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Facebook’s Business Model Is What Brussels Hates

Facebook’s Business Model Is What Brussels Hates

Wednesday, 19 February, 2020 - 09:45

It’s not very surprising that Mark Zuckerberg’s state-visit-style trip to Brussels got a pretty chilly reception from European Union officials. The Facebook Inc. co-founder is pleading for more regulation to solve what he and his top lobbyist Nick Clegg consider to be a failure of public policy: If only governments could agree on how to regulate the internet without curbing free expression, the social network would be only too happy to comply.

This analysis is not new, and entirely misdiagnoses the problem in the Europeans’ view: It is Facebook’s business model, which hoovers up billions of users’ intimate thoughts and behavior patterns to better target ads, which is the issue. And it’s one that the social network would prefer just to tinker with at the margins, given the costs involved.

Judging by Facebook’s new 22-page paper on regulating online content, and Zuckerberg’s published speeches, the company views its own misadventures as simply symptoms of a bigger online disease. If regulators could just define harmful or illegal content, set the limits on free speech, quantify targets for the quality control that tech platforms should perform on their networks’ content — and do so at a global level — the results would be clear.

There’s a clear self-interest on display here. Aside from being short on detail and big on “stakeholder” dialog, Facebook’s vision would conveniently raise the barriers to entry for smaller rivals in a market that is already dominated by a handful of players, while itself continuing to benefit from the scale effects of keeping Whatsapp and Instagram under one roof. Together, Facebook and Google controlled over half of digital ad revenue in 2018.

One-size-fits-all regulation would be ideal for a globe-straddling company that boasts billions of users, an array of interlocking and addictive apps, and plans to launch its own digital currency to further lock people into its walled garden. There would be less to fear from the idea of data “portability” — even if users had the freedom to leave with all of their data and contacts, where else would they go? Facebook might also be only too happy to push quantifiable regulatory targets onto its 30,000 frazzled and overloaded content moderators. No wonder European Commissioner Thierry Breton dismissed Zuckerberg’s ideas as “too slow” and “too low” in terms of accountability.

The real blind spot for Zuckerberg is the Facebook business model, which is precisely what the EU wants the firm to address. Mark Zuckerberg says he cannot be responsible for 100 billion pieces of content — but that’s not really true. It’s more that it would be very painful — possibly existential — for the economics of Facebook to hire the necessary moderators and engineers to make it happen. Zuckerberg’s idea that Facebook is somewhere between a newspaper and a telecom operator is exactly the kind of vision that European regulators reject: They are more inclined to view Facebook as a financial-services firm, where valuable consumer deposits — or personal data — rub up against speculative and risky activity, such as targeted advertising and monopoly power. Systemic risk merits systemic scrutiny.

Therein lies the challenge for Brussels. So far, the sum total of regulatory action against Facebook is akin to “being nibbled to death by ducks,” a view recently expressed by Roger McNamee, one of Facebook’s earliest investors.  Facebook’s stock price slumped last month after its results showed slowing growth and higher expenses, but it has since rebounded. This is still a $610 billion company with an adjusted net income margin of 35% that makes over $20 billion in revenue per quarter. Shareholder challenges to company management have hit the brick wall of Zuckerberg’s absolute control of voting rights. And despite some US politicians’ calls to break up Facebook, there’s increasing convergence between Zuckerberg’s interests and Donald Trump’s geopolitical ambitions. European attempts to better tax tech companies have resulted in swift US counter-blows on trade; Trump also sees Facebook’s financial-services push as an extension of the US dollar’s power.

If the aim is to change the way Facebook works, there will have to be a lot more biting going forward, from enforcement of privacy law and upgrading of antitrust law to more scrutiny of how the company’s algorithms and content moderation are working. Otherwise Zuckerberg’s next visit to Brussels risks being depressingly familiar.


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