JANUARY has been a bad month for Facebook. First came a story showing that the social network has spent years intentionally profiting from, and refusing to refund, accidental purchases made by children. Kids as young as five were spending hundreds or even thousands of dollars on Facebook, according to the Centre for Investigative Reporting, an American non-profit organisation, mostly to play games.
Days later, on January 30th, Apple revoked the social network’s developer certificate, a document which lets companies create iPhone apps for internal use, for violating its terms. Facebook had used its certificate to build an app which, once installed, would send all the data on a person’s phone to Facebook, in exchange for $20-a-month, according to a report in TechCrunch. Apple’s revocation broke all of Facebook’s internal apps for Apple phones, including the one which runs the firm’s employee bus program, leaving workers stranded. Sheryl Sandburg, Facebook’s chief operating officer, said that the app had only collected people’s data with consent; in a separate statement Facebook said that data from children had been collected with the consent of their parents.
This patch of bad news was particularly dense, but its tone has become the norm for Facebook in the past year. Bad news dogged the firm through 2018. It provided personal data on its users to Cambridge Analytica without their consent; more details emerged of how it became a channel for misinformation in America’s presidential election; WhatsApp (which Facebook owns) and Facebook’s News Feed were both used to spread falsehood and rumour in India, Mexico and Myanmar, culminating in lynchings and genocide. None of this was enough to cause serious damage to Facebook’s financial performance. On January 30th Facebook announced record profits for the final quarter of 2018, $6.9bn on $16.9bn in revenue, beating Wall Street predictions.
The firm’s shares rose 12% on the news. No amount of bad press, it seems, can dent one of the greatest money-printing machines ever created (though share prices are still down some 23% from last year’s highs). Facebook’s profit margins remain among the highest in big tech. When the social network does err, it seems not to matter. And yet along with the upbeat financial news came new notes of caution.
First, Facebook announced a change in the way it measures the number of people who use its services. For years it has reported the number of people who use News Feed, at least once a month, logging into to the company’s core social network. That number stands at 2.3 billion. Now, said chief financial officer David Wehner, Facebook will start including people who just use WhatsApp and Instagram in its reports, bringing its current total to 2.7 billion users.
Measuring all of its services together signals publicly what has been obvious for some time, that Facebook’s plans for revenue growth now sit firmly with WhatsApp and Instagram. The number of people who use those apps is still growing fast, and they have not yet been as heavily monetised as the News Feed, where user growth is slowing and there is little space to run more ads. To better monetise those 400m WhatsApp and Instagram users who don’t have a Facebook account, the firm proposes to knit the services’ technical infrastructure together. Facebook promises that the content of all messages will be encrypted regardless of the platform, but more information about who is talking to whom, for how long and when, will be hugely valuable for ad targeting. A WhatsApp user will be able message someone who only has a Facebook account. Personal data will flow more easily around the company, with profitable targeted advertising following it.
European privacy regulators are the grit in this plan. No sooner had Facebook’s integration plans been announced than the Irish Data Protection Commissioner was asking it for “an urgent briefing on what is being proposed”, and stating that the integration couldn’t happen in the EU unless it complied with GDPR, Europe’s new privacy law. Many in the European regulatory community see their permissiveness over Facebook’s 2014 acquisition of WhatsApp as a foundational mistake. Five years later, armed with sharper regulatory teeth, they are unlikely to let further unification through easily.
The Irish regulator is already examining Facebook’s compliance with GDPR, having received a number of complaints since GDPR launched in May 2018. Google, Facebook’s brother-in-advertising, had a taste of post-GDPR enforcement earlier this month when the French regulator fined it 50m. There has been no such activity in America, where the regulator with purview over privacy concerns, the Federal Trade Commission, has remained silent. There are political rumblings coming from deep in Washington, though, of bipartisan federal privacy laws that may see the light of day in coming months.
Some may take Facebook’s blockbuster earnings as evidence that criticism of the firm has been overcooked and that Facebook’s errors are not so egregious. There is some truth to this. Facebook became the favoured target of the tech press in 2018, attracting scrutiny above and beyond its peers in Silicon Valley, and headlines that stretch events to their most negative conclusions. And yet to swallow the victimhood narrative whole would be a mistake. Currently, Facebook is surviving its scandals, but storm clouds still hover above it, waiting to burst.