Shoptalk: Facebook Could Actually Benefit From a Little Regulation

By: Frédéric Filloux

On March 22, five days after the Cambridge Analytica scandal broke, Mark Zuckerberg came up with a weird statement regarding the prospect of regulation. “I actually am not sure we shouldn’t be regulated,” he said in typical Zuck parlance.

Why the hell would Facebook’s lider maximo welcome the intrusion of a regulator?

Two reasons: it could help his business in the long run, and by the time any regulation takes effect, Facebook will have consolidated even further its already immense power.

Let’s draw a parallel with the banking industry. This sector is one of the most regulated in the world. It’s an industry that is virtually impregnable, despite its long standing shortcomings. Banks are the least customer-friendly businesses you can imagine; whether you are a business or an individual, you pay an awful lot of commissions and fees for mediocre service. Even worse, banks kindly cooperate with their respective national tax systems, providing the government with all sorts of information, a practice that any privacy lawyer would love to challenge.

Banks have made of regulation the best guarantee for the perpetuation of their mediocrity. The only sector I see coming close in terms of regulation is the airlines industry, which at least has the excuse of passenger safety.

As a result, no one is willing to enter the banking sector. This better preserves the status quo; in the U.S. alone a third of bank customers said they would switch if Google, Amazon or Facebook offer banking services.

This “protection by regulation” is an inspirational example for Facebook. The global social network might experience a slight pain of having regulators curb the most abusive part of its business, but in the end the benefits will largely outweigh the hurdles.

Facebook has very little to fear from regulators, whether in the United States or in Europe. In countries in Southeast Asia, and soon in Sub-Saharan Africa, where Facebook aims to embody the internet, it doesn’t have to worry at all about oversight. It can still enjoy the position of a Big Tobacco, willing to create new pools of addicts.

In Washington, Facebook is now a strong player, on par with its two giant pals, Amazon and Google. Together, they spend nearly as much on influence lawmakers as Boeing, the primary U.S. defense contractor.

Big Tech “owns” a large chunk of the political spectrum, starting with the Democratic establishment, as noted recently by The Intercept: “Democrats have long-standing and numerous ties to the tech community. Former President Barack Obama was famously close to Google, with hundreds of staffers moving back and forth between executive branch jobs and the search engine giant. Last year, former Obama counselor Valerie Jarrett joined the board of Lyft, and just this week former national security adviser Susan Rice joined the board of Netflix.”

On the Republican side, Donald Trump won’t forget that he owes his victory to the astuteness of Cambridge Analytica—yes, he does—which played on Facebook’s recklessness regarding privacy, to target voters at an unprecedented scale.

Also, the president begins to understand the benefits of befriending the tech. And the tech giants also might need Trump’s political testosterone, if things go sour with Europe.

But an intelligent approach from Brussels against Facebook is quite unlikely. The glamorous European Commissioner for Competition, Margrethe Vestager, despite a plethoric staff of 900, has yet to prove her relevance and effectiveness. Vestager is obsessed with Google, which she hit with a hefty €2.4bn fine last fall. The penalty sanctioned violations that are eight years old, and involve companies that have been acquired or have made peace with Google.

Technically, Facebook is not easy to regulate. Some call for a ban on political advertising, but the boundaries are impossible to draw; the support of a candidate might be easy to regulate, but questioning the promotion of a Facebook page from a pro-gun group or environmental activists will inevitably collide with the First Amendment. As for a breakup of the companies into distinct pieces (Instagram, WhatsApp, Messenger, and the social network), it could be effective, but the procedure will take years.

The only way to make Facebook feel the pinch would be to ban its targeted advertising practices. That would be both a decisive and efficient move to protect users, and a sanction, as this feature is a key component in the company’s business model. But implementing such measures seem beyond the technical capability of legislators, whether they are in Washington or Brussels.

Frédéric Filloux is currently a John S. Knight Senior Research Fellow at Stanford University. He is also the editor of the Monday Note, a newsletter/blog that covers digital business models and technology. A full version of this edited article can be found at here.

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Published: June 15, 2018

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