Facebook unfriended

14 mins. to read
Facebook unfriended
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In a few short months, Facebook has gone from being the tech giant everybody likes to global bogeyman. Are all the little angry faces really justified?

Big data is watching you

The internet – the worldwide web – was supposed to create a libertarian paradise where netizens could freely exchange ideas outside the prying eyes of the state. Or so cyber-libertarian pioneers like John Perry Barlow believed. It was more about emancipation than making money. And indeed, the 20-year old founder of Facebook (NASDAQ:FB), Mark Zuckerberg, wrote on the eve of its IPO: Facebook was not originally created to be a company…It was built to accomplish a social mission – to make the world more connected…

Mr Zuckerberg had told a gathering at Harvard University just five days after “TheFacebook” was launched in 2004: I’m not going to sell anybody’s email address. Five years later, when Facebook had notched up 200 million users, the following exchange took place during an interview with the BBC:

MZ: The person who puts their content on Facebook always owns the information.
BBC: And you won’t sell it?
MZ: No, of course not.[i]

Now, strictly speaking – for reasons that I shall explain – Mr Zuckerberg has been good to his word. But (there had to be a but coming) we have to recall that Facebook’s revenue model is wholly based on selling targeted ads to users based on their data profiles. So there was always going to be some seepage of data between its users (people like you and me who have Facebook pages) and its clients (the advertisers who engage Facebook to sell their products and services).

In 2007 Facebook allowed users to build apps (single-purpose software programs) within their Facebook pages. At that time there was an explosion in computer gaming and most of these apps were for entertainment. But Facebook also permitted users to run their own sponsored ads to other users.

From November 2007 to September 2009, Facebook operated an advertising platform called Facebook Beacon. Sheryl Sandberg was recruited from Google to run it. Using Beacon, ads were seamlessly inserted into users’ newsfeeds on their mobile phones – this just as the smartphone revolution was kicking off. It soon became clear that Beacon was effectively a surveillance tool.

Beacon gathered data for Facebook on its users’ activities on third-party sites that had signed up with Beacon. Data gathering occurred even when users were not connected to Facebook and would happen without their knowledge. One of the main concerns was that Beacon did not give the user the option to block the information from being sent to Facebook.

The controversial service became the target of a class-action lawsuit and was shut down in September 2009. Facebook paid out US$9.5 million in damages to users with privacy concerns. Mr Zuckerberg characterized Beacon in his blog in November 2011 as “a mistake”.

Yet Beacon paved the way for Facebook Connect. Facebook Connect, also called Log in with Facebook is a set of authentication apps that developers can use to help connect with their Facebook friends. Facebook members can log on to third-party websites with their Facebook identity and, while logged in, can connect with friends via these media and post information and updates to their Facebook profile.

Most users have not understood that if the product is free, you are the product.

All this might be of academic interest if it were not for the immense reach that Facebook exerts. It has about 2.2 billion users or accounts so it is often said that about 30 percent of humanity uses it. This is almost certainly an exaggeration – hundreds of millions of those accounts are corporate entities of one kind or another be it companies, churches, charities or user groups. Moreover, many people these days seem to have multiple Facebook identities so there is double counting going on. Nevertheless, the fact that it is still free to sign up to Facebook and that it has a virtual monopoly in the social media space makes it hugely powerful. (True, LinkedIn with 400 million members and Alibaba (NYSE:BABA) are rival networks).

Thus far, however, most users have not understood that if the product is free, you are the product. (Translation: I will monetise your inputs). What has happened in recent months is that ordinary people (amongst whom most politicians) have woken up to the reality that while they may “own” their inputs into social media (for example, their photos) they cannot own the usable data that Facebook’s algorithms concoct out of those inputs.

Mr Zuckerberg’s difficult year

This was the year when a number of Mr Zuckerberg’s pigeons came home to roost. For years, long before Mr Trump’s presidential campaign, politicians in the USA were using Facebook to gather data about users’ likely voting intentions. Mr Obama’s team boasted about using Facebook in their successful 2012 campaign. Aleksandr Kogan, who apparently developed the app which allowed Cambridge Analytica to collect the personal details of 80 million Facebook users, was almost certainly not the first computer scientist to harvest data from Facebook which could be used to influence voting intentions.

But the revelations about Cambridge Analytica which exploded in mid-March this year triggered a tsunami of hostility towards Facebook in general and towards Mr Zuckerberg in particular. The normally baby-faced Facebook CEO at first seemed bewildered by the scale of animosity. It was as if Goody Two-Shoes had been caught cheating. After all, Mr Zuckerberg, now 33, controls 60 percent of the voting rights in a company that has a gargantuan market capitalisation (as I write) of US$554 billion with net income last year of US$16 billion on revenues of over US$40 billion.

Facebook fell in a week from a corporate near-paragon to a tobacco company caught red-handed in human trafficking.

What Mr Kogan had done was to have created a questionnaire on Facebook that lured an estimated 270,000 people into giving access to their data. But not just to their data – but the data of all their friends as well. The goons at Cambridge Analytica (now defunct) then fed this into their systems to obtain probable voting intentions of (a now estimated) 80 million people all over the world – as exposed by Channel 4 News and others.

That said it is still not clear whether Cambridge Analytica was able to sway a single vote in the 2016 US presidential election (still less in the UK Brexit referendum of the same year). Mr Zuckerberg told the US Senate that Facebook’s mistake was not to provide the data to third parties but not to have ensured that it was later deleted.

In terms of its reputation, Facebook fell in a week from a corporate near-paragon to a tobacco company caught red-handed in human trafficking. Mr Zuckerberg’s penchant for eating only the meat of animals that he has personally killed no longer seemed quite so endearing. As a result, during the week of 09 April he was hauled before both houses of the US Congress in Washington.

A suited and contrite Mr Zuckerberg told the Senate: We didn’t take a broad enough view of our social responsibility, and that was a big mistake. It was my mistake and I’m sorry…We are going through a broader philosophical shift in how we view our responsibilities as a company…

He explained that Facebook does not “sell” consumer data but rather it just leverages information to help advertisers target their potential customers.

The “ownership” of data

I heard the veteran British politician, Lord Ashdown say recently in a radio interview that people’s own data are theirs by right. But that, in my view, misunderstands the problem. Data is created by those who collect and analyse inputs, not by those who provide that input.

“His name is Lord A” is not a useful datum – though it is a piece of information (sometimes called a data point). But “Lord A breakfasts on kippers” is a datum since it combines or connects two data points (his name, and his breakfast preferences) into something that could be of interest to fishmongers. Facebook might have constructed this data from Lord A’s online activity – for example possibly from Lord A’s predilection for posting pictures of his breakfast on his Facebook page. So the input was free and Lord A got something out of it (the approbation of fellow kipper-eaters); but Facebook added value by creating a usable gobbet of data. Win-win.

This is not rocket science. But why, knowing as we do that everything we upload to the internet remains in cyberspace forever, do people regularly obsess that Facebook et al (Google or Amazon or Apple) have stolen their data? When, in fact, Facebook et al have spun data out of our online activity, be it deliberative and considered (like that of Master Investor readers) or inane and profane (like so many others).

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The idea that users of Facebook or Google have been abused by these corporations is a product of the all-pervasive victim culture in which we sadly now live. There is a problem of unrealistic expectations here – and of course gutless (and ignorant) politicians can always be relied upon to curry favour with the mob.

There is, however, an important difference in terms of how Google and Facebook use data. Google retains the user data it collects in house and uses it to create customised ads. Facebook still lets third-party developers access its data. I note that my new Samsung (KRX: 005930)smartphone melds all incoming SMS (text) messages and Facebook messenger communications into something called Messages. So Mr Zuckerberg presumably can read much of my correspondence at will. Plus he knows exactly where I am thanks to the tracking feature which I normally forget to switch off…

Facebook: Platform or publisher?

The other brooding source of contention against Facebook is to what degree it should censor content posted by users. The original libertarian ethos in which Facebook was forged was that anything goes– it was an open platform. Now, in the era of terrorism and the sort of extremist content exemplified by Islamic State (and other nefarious parties), there are obviously limits. But exactly what is and is not acceptable depends on your values and perspectives.

Bots that eliminate all material that may cause offence will ultimately render social platforms like Facebook unusable. Mr Rees-Mogg’s views on abortion – which reflect the official dogma of the Roman Catholic Church (which has 1.3 billion adherents) – are apparently unacceptable according to some. But the more Facebook or any other social media platform restricts content, the more bias it will become towards the views of a few favoured user groups. That is not in Mr Zuckerberg’s business plan – even though his blog reveals him as touchingly liberal.

Facebook facilitates the exchange of news. It does not write news stories and is not a news service (which would make it subject to the same regulatory regime as newspapers and TV channels). I believe that the overwhelming majority of its users understand that. Few people think that Facebook wants to be the go-to site for fake news and hate speech. But slaying those two dragons will not take just one spear.

In the Senate hearings Republican Senator Ted Cruz accused Facebook of censoring the views of conservatives. But in the age of Trump, conservatives are not doing too badly on getting their views across either.

Mr Zuckerberg did reassure the powers on Capitol Hill that there will always be a version of Facebook that will be free – suggesting that a two-tier system might emerge with paying customers getting greater privacy. But then what would happen if a paying subscriber interacted with a non-paying Facebook friend? It is true that internet subscription models are on the rise and that the brief dawn of a free and libertarian internet has clearly passed. But, on the other hand, a subscriber-based Facebook would just not be the Facebook that all of us know and some of us love.

After a precipitous drop in late March, Facebook’s shares are now back to a near all-time high of nearly $184. Business as usual has resumed – even if the prospect of tighter regulation looms larger, especially in Europe.

From funny cats to lonely hearts

In early May Facebook announced plans to launch a dating app, pairing singles in search of partners. Coming so soon after the fallout from the Cambridge Analytica scandal, this seemed insensitive to some observers. Despite Mr Zuckerberg’s assurances that users would have tools to delete their user history, Sasja Beslik, technology analyst at Nordea, wrote: “Facebook needs three years to fix the data and privacy issues, but just found time to take on Tinder”.

Actually, in an age where your car (and your insurance company) harvests data about your driving habits, we should not be surprised if Facebook takes an interest in the links we use from their site, just as Google monitors what we search for. They are all doing it.

The key relationship problem going forward is between Facebook and its users’ data. Fundamentally, this is a question of trust. But big government has got there first. At the end of this month, all corporations will have to comply with the EU’s General Data Protection Regulation (GDPR) which governs how data are acquired, processed, stored and exchanged. This is why many of us have been receiving emails of late from companies which hold our details on their distribution lists pleading with us to stay in touch after GDPR.

We should not be surprised if Facebook takes an interest in the links we use from their site, just as Google monitors what we search for. They are all doing it.

Sean Parker, one of the co-founders of Facebook (the man who famously persuaded Mr Zuckerberg to rename the fledgling company – drop the “the”![ii]) recently said that Facebook was set up to exploit a vulnerability in human psychology. And it is true that Facebook, especially as accessed by smartphone, is addictive.

But younger people (that’s most of Africa and Asia) are moving on to new addictions such as Snapchat (NYSE:SNAP) (the shares of which have not fared well of late, by the way). The demographic of Facebook’s users is shifting towards the older generation, who largely use it not to change the world but to keep in touch with friends.

Social media is inherently morally neutral: it can be used for good or ill. Most of us use Facebook as a tool to reconnect with long lost friends and to share experiences. As well as to sound off about the things we believe in – courteously and rationally, of course. Moreover Facebook never asks us for our credit card or bank account details. I consider (as Winston Churchill famously said about alcohol) that I have got more out of Facebook than Facebook has got out of me. But many people obviously don’t feel like that.

States of data

One way to think about the tech giants such as Facebook, Google, Apple and Amazon is that they are meta-corporations: post-modern states located in cyberspace. They are truly global and they reach deep into their users’ and clients’ psyches regardless of national, linguistic, cultural or religious affiliations.

Unlike states, they exist in order to make money – not least for their shareholders. As such, it is unlikely that they would wish to harm or disadvantage their users. When Mr Zuckerberg talks about communities I really do believe he means well. Similarly, Google’s house motto of Do no evil is equally well intended (which is not to say that it is incapable of evil).

Modern states, on the other hand, which have weaponised the internet are out to use our data against us – if they can. One of the main issues that Facebook and Google must face up to is how hostile intelligence agencies have infiltrated them to influence opinion. So far their response has been inadequate – but at least they are now aware of the problem.

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At the end of the day, of whom should we be more scared: social media platforms or autocratic states? Mr Zuckerberg or Mr Putin? At least Facebook operates within the glare of public scrutiny while certain states (Russia being foremost) are actively conducting hacking attacks and gathering data – actions for which they are not called to account.

These are some of the questions I shall be posing in the June edition of the Master Investor Magazine – and to which I hope to offer some answers for anxious tech investors. I shall also explain how the technology that Facebook has developed for its social media platform will have commercial potential in other fields – just as Google is much more than just a search engine. Both companies, together with Apple, are at the forefront of Artificial Intelligence (AI). And once the epoch-changing implications of AI become apparent we shall probably regard arguments about the ownership of data as facile.

What is clear to me is that, despite the doomsayers, these tech giants (like conventional states) are here to stay for the foreseeable future. They are natural monopolies, and even if they were broken up by state intervention (regulation – whatever you want to call it) they would eventually re-cohere into something like what they are today. We are lucky that a baby-faced perma-teenager idealist like Mr Zuckerberg is in control of our data for now. Things could be far worse.

See you in cyberspace.

[i]Quoted by Niall Ferguson in Big Zucker is watching you out of greed not fear, The Sunday Times, 25 March 2018.

[ii]As recounted in the 2010 film The Social Newtwork.

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