The Facebook Current

“I thought something was going to get done,” lamented a friend, in reference to yesterday’s Senate hearing that featured a single witness: Facebook Founder and CEO Mark Zuckerberg. “This was the moment of reckoning, but it just turned out to be a whimper — it’s just for show.”

The sentiment seemed widespread on tech and media Twitter: there was a lack of specificity in terms of questions about privacy (this allowed Zuckerberg to turn nearly every question about the ownership of data to a discussion about user interface controls that limit where data is shown to other Facebook users), plenty of dodged questions (every time there was a question about the data Facebook generates about users beyond what they themselves enter into the system Zuckerberg needed to “check with his team”), and bad questions that presumed Facebook sells data, letting Zuckerberg run out the clock at least three times by explaining the basics of Facebook’s business model (this is precisely why I have been so outspoken about the problem of perpetrating this falsehood: it lets Facebook off the hook).

In fact, though, I thought the hearing was quite revelatory — a “show”, if you will. First, the fact that Zuckerberg appeared at all is the most meaningful news; the nature of the American political system is that changes happen extremely gradually, and only then in response to fundamental shifts in underlying political opinion. This can certainly be frustrating if one wants faster change — or a relief if one fears those in power — but that is precisely why Zuckerberg’s appearance was noteworthy: there is a current moving against Facebook, and while it is not realistic to expect that current to already be a wave, it was strong enough to sweep him to Washington D.C. for the week.1

Secondly — and count this as another indication that that current is stronger than it seems — there was a significant amount of agreement amongst the Senators in yesterday’s hearings that something needed to be done about Facebook. Forget the specifics, for a paragraph, because this is a notable development: while these hearings usually devolve into partisan cliches with the same talking points — Democrats want regulations, and Republicans don’t — yesterday Senators from both sides of the aisle expressed unease with Facebook’s handling of private data; obviously Democrats tried to tie the issue to the last election, but that made the Republicans’ shared concern all-the-more striking.

Here is where the partisan divide does matter: the most important takeaway from yesterday’s hearing was the emergence of two distinct viewpoints on what the problem with Facebook actually is, and what to do about it. That these two viewpoints are in opposition is precisely why their emergence is so compelling: a current has to be very strong indeed for there to be two clearly articulable sides.

Viewpoint One: Facebook Needs Regulation

OK, so maybe one of the viewpoints fit the partisan cliche, but the idea that Facebook might need regulation was a frequent talking point, particularly from Democrats pushing already-proposed legislation. After detailing how, in his view, Facebook violated its 2011 Consent Decree with the FTC, Senator Richard Blumenthal distilled this viewpoint to its essence here:

Senator Blumenthal: What happened here was willful blindness. It was heedless and reckless and in fact amounted to a violation of the FTC consent decree. Would you agree?

Mark Zuckerberg: No, Senator. My understanding is not that this was a violation of the consent decree. But as I have said a number of times today, I think we need to take a broader view of our responsibility around privacy than just what is mandated in the current laws.

SB: Well here is my reservation Mr. Zuckerberg…we’ve seen the apology tours before. You have refused to acknowledge even an ethical obligation to have reported this violation of the FTC consent decree, and we have letters, we’ve had contacts with Facebook employees…that indicates not only a lack of resources but lack of attention to privacy. And so, my reservation about your testimony today is that I don’t see how you can change your business model unless there are specific rules of the road. Your business model is to monetize user information, to maximize profit over privacy, and unless there are specific rules and requirements — enforced by an outside agency — I have no assurance that these kinds of vague commitments are going to produce action.

This view is clearly gaining traction in certain political circles. For example, here is Matthew Yglesias in Vox:

Online social networks obviously pose some novel legal and regulatory issues. But broadly speaking, the question of how to ensure that companies discharge their responsibilities is not a brand new one. Companies involved in the provision of health care are responsible — not just morally but legally and financially — to abide by the terms of the Health Insurance Portability and Accountability Act of 1996. That law hasn’t eliminated all privacy violations in the health care space, by any means, but when violations occur, they are punished, and the punishment gives actors in that space real reason to avoid them. Financial institutions, similarly, must comply with the privacy rules set out in the Gramm-Leach-Bliley Act. GLBA compliance has thus become its own somewhat tedious mini industry, with lawyers and specialized GLBA compliance firms you can hire…

Once upon a time, the US government wisely believed that it would be a bad idea to subject promising young internet startups to the bureaucratic morass involved in things like HIPAA or GLBA compliance. But the young internet startups are all grown up now, and can easily afford to hire vast armies of lawyers and compliance experts who will help them avoid breaches that lead to massive fines. There is no longer a need to treat Facebook like a delicate flower whose agility will vaporize if it is held legally accountable for its actions.

That means disclosure rules for advertising, it means financial consequences for privacy violations, it means firm antitrust action to restrain further acquisitions and try to uphold some semblance of competition in this marketplace, and it means taking a close look at whether the development of ever more sophisticated ad targeting algorithms is being done in a way that serves the public’s interest in creating a robust media infrastructure.

What is worth noting was the extent to which Zuckerberg was open to, if not something as specific as Yglesias’ proposal, regulation of some sort. Zuckerberg told Senator Dan Sullivan:

I’m not the type of person who thinks that all regulation is bad, so I think the Internet is becoming increasingly important in people’s lives, and I think we need to have a full conversation about what is the right regulation, not whether it should be or shouldn’t be.

This isn’t a surprise: Zuckerberg said in his opening remarks that Facebook was “going through a broader philosophical shift in how we approach our responsibility as a company”, which he meant as an indication that the company would be taking more responsibility, but which could easily be interpreted as the company locking the doors to its closed garden and throwing away the key. In this regulation is actually helpful, a point made by Senator Sullivan in response to Zuckerberg’s statement:

Senator Sullivan: One of my worries on regulation with a company of your size saying “Hey, we might be interested in being regulated”, but as you know, regulations can also cement the dominant power. So what do I mean by that? You have a lot of lobbyists, I think every lobbyist in town is involved in this hearing in some way or another, a lot of powerful interests. You look at what happened with Dodd-Frank: that was supposed to be aimed at the big banks, the regulations ended up empowering the big banks and keeping the small banks down. Do you think that that’s a risk given your influence that if we regulate, we’re actually going to regulate you into a position of cemented authority, when one of my biggest concerns about what you guys are doing is that the next Facebook, which we all want, the guy in the dorm room, we all want that to be started, that you are becoming so dominant that we’re not able to have that next Facebook? What are your views on that?

MZ: Senator I agree with the point that when you’re thinking through regulation across all industries you need to be careful that it doesn’t cement in the current companies that are winning…I think part of the challenge with regulation in general is that when you add more rules that companies to follow, that’s something that a larger company like ours inherently just have the resources to go do, and that might just be harder for a company getting started to comply with.

That Sullivan, a Republican, would be suspicious of regulation is hardly a surprise — that’s the cliche I referenced above. There’s more context to Sullivan’s comments though: he hinted at an alternative to regulation.

Viewpoint Two: Facebook is Too Big

Here is Sullivan’s lead-up to Zuckerberg’s embrace of regulation quoted above:

Your testimony, you have talked about a lot of power, you’ve been involved in elections, I thought your testimony was very interesting, really all over the world, 2 billion users, over 200 million Americans, $40 billion in revenue, I believe you and Google have almost 75% of the digital advertising in the U.S., one of the key issues here is Facebook too powerful? Are you too powerful?…

When you look at the history of this country, and you look at the history of these kinds of hearings…when companies become big and powerful and accumulate a lot of wealth and power, what typically happens from this body is there’s an instinct to either regulate or break-up. Look at the history of this nation. Do you have any thoughts on those two policy approaches?

No wonder Zuckerberg was so eager to talk about regulation: it’s not simply that it benefits incumbents, it’s that it is a whole lot more attractive than discussing a potential break-up!

Note, though, that Sullivan wasn’t alone in pushing this idea that Facebook might be too big (a sentiment that Senator John Kennedy also raised last fall). The most fascinating Republican line of questioning came from Senator Lindsey Graham:

Senator Graham: Who’s your biggest competitor?

MZ: We have a lot of competitors.

SG: Who’s your biggest?

MZ: Hmm, I think the categories — did you want just one? I’m not I could give one — could I give a bunch?

SG: Uh-huh.

MZ: So there are three categories I would focus on. One are the other tech platforms, so Google, Apple, Amazon, Microsoft. We overlap with them in different ways.

SG: Do they provide the same service you provide?

MZ: Uhm, in different ways, different parts of it, yes.

SG: Let me put it this way. If I buy a Ford and it doesn’t work well and I don’t like it, I can buy a Chevy. If I’m upset with Facebook, what’s the equivalent product that I can go and sign up for?

MZ: Well, the second category that I was going to talk about…

SG: I’m not talking about categories. What I’m talking about is real competition that you face, because car companies face a lot of competition, that if they make a defective car, it gets out in the world, people stop buying that car and buy another one. Is there an alternative to Facebook in the private sector?

MZ: Yes Senator. The average American uses eight different apps to communicate with their friends and stay in touch with people, ranging from texting to email…

SG: That is the same service you provide?

MZ: Well we provide a number of different services.

SG: Is Twitter the same as what you do?

MZ: It overlaps with a portion of what we do.

SG: You don’t think you have a monopoly?

MZ: It certainly doesn’t feel like that to me!

SG: So it doesn’t. So, Instagram, you bought Instagram, why did you buy Instagram?

MZ: Because they were very talented app developers who were making good use of our platform and understood our values.

SG: It was a good business decision. My point is that one way to regulate a company is through competition, through government regulation, here’s the question all of us have to answer. What do we tell our constituents given what’s happened here, why we should let you self-regulate? What would you tell people in South Carolina, that given all the things we just discovered here, is a good idea for us to rely upon you to regulate your own business practices?

Zuckerberg quickly articulated that he would be in favor of regulation, using much the same language he would return to later in his response to Senator Sullivan, but the implication of Graham’s line of questioning was more profound than that: perhaps the real problem is the monopolistic nature of the company, because the normal checks that come from competition were missing.

This is, I would note, quite consistent with the skepticism about regulation voiced by Senator Sullivan: if the concern is that a bunch of rules limit competition, then a better response, if there must be one, would seek to empower competition by undoing the monopoly entirely.

The Shifting Debate

The most likely outcome of Facebook’s current scandal continues to be that nothing will happen, for all of the inherent lethargy in our political system noted above. And, if something does, European-style data regulation seems the more likely outcome, as I noted last month. No wonder Facebook’s stock was up after the hearing!

It’s worth keeping in mind, though, that because Facebook is so dominant, the question of its governance is ultimately a political question, and to that end the shifts in the terms of debate, if not yet its outcome, have been striking. Zuckerberg is in Washington D.C., everyone says something must be done, and critically, both sides have ideas about what that should be; while this certainly may be mostly a Facebook problem, the rest of the industry should take note.

  1. Zuckerberg will testify again later today, this time in front of the House of Representatives’ Energy and Commerce Committee