Digital privacy

The Facebook scandal could change politics as well as the internet

Even used legitimately, it is a powerful, intrusive political tool




“MY GOAL was never really to make Facebook cool. I am not a cool person,” said Mark Zuckerberg, the boss of the social-media giant, in 2014. That has never been more true. His company has spent the past year stumbling through controversies over the peddling of fake news and enabling Russian manipulation of American voters, with various degrees of ineptitude. Then, on March 17th, articles in the New York Times and Britain’s Observer newspaper suggested that a political consultancy, Cambridge Analytica, had obtained detailed data about some 50m Facebook users and shared this trove of information and analysis with third parties, including Donald Trump’s presidential campaign. The result is a corporate crisis—and a political reckoning.

Republicans and Democrats alike have called on Mr Zuckerberg and the heads of other tech firms to testify before the Senate. America’s consumer watchdog, the Federal Trade Commission (FTC), has also reportedly launched an investigation into Facebook’s privacy policies and whether it violated a consent decree of 2011 requiring the social network to notify users about how their data are shared. British MPs have called for Mr Zuckerberg to come before a select committee.

Even Facebook’s allies have unfriended it. On Twitter, Brian Acton, a co-founder of the popular messaging app WhatsApp (which Facebook bought for $22bn in 2014), encouraged people to “#DeleteFacebook”. News of his post pinged around the internet, including on Facebook itself. Investors, who have forgiven months of bad headlines in light of Facebook’s strong financial performance, are growing jittery. Between March 16th and March 21st the firm’s share price fell by 8.5%, erasing $45bn in market value. Facebook is still the world’s eighth-most-valuable publicly listed firm, but shareholders worry that politicians in Europe and America may impose onerous restrictions on data, suppressing growth.

Help yourself to our data

The Cambridge Analytica scandal reveals Facebook’s morphing, porous privacy policies and the company’s cavalier approach to oversight. The data on Facebook users were obtained by Aleksandr Kogan, a researcher at Cambridge University, who enticed some 270,000 people to take part in a survey in exchange for a small fee. When those users installed the survey app, they shared details about themselves and—unwittingly—their friends, around 50m Facebook users in all. Surprisingly, before 2015 Facebook’s rules allowed the mining of social connections without each user’s consent.

What happened next was never permitted by Facebook. Mr Kogan provided these data to Cambridge Analytica, which then allegedly shared them with customers, including Mr Trump’s campaign. Cambridge Analytica is backed by Robert Mercer, a Republican donor; Steve Bannon, formerly a top adviser to Mr Trump, used to serve as an executive. (The Economist used Cambridge Analytica for a market-research project in the past.)

Although news of Cambridge Analytica’s peddling of Facebook data was first reported in December 2015, the social network reportedly did not respond until eight months later, with a letter asking the firm to delete the data. It seems not to have checked that this was done. The lax response is evidence of wider “systemic operational problems”, says Brian Wieser of Pivotal Research, who follows the firm.

If reports are to be believed, Cambridge Analytica has a habit of pushing ethical and legal boundaries to gather data. On March 20th Alexander Nix, its chief executive, was suspended after recordings were aired on British television that seem to capture him describing manipulating people for information. Britain’s data-protection regulator, the Information Commissioner’s Office, is expected to search Cambridge Analytica’s offices.

The scandal reverberates through politics as well as the internet. Facebook has built a mammoth advertising business, with sales of around $40bn in 2017, by gathering detailed information about users’ identities and behaviour online and then selling access to them. Facebook tracks users not only on its services, including its eponymous social network and Instagram (which it owns), but across the web. Knowing that someone is a dog owner and interested in buying a new lead may not seem controversial. “Microtargeting” someone in order to influence their political views and voting behaviour appears more sinister.

Though political advertising is still a minuscule percentage of Facebook’s revenues, perhaps around 3%, it is a growing and lucrative line. Politicians have found that using Facebook can pay dividends. Even without using illegitimately obtained data to boost targeting, the social-media firm offers precise tools to political campaigns, including reaching users on Facebook whose names, phone numbers and e-mail addresses they already have. Facebook also enables campaigns to target voters who show an interest in the same issues or have similar profiles, packaging them into what it calls “lookalike audiences”. No other Western company apart from Google has such rich data.

Barack Obama’s campaigns were digitally sophisticated and used Facebook to reach prospective voters. Yet Mr Obama got proper permission to obtain data about people’s friends and did not microtarget users on an industrial scale, unlike Mr Trump’s campaign. Targeting based on Cambridge Analytica’s data may have helped Mr Trump win the presidency, although how much cannot be known.

A tepid response

Companies can overcome scandals. Rupert Murdoch, a media mogul, survived a maelstrom in 2011 when it was reported that a newspaper he owned had hacked the phone of a murdered girl, Milly Dowler. Mr Zuckerberg, like Mr Murdoch, has structured ownership of his firm so that he controls super-voting shares, and will probably maintain his power. But there is speculation that some of his lieutenants, including Sheryl Sandberg, could leave in the next year. The head of security, Alex Stamos, is expected to resign.

Mr Zuckerberg’s response to the scandal has been modest. He has apologised and promised thorough audits of third-party app developers and steps to make it easier for users to control their privacy settings. Such basic assurances may not be enough to reverse flagging corporate morale and win back the enthusiasm of users. Trust in social media is already low, and Americans have been spending less time on Facebook, in part because so much of what they see online is negative and dubious. Globally, users spent around 50m hours less per day on Facebook in the fourth quarter of 2017, which translates into a 15% drop in time spent year over year, according to Mr Wieser.

As some users turn away, politicians in America and Europe are likely to give Facebook more of their attention. They are scrutinising Facebook’s conduct and may propose new laws, especially in the domain of data privacy. In May regulations concerning data protection and user consent will come into effect in Europe. America has historically been weak on data protection, except for specific industries like health care. Overworked regulators have typically responded to reports of misconduct on a case-by-case basis, and the online advertising industry has been trusted to police itself.

Mr Obama was in favour of a consumer-privacy bill of rights, which would give users more control of their online data by requiring user consent. That made little headway because of opposition from the industry. Some politicians may want to revive talk of such a law, especially as Europe strengthens its safeguards. But political reformers seldom have an easy time in America. And, like many others, politicians have come to rely on Facebook.


“Global Britain” Is Already on Its Own

Mark Malloch-Brown

British Prime Minster Theresa May arrives at the Council of the European Union

LONDON – British Prime Minister Theresa May has finally had a good crisis. Responding to the nerve-agent attack on former Russian double agent Sergei Skripal and his daughter Yulia in the placid market town of Salisbury, England, May projected strength – including to her fellow European leaders – by demanding that the Kremlin answer for the crime. As a former home secretary, security is clearly her strong suit, and she has now gone a long way toward repairing her tattered authority in Parliament.

Moreover, May also managed to reach an agreement with European Union negotiators on a 21-month transition period for the United Kingdom’s withdrawal from the bloc. And yet, despite May’s personal successes, this week might well be remembered as the moment when the foreign-policy costs of Brexit became clear.

Until now, the British foreign-policy grandees and former ambassadors warning that Brexit will severely damage the UK’s standing in the world have been dismissed by much of the public as discredited elites and fear-mongers. Understandably, Brexit supporters have taken little notice of various straws in the wind heralding the direction their country will take. They are unmoved, for example, by the fact that, after losing a United Nations vote, their candidate pulled out of the race and the UK now has no judges seated at the International Court of Justice for the first time in 71 years.

Still, if that wasn’t enough to reveal Britain’s new loneliness, the use of a Soviet-era nerve agent on British soil certainly is. Though EU members have expressed their support for Britain and made assurances that Brexit will not disrupt solidarity or security, there are signs that this united front may, in fact, be just a front. The European Commission president, Jean-Claude Juncker, congratulated Russian President Vladimir Putin on his election to a fourth term – a move that rankled the UK. Greece and others also expressed some skepticism about the relationship with the UK as they arrived in Brussels for the European Council summit.

Across the Atlantic, US President Donald Trump also congratulated Putin. While he also condemned Russia for the Salisbury incident – a rare departure from the Putin-loving corner he has painted himself into – support for Britain on this occasion seems to have been motivated more by his political calculus than a deep sense of solidarity. After several days of deafening silence, Trump was under growing pressure to speak out. And on the whole, his unpredictability and transactional approach to alliances has already called into question Britain’s most important relationship outside Europe.

Beneath the surface, the international response to the Salisbury attack reveals alarming cracks in the UK’s position on the world stage. It is widely assumed that the UK’s weak response to similar incidents, not least the 2006 murder of the Russian defector and former spy Alexander Litvinenko, has convinced Putin that he can get away with such provocations. But Putin may also have anticipated the public outrage over the attack on the Skripals and calculated that EU member states with pro-Russian governments – namely, Hungary, Greece, and, soon, Italy – would veto any strong EU response. By this reasoning, Putin could drive an even larger wedge between Britain and Europe, thus advancing his longstanding goal of undermining European solidarity.

In any case, the UK’s isolation and vulnerability are now abundantly obvious. In its efforts to apply pressure on Europe, the Kremlin has identified Britain as a weak link. And those efforts go well beyond attempted murder on British territory. It seems increasingly likely that Russia also interfered in the Brexit referendum, as it did in the 2016 US election; and that Russian criminal elements have penetrated London’s financial and services sectors.

Britain is a beachhead in Russia’s strategy to undermine European security. Unfortunately, the territorial defense guarantee that comes with NATO membership does little good in a conflict conducted in the shadows through assassinations, cyber warfare, and criminal subterfuge. Nor does NATO membership help in responding to the Kremlin’s exploitation of European dependence on Russian energy, such as when it uses natural-gas supplies as a geopolitical weapon.

The decision by a slim majority of UK voters to leave the EU may have been motivated mostly by domestic issues such as political dysfunction and immigration, but the Skripal episode has made it clear that the costs of departure will be felt first on the foreign-policy front. The rest of Europe will sink or swim together in confronting Russian aggression. But the UK, having singled itself out, is a prime target for a dunking.

In recent years, Russian officials had already become increasingly derisive toward Britain’s presumptions about its international status and power. Like many observers around the world since the Brexit vote, the Kremlin does not look at the UK and see a country able to wield anything approaching global influence. Rather, it sees a country mired in nostalgia – easy pickings for destabilization.

In a sense, “Leave” voters were right that the EU is out of touch with the times, but not for the reasons they thought. One can debate whether the EU is a stale champion of the rules-based liberal international order. But what is now clear is that it is not ready for the emerging post-liberal order.

In the new order, strong states will throw their weight around with little care for the rules-based system that the EU has long epitomized. But at least the EU will have numbers on its side. Putin’s Russia will be just the start of post-Brexit Britain’s worries. The UK will also have to contend with China, Turkey, Egypt, Saudi Arabia, and even its most important ally – the US.

Just as Britain negotiates its exit from the EU, the consensus-based multilateralism of the post-war era is being supplanted by muscular nationalism. In this new schoolyard, only those with committed friends will be able to stand up to the bullies. Others will have no other choice than to cower and hope for the best.


Mark Malloch-Brown, a former UN Deputy Secretary-General and British cabinet minister, is Chair of the Business and Sustainable Development Commission, and of Best for Britain, an organization fighting to keep the United Kingdom in the European Union.

jueves, abril 05, 2018

FACEBOOK COMES UNDER SIEGE / BARRON´S MAGAZINE

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Facebook Comes Under Siege

By Jon Swartz

Facebook Comes Under SiegeFacebook Comes Under Siege / Photo: Pablo Delcan 



Mark Zuckerberg would like everyone to calm down.

After several days of a heated public outcry over a British political consulting firm’s use of data from millions of Facebook users to help elect President Trump, the Facebook CEO said on Wednesday that the social media behemoth had a technical solution in place.  
In an interview with CNN, a contrite Zuckerberg vowed to mount “a full investigation” of thousands of apps with access to wide swaths of data “before we locked down our platform in 2014.” He said he was open to testifying before Congress, and some form of regulation.
“There will always be bad actors” trying to misuse the platform, his No. 2, Sheryl Sandberg, told CNBC. “We are taking aggressive steps to be more transparent.”

Whether such steps will be enough remains to be seen. Facebook (ticker: FB) may be counting on changes that affect all social media platforms, leaving its market share relatively intact.

But with more than two billion users, Facebook is the top target for privacy concerns, and it is almost certain that the company will not walk away unscathed. Pressure by lawmakers and regulators in the U.S. and Europe, unease among advertisers, and anger among its users means that the company’s galloping unfettered ride on the back of user content and data is over.

“We overinvested in new services and underinvested in building protections,” Elliot Schrage, Facebook’s vice president of communications and public policy, tells Barron’s.

“The challenge is how quickly and effectively” the company can make changes, he says. “How hard will it be?”

For investors, the question is whether the company can adapt without undermining the advertising model that has powered years of extraordinary growth. There is considerable doubt at the moment. Shares of Facebook slumped 14% last week, erasing $75 billion of market value. But the decline may make Facebook shares only more tempting to investors. (See “Facebook Shares Look Like a Bargain.”)

Facebook says it is increasing efforts to work with government officials, industries, and experts to take on hate speech, child pornography, and other unsavory digital content. The company is also building more controls for users to monitor content.

But those efforts are likely to increase costs and, in turn, constrain growth in the short-term. Deutsche Bank analysts have noted that political scrutiny, including regulation, “could ultimately impact Facebook’s ability to gather and deploy data for ad targeting, which has been critical to ad efficacy and budget growth.”

Should Facebook end up having to hew to more traditional advertising rules, it runs the risk of becoming just another media company, losing its appeal to advertisers who flock to Facebook for both its enormous audience and its ability to slice that audience into finely targeted groups.

Is Facebook up to the challenge?

In the next month or so, the company will roll out a tool at the top of News Feed with a list of recently used apps and an option to revoke permissions to user data. Such a tool is already available in privacy settings, and it is essentially making it more prominent to ensure users are aware.

Zuckerberg has acknowledged that sites like Facebook may need regulation, telling The Wall Street Journal that “there’s no reason why the internet advertising industry should have a lower transparency standard than print or TV ads.” He has pointed to his company’s push for ad transparency tools, saying that they accomplish much of what Congress is seeking in such bills as the Honest Ads Act.

But under pressure to lock down data, Facebook risks watering down its special sauce to placate irate users and regulators.

“This would be a slippery slope to go down as the more regulatory oversight and tinkering with this model, the more risk there is for investors that advertising revenue becomes a victim of these efforts,” says Daniel Ives, head of technology research at GBH Insights. “The more hands in the pot from a regulatory perspective both in the Beltway and the EU around Facebook and its ad model, the risks rise for investors.”

Ives warns that Facebook is at risk of losing anywhere from $5 billion to $7 billion in annual revenue depending on changes to its products. He based his analysis on lower engagement trends, slackening user growth in 2018-19 and up to a 10% loss in advertising revenue. Regulatory pressure could exacerbate matters, he says.

Facebook, of course, is no stranger to controversy. But it has increasingly come under fire over user privacy and the company’s role in the 2016 election.

Billionaire George Soros has called the company a menace to society and Salesforce CEO Marc Benioff said it should be regulated like a tobacco company. Unilever (UL) has threatened to pull ads unless Facebook cleans up content. A group of former employees and investors have formed a group to combat what they claim are its ill effects on society.

“They didn’t see it coming,” Antonio García Martínez, a former Facebook advertising executive and author of the book Chaos Monkeys, told Barron’s before the latest controversy, “and that has led to a lot of internal turmoil at Facebook.”

“They’re horrified they were responsible for the Trump presidency.” Among the rank and file, he said, “there is tangible anger.”

The news last week just dumped gasoline over that fire. Cambridge Analytica, a London-based political consulting firm working for the Trump presidential campaign, improperly harvested data on millions of Facebook users, according to reports.

U.S. lawmakers soon called for regulation and demanded that the Facebook CEO testify before Congress. The Federal Trade Commission is reportedly investigating. An FTC spokesman said, “We are aware of the issues that have been raised but cannot comment on whether we are investigating.”

The tag #deletefacebook has become a rallying cry among deserting Facebook users, including Brian Acton, a co-founder of WhatsApp, for which Facebook paid $17 billion in 2014.

Investor unease over Facebook might seem sudden in the wake of the Cambridge Analytica scandal. But the stock has actually underperformed the Standard & Poor’s 500 index for the past six months.

The Facebook platform is the root of the company’s success—and its problems. With 2.13 billion monthly active users, if Facebook was a nation, it would be the world’s most populous. That, as much as any reason, fuels its staggering ad revenue and profit growth rates of more than 20% a year. The ethos that drove Facebook was “move fast and break things.”

“The problem is not with the soul of Mark Zuckerberg, but the business model of the company,” says Sandy Parakilas, a former operations manager who left Facebook in 2012 after he warned management of the dangers of foreign-state actors manipulating the platform and said he was ignored. “The product was designed to be addictive. The business model is based on taking up people’s time and attention, and inflammatory content does just that.”

Still, the company is flush with nearly $42 billion in cash and investments, giving it the flexibility to diversify into other business lines, as it did with Instagram and WhatsApp, the third- and eighth-most-widely used social media platforms, respectively.

Instagram has been a “crown jewel,” and is on pace to reach one billion monthly active users by mid-2018, Ives says.

Indeed, the photo-sharing app could be the greatest threat for anyone on Wall Street who decides to bet against Facebook. Instagram possesses less personalized data than the Facebook platform, note analysts at Wells Fargo. They add: “We estimate now that a third of FB’s revenue growth and the entirety of its impression growth stem from Instagram.”

Facebook may also continue to make investments in mixed reality and artificial intelligence. The company has long insisted it is a “platform for all ideas.”

Legislators don’t seem quite so open minded about the future of Facebook, or the internet more broadly, which could raise regulatory risks for the social media behemoth and others like Alphabet’s (GOOGL) Google and Twitter (TWTR).

Democratic Sens. Mark Warner of Virginia and Amy Klobuchar of Minnesota are the co-authors of the Honest Ads Act bill that would subject online political ads to the same rules and restrictions as those for TV, radio, and satellite.

Other senators have demanded that Facebook executives explain what happened with Cambridge Analytica. And Zuckerberg has been summoned to testify before the House Energy and Commerce Committee.

More immediately, Europe’s General Data Protection Regulation goes into effect in late May. The new rules are intended to give internet users more control over personal data. Companies like Facebook that rely heavily on user data collection and analysis will be required to obtain a user’s consent before collecting data.

The regulatory push comes amid signs that growth, and user engagement, are plateauing. For the first time, Facebook lost daily active users in the U.S. and Canada—some 700,000 in the fourth quarter of 2017. And growth rates are slackening in India, Brazil, Japan, Germany, and the U.K., according to estimates eMarketer provided to Barron’s.

Those users who remained spent less time on it, Facebook said, by about 50 million hours a day. The company said the drop was caused by changes in video recommendations, but the overall impact was the equivalent of a TV network losing viewers and its remaining audience watching less programming.

Perhaps most troubling was the hemorrhaging of the coveted millennial demographic, so crucial in the ad spending decisions of brands and media buyers. Facebook will lose two million users, age 24 and under, this year, eMarketer estimates.

“Losing millennials has been a growing concern for investors,” says GBH Insights’ Ives. “Engagement and mind share, especially in younger demographics, is key in terms of advertising and making sure those users stay on the platform over the coming years.”

Facebook and Google command 63% of the $83 billion digital-ad market in the U.S., according to eMarketer. Mobile advertising generated more than 86% of Facebook’s $40.7 billion total revenue in 2017.

“They own your black book in your smartphone,” says Rebecca Lieb, an analyst at market researcher Kaleido Insights.

But Facebook’s headaches, coupled with slackening user growth and changes in how major brands look at social media as an advertising vehicle, could soften its grip. Up to 20% of Facebook’s advertisers are experimenting with Twitter, and some also are giving Snap (SNAP) a closer look, GBH Insights’ Ives wrote in a recent report.

He and other analysts are especially concerned that Procter & Gamble (PG), the world’s largest advertiser, and Unilever have made noises about cutting back spending on digital ads. P&G said it cut its digital ad budget by $200 million last year. (Digital ads account for a third of P&G’s $7.1 billion ad budget.) Unilever has threatened to pull ads from Facebook and Google unless they clean up objectionable content.

Facebook has taken steps to be more transparent about its data and metrics. It agreed to an industry audit, and it plans to introduce a program to help marketers better understand metrics that lead to sales.

“Facebook is now taking the brand safety and reputational issues much more seriously than it did just six months ago and pro-actively addressing them with clients,” says Mark Read, global CEO of the digital ad agency Wunderman. “Even if clients hadn’t reduced spending, it was getting the message that they were hesitating.”

But has Facebook’s top management really gotten the message? Zuckerberg and Sandberg have offered promises of self-regulation in the past.

And they have played down the risks. As recently as November 2016, Zuckerberg dismissed the influence of fake news on Facebook as “pretty crazy.”

When a report from Facebook’s security team on how foreign adversaries could use the platform came out in April 2017, it lacked details and there was no direct mention of Russia.

“User protection wasn’t prioritized appropriately,” says Parakilas, an adviser to the Center for Humane Technology, a nonprofit critical of Facebook and Google. “Without significant business model and product changes to News Feed, little will change.”

The uproar has forced Zuckerberg, an inveterate coder, to ponder how to curb misinformation without sacrificing the growth of his sprawling digital community.

His resolution for 2018 included a vow of “protecting our community from abuse and hate, defending against interference by nation-states, or making sure that time spent on Facebook is time well spent.”

The following week, Zuckerberg said the News Feed algorithm would be rejiggered to favor “meaningful interactions” of family and friends.

In February, Zuckerberg published a 5,700-word manifesto about “building a global community” free of fake news and click bait. While some took it as another sign of Zuckerberg’s mission to clean up Facebook, others saw it as a pat corporate answer for all of the company’s ills: Use Facebook more.

Current and former Facebook employees say they are confident the company can tip-toe through the land mines. Serious efforts have been undertaken for more than a year to invest in building systems to prevent a repeat of the 2016 election.

And for the first time in the company’s history, Facebook is promoting publishers whose content is “trustworthy, informative and local.” It is experimenting with letting publishers feature their logos more prominently to re-establish their brand. And in early March, it allowed a few to label articles as “breaking news.”

The three-pronged approach of removing false news sources, reducing the spread of misinformation, and disrupting financial incentives for ad farms of problematic content is the type of comprehensive approach necessary, company executives say.

Within a few weeks, Facebook will roll out a tool at the top of News Feed with a list of recently used apps and an option to revoke permissions to user data. The company says such a tool is available in privacy settings, and it is essentially making it more prominent to ensure users are aware of it.

Still, change will be hard.

The DNA of tech companies—whip-smart people who often work in secrecy to create innovative products and services—often insulates them and can “lead to an arrogance of success,” says Charles Elson, a professor of corporate governance at the University of Delaware. “There is the danger of thinking you’re infallible and smarter than everyone else. It’s happened before, such as Uber and even Apple, and will again,” he says.

Former executives contacted by Barron’s say that Facebook faces two major challenges: successfully filtering ads, which is possible, and filtering content, which may be next to impossible.

The most logical step may be to split up News Feed and make it less attractive to would-be political operatives.

The company has previously tried that, however. Bowing to what it said was customer disapproval, Facebook earlier this month ditched a months-long test in six foreign countries that divided News Feed into two: one focused on photos and updates from friends and family, the other for “explore feeds” of third-party content.

“They still see themselves as a technology middleman,” García Martínez says. “Facebook is not supposed to be an element of a propaganda war. They’re completely not equipped to deal with that.”