannot exercise their rights as data subjects.

This forbids what I proposed: the easy re-creation of one’s social graph on other networks. Moreover, it’s an understandable regulation: my friend on Facebook didn’t give permission for their information to be given to Snapchat, for example. It does, though, make it that much more difficult to bootstrap a Facebook competitor: the most valuable data (from a business perspective, anyways) is the social graph, not the updates and pictures that must now be portable, which means that again, thanks to (reasonable!) regulation, Facebook’s position is that much more secure.

I made a dumb mistake on Thursday; that Apple now sells 4k movies is not in any way unique relative to Amazon or anyone else, who have been selling 4k movies for some time. My bad for having reached for a reason for Apple TV relevance!

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