Anthony Clayton | Regulating the technology giants
On February 3, shares in Facebook (now part of Meta) lost US$230 billion in value, which was the largest one-day fall in US stock market history. This happened for a number of reasons.
First, Facebook reported that its number of daily active users had fallen by 500,000. That is a small fraction of its 2.91 billion monthly active users, but it is the first time that Facebook’s growth has gone into reverse. The particular significance of this decline is that these users are migrating to other platforms, mainly TikTok, which are rapidly taking over the market for young adults. Facebook is increasingly seen as old-fashioned, and its core customer demographic is ageing. Many of the users today are parents and grandparents who want to stay in touch with their children.
TikTok does not offer the same kind of service as Facebook, but it is better at getting and keeping the attention of young users. One reason why this is a fundamental threat for Facebook is that its business depends on ‘surveillance capitalism’, which means that it needs its users to give away vast amounts of their personal data so that Facebook can analyse it and sell the information to advertisers.
The power of every Internet platform is based on a simple principle of networks, which is that the value of a communications network is proportional to the square of the number of users of the system. As more users join a platform, this increases the incentive for additional users to join, so the company gets bigger, becomes more compelling for advertisers, so revenue rises, and the company becomes increasingly valuable. This is why companies like Facebook don’t charge for their services. Their goal is to get so big that they can capture most of the revenue from advertising, and they have been so successful in doing this that they have put hundreds of traditional media companies out of business.
However, Facebook has not relied solely on its network power. It has also been charged with using anti-competitive behaviour, such as taking over smaller rivals before they can grow too strong, to maintain its market dominance.
The drive to acquire monopoly power is why Facebook has been working relentlessly to increase the number of its users and why it has been accused of ignoring the evidence that its platforms have been used by criminals for looting and trafficking; that they have allowed the loudest, most aggressive and racist voices to dominate the public domain and thereby undermined rational debate and truth and honesty in public life; that their platforms have exposed innocent people to serious harassment and abuse and that social-media use by young people has been linked to depression and suicide; and that they have been utilised by some of the world’s most despicable regimes to crush dissent and oppress minorities.
However, the network effect cuts both ways. If Facebook’s users start to migrate in large numbers to another platform, that platform rapidly increases in value and Facebook then starts to lose value. This is probably the main reason why market sentiment moved against Facebook earlier this month.
Facebook’s second problem may be even more threatening to the company. Users are starting to realise how much personal information they have given away, and many of them are no longer comfortable with this. Apple introduced their app-tracking transparency (ATT) last year, which required users to consent to having their every move monitored by apps. When users were actually given a choice, many of them refused to hand over their personal data. That one innovation by Apple cost Facebook $10 billion in lost advertising revenues, almost 25 per cent of their overall profit in 2021.
CHANGE IN USER SENTIMENT
A change in user sentiment would threaten Facebook’s entire current business model. Many users are now increasingly aware of the extent to which they have allowed companies like Meta to see into their lives, track their relationships and examine their behaviour, and data protection and personal privacy is rapidly becoming increasingly important. When Apple allowed people to take their privacy back, people seized the opportunity. This is a serious threat to a company like Meta, which relies on being able to process and sell information about its users, typically without their realising how their data is being exploited.
In 2010, IT security expert Bruce Schneier said: “Don’t make the mistake of thinking you’re Facebook’s customer. You’re not – you’re the product. Its customers are the advertisers.” In spite of that very clear explanation, most Facebook users still think that they are the customers, and Facebook has managed to take full advantage of that misperception.
Facebook’s third problem is that people are getting increasingly concerned about the social damage being done by the company. Even Facebook’s own Oversight Board has decided that it is wrong to allow people’s names, addresses, and photographs to be published (known as doxxing) when this exposes them to vile abuse and savage cyber attacks. A statement issued earlier this month by the Oversight Board said that “harms resulting from doxxing disproportionately affect groups such as women, children, and LGBTQIA+ people, and can include emotional distress, loss of employment, and even physical harm or death”.
Facebook has also been under fire for amplifying hate speech. A horrible recent example is when the Tatmadaw regime in Myanmar encouraged the massacre of the minority Rohingya Muslims. It is reported that 24,000 Rohingyas were killed and nearly a million more fled and are now refugees in neighbouring countries. A group of Rohingyas are now suing Facebook for $150 billion for failing to take any action to stop the spread of hate speech and the subsequent genocide.
It is, of course, astonishing that Facebook has got away for years with exposing people to “loss of employment, physical harm or death”, or even genocide, without any consequences.
Facebook’s fourth problem is that regulators, too, are now waking up to this history of abuse. In 2020, the Irish Data Protection Commission ruled that Europe’s General Data Protection Regulation meant that Facebook could no longer harvest data from users in Europe and transfer it to the United States for processing. Meta then said that if it was blocked from transferring data, it would have to shut down Facebook and Instagram in Europe. It made a similar threat to the Government of Australia when it was told that it would have to start paying for news that it was taking from other media companies but backed down when the Government of Australia told the company that the country could manage perfectly well without it. The US, UK, Brazil, and other countries are also now changing their data- protection regulations, which will force Facebook to either withdraw from some of its major markets or else make significant changes in how it runs its business.
ABUSE OF MARKET DOMINANCE
Data, media, and anti-trust regulators are all now concerned about the abuse of market dominance by the hyper-scale social-media companies. In January, a US Federal judge ruled that the Federal Trade Commission could proceed with an antitrust suit to break up Facebook by forcing the company to sell Instagram and WhatsApp. The basis of the FTC case is that Facebook has monopoly power and has deliberately maintained that power through anti-competitive behaviour such as buying up rival companies.
In spite of these pressures, Facebook has not been making friends. In January the House Committee investigating the Capitol Hill attack asked a number of social media companies to hand over internal documents concerning the spread of misinformation, support for extremism and insurrection, and the attempt to overthrow the government of the United States on January 6, 2021. However, Meta and YouTube refused to fully comply, probably because they are concerned that a House investigation of the role of social media platforms in polarising society and encouraging extremism is likely to inflict further damage to their reputations, but many see this refusal as unacceptable given the profound seriousness of the charges.
It is, therefore, possible that the tide is now starting to turn against the hyperscalers, in particular Facebook, which has been associated with some of the worst abuses in recent years.
In two articles written for The Gleaner last year, I concluded that the technology giants had promised the world a new era of freedom but had opened the gates to abuse and malice on an unprecedented scale and that many governments would be obliged to bring the digital frontier under the rule of law. Regulators in a number of countries have now come to the same conclusion, and a number of new laws and regulations are being enacted. It is essential that Jamaica and other Caribbean nations also develop the legislation and enforcement capacity to protect users, monitor, and take effective regulatory action against any market or other abuses by companies like Facebook.
Anthony Clayton is professor of Caribbean Sustainable Development. Send feedback to email@example.com.