One Social Network to Rule Them All

Internal Facebook documents leaked to NBC News offer new evidence that the company views its users’ data as leverage in its relationships with third parties.

In 2015, Facebook cut off the broad access to its users’ data that it had previously made liberally available to outside companies. As a result of the change, several apps that had relied on that access shut down. Facebook has maintained that its shift was prompted by increasing concern for its users’ privacy, but the leaked documents don’t reflect that. Instead, from 2011 to 2015, Facebook’s primary concern appears to have been its market power relative to outside apps and other tech startups.

Beginning in early 2010, Facebook created tools that allowed the makers of games (remember Farmville?) and other apps to connect with its audience in return for ensuring those users spent more time on Facebook…. However, after a few years, Facebook decided the app developers were getting more value from the user data they extracted from Facebook than Facebook was getting out of the app developers, the documents show.

After Facebook went public in May 2012, its stock price plummeted, which Zuckerberg later characterized as “disappointing.” The company was in a desperate position, documents show, with users sharing fewer photos and posts on the platform as they spent more time on their cellphones. An internal Facebook presentation looking back at this period used the phrase “terminal decline” to describe the fall in engagement.

Facebook executives, including Zuckerberg and Sandberg, spent months brainstorming ways to turn the company around. An idea that they kept returning to: make money from the app partners, by charging them for access to Facebook’s users and their data.

During this period, Facebook’s management discussed deals for the direct sale of user data, but ultimately the company didn’t follow that route. Instead, Facebook took a broader view of its business relationships, demanding “in-kind” compensation like reciprocal data-sharing or ad buys from third parties wanting access to Facebook’s trove of user data.

With Zuckerberg’s vision for Facebook set, the company began making deals with some of its most valued partners, including dozens of app developer friends of Zuckerberg and Sandberg. Facebook whitelisted their access to feeds of user data while restricting that same access to apps that Facebook viewed as competitors.

Anticipating that its business partners would react negatively to its stingier approach to access, Facebook chose “privacy” and user “trust” as a more benign public explanation. But the company’s data-sharing practices are now, if anything, more opaque.

These revelations could usher in a new era of antitrust enforcement in the tech industry:

Regulators have typically struggled to build robust antitrust cases against technology companies that offer services to users for free. If the product is free, then it’s harder to argue that the consumer is being harmed by a monopoly.

But if regulators can show that users were paying for access to Facebook with their personal data, and that Facebook valued that data as leverage against competitors, that could expose Facebook to an antitrust complaint.

But only with an administration that wants to make healthier competition a real priority. Last month, Democratic presidential candidate Elizabeth Warren proposed a plan to “Break Up Big Tech” by prohibiting large companies from both operating an online platform and participating on it. Other candidates have made vaguely supportive noises but have generally focused more on privacy and employee rights than on antitrust specifically.

Economist Tyler Cowen isn’t on board with Warren’s call to action:

[A] vigorous antitrust response would be hasty and harmful. Yes, Big Tech is big business, which has increasingly been cast as the big bad wolf. But doing so ignores all the good they do – and it doesn’t help that many of the aspersions on Big Tech are unfair….

When he questioned Facebook founder Mark Zuckerberg before Congress, Republican Senator Lindsey Graham tried to suggest that Facebook was a monopoly because there were no relevant alternatives for social networking. But the market features LinkedIn, Twitter, Snapchat, e-mail, various chat services, cellphone contacts, Pinterest, even the now superhot video game Fortnite. Personally, I also use my blog as a means of social networking, and believe it or not, I circulate in the physical world as well, preferring the proverbial cocktail party to time spent on Facebook. The true radicals among us might even see fit to knock on the door of their neighbours. But these networks all compete against each other for usefulness and convenience, and it’s easy to imagine Facebook becoming less of a major player with time, since many young people these days consider Facebook to be “square.”

Sure, Facebook bought up Instagram and WhatsApp, two potential competitors in the social-networking space. But the rise of these apps cannot be separated from the involvement of Facebook, which poured resources into those services and improved them. Furthermore, the clean, uncluttered design that drew users to them in the first place was precisely because Facebook had other ways of making money, such as through Facebook pages and its ad service; while Instagram does feature ads today, it’s easy to imagine that both apps would have been rendered unusable and unenjoyable because of ad saturation if they had stayed independently owned.

Cowen is more than a little glib in suggesting that neighborhood socializing affects Facebook’s market power. And his view that Facebook improved Instagram and WhatsApp (does he use either?) is controversial. But he’s right that antitrust policy shouldn’t be about demonizing extraordinarily successful companies. It should be aimed at maintaining the benefits of free market competition.

Photo credit: LaurenNCooper, “Servers.” Some rights reserved.

Categories: News

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