FTC Prepares To Slap Facebook With $5 Billion Fine [VIDEO]
As the FTC prepares to slap Facebook with a $5 billion fine – expected to be the biggest fine the agency has ever levied, and the largest incurred in Facebook’s history – one of the company’s co-founders has published an op-ed in the New York Times calling on the government to intervene and break up Facebook.
In the op-ed, Chris Hughes, Mark Zuckerberg’s Harvard roommate and Facebook’s first spokesman, emphasized that he believes Zuckerberg is a kind and well-intentioned person, but that Facebook has become too powerful – in terms of its market dominance and its influence on public life – that the only reasonable solution would be for the government to step in.
“I don’t think that Mark Zuckerberg can fix Facebook,” Hughes said. “I think only government can – by making the market more competitive, by breaking it up, and by creating these privacy restrictions.”
As it stands, the market isn’t well-equipped to punish Facebook for its misdeeds (just look at how all of those ‘Delete Facebook’ campaigns turned out).
“Because Facebook so dominates social networking, it faces no market-based accountability. This means that every time Facebook messes up, we repeat an exhausting pattern: first outrage, then disappointment and, finally, resignation.”
Hughes recounted how, during Facebook’s early days working out of an office on Emerson Street in downtown Palo Alto, Zuckerberg would describe his goals for Facebook as “domination.”
5 years later, the company has succeeded.
Over a decade later, Facebook has earned the prize of domination. It is worth half a trillion dollars and commands, by my estimate, more than 80 percent of the world’s social networking revenue. It is a powerful monopoly, eclipsing all of its rivals and erasing competition from the social networking category. This explains why, even during the annus horribilis of 2018, Facebook’s earnings per share increased by an astounding 40 percent compared with the year before. (I liquidated my Facebook shares in 2012, and I don’t invest directly in any social media companies.)
When the “Delete Facebook” movement first emerged, Hughes noted the irony in his friends exclaiming “thank God for Instagram” after deleting Facebook, apparently unaware that FB owned Instagram, too.
This points to an important issue: If people wanted to leave Facebook, where would they go?
Even when people want to quit Facebook, they don’t have any meaningful alternative, as we saw in the aftermath of the Cambridge Analytica scandal. Worried about their privacy and lacking confidence in Facebook’s good faith, users across the world started a “Delete Facebook” movement. According to the Pew Research Center, a quarter deleted their accounts from their phones, but many did so only temporarily. I heard more than one friend say, “I’m getting off Facebook altogether – thank God for Instagram,” not realizing that Instagram was a Facebook subsidiary. In the end people did not leave the company’s platforms en masse. After all, where would they go?
But Facebook’s success was no accident. In its own way, the Obama Administration was complicit in fostering the atmosphere of invincibility in which Zuckerberg operated. FB basically ignored the FTC’s one attempt to impose restraints on the company’s handling of private user data. Now, under the Trump administration, the FTC is preparing to slap FB with a $5 billion fine.
Facebook’s dominance is not an accident of history. The company’s strategy was to beat every competitor in plain view, and regulators and the government tacitly – and at times explicitly – approved. In one of the government’s few attempts to rein in the company, the F.T.C. in 2011 issued a consent decree that Facebook not share any private information beyond what users already agreed to. Facebook largely ignored the decree. Last month, the day after the company predicted in an earnings call that it would need to pay up to $5 billion as a penalty for its negligence – a slap on the wrist – Facebook’s shares surged 7 percent, adding $30 billion to its value, six times the size of the fine.
The F.T.C.’s biggest mistake was to allow Facebook to acquire Instagram and WhatsApp. In 2012, the newer platforms were nipping at Facebook’s heels because they had been built for the smartphone, where Facebook was still struggling to gain traction. Mark responded by buying them, and the F.T.C. approved.
Zuckerberg never shied away from leveraging the might of Facebook’s ecosystem to kneecap competitors, as Hughes recounts. When Twitter launched Vince, Facebook kneecapped it by blocking access to a feature allowing users to search for their Facebook friends. Facebook also prioritized videos created on its platform over those created by Vimeo and YouTube. When it couldn’t use these tools to crush Snapchat after the company’s CEO rejected a buyout offer, it simply copied Snapchat’s most popular features.
When it hasn’t acquired its way to dominance, Facebook has used its monopoly position to shut out competing companies or has copied their technology.
The News Feed algorithm reportedly prioritized videos created through Facebook over videos from competitors, like YouTube and Vimeo. In 2012, Twitter introduced a video network called Vine that featured six-second videos. That same day, Facebook blocked Vine from hosting a tool that let its users search for their Facebook friends while on the new network. The decision hobbled Vine, which shut down four years later.
Snapchat posed a different threat. Snapchat’s Stories and impermanent messaging options made it an attractive alternative to Facebook and Instagram. And unlike Vine, Snapchat wasn’t interfacing with the Facebook ecosystem; there was no obvious way to handicap the company or shut it out. So Facebook simply copied it.
Facebook’s version of Snapchat’s stories and disappearing messages proved wildly successful, at Snapchat’s expense. At an all-hands meeting in 2016, Mark told Facebook employees not to let their pride get in the way of giving users what they want. According to Wired magazine, “Zuckerberg’s message became an informal slogan at Facebook: ‘Don’t be too proud to copy.'”
As a result, would-be rivals can’t raise the money to take on Facebook. Nobody would finance them knowing that if they get too powerful, Facebook will run them out of business. Hughes doesn’t blame Zuckerberg for this; after all, he’s simply demonstrating the “virtuous hustle of a talented entrepreneur.”
But this is exactly why the government should feel obligated to step in and “break up Facebook’s monopoly and regulate the company to make it more accountable to the American people.”
Specifically, Hughes believes the FTC should work with the DoJ to undo the Instagram and Whatsapp acquisitions. There is some precedent for this, he says.
How would a breakup work? Facebook would have a brief period to spin off the Instagram and WhatsApp businesses, and the three would become distinct companies, most likely publicly traded. Facebook shareholders would initially hold stock in the new companies, although Mark and other executives would probably be required to divest their management shares.
Until recently, WhatsApp and Instagram were administered as independent platforms inside the parent company, so that should make the process easier. But time is of the essence: Facebook is working quickly to integrate the three, which would make it harder for the F.T.C. to split them up.
For what it’s worth, Hughes acknowledges his complicity in creating Facebook, and the fact that he didn’t speak out – or even question the company’s monopoly power – until after Cambridge Analytica.
But that’s the past: Already, support for breaking up big-tech monopolies is gaining traction among Democrats and Republicans alike.
The fact that Hughes has decided to criticize his former co-founder (and one-time college buddy) in such a public forum might seem galling to some: After all, Hughes was transformed into a millionaire 500 times over largely because he had the good fortune of being assigned to the same dorm room as Zuckerberg at Harvard.
But regardless, now that Hughes has broken the seal, will he inspire more of Facebook’s co-founders and former top employees speak out. It’s worth noting that in March, Chris Cox, one of Zuckerberg’s top deputies and a longtime FB executive, left the company. Cox’s decision to leave was reportedly due to ‘disagreement’s’ that were alluded to in a blog post.
Hughes accompanied his editorial with an appearance on the Today Show. Watch a clip from that interview below:
This article appeared at ZeroHedge.com at: https://www.zerohedge.com/news/2019-05-09/facebook-co-founders-shocking-admission-its-time-break-facebook