Move over Standard Oil. Facebook may be the next company to enter the antitrust textbooks as a glaring example of big business gone bad.
The word “monopoly” might evoke images of cigar-chomping men with mutton-chop whiskers from the Gilded Age. But according to Dina Srinivasan, a former advertising technology entrepreneur and author of a well-researched study in the Berkeley Business Law Journal, the old game is very much back.
Facebook has worked strategically to maintain this vast invasion of privacy.
We have been told in recent decades, as Columbia Law School professor Tim Wu observes in his book “The Curse of Bigness: Antitrust in the New Gilded Age,” to think of monopolies and oligopolies as worrisome only if they charge high prices — a narrow view popularized by Judge Robert Bork and others at the University of Chicago in the 1970s. Economists call this the ability to extract “monopoly rent.”
But Facebook is free, so where’s the rent?
Actually, high prices are only one form of harm that supersized businesses can inflict. Facebook’s market dominance allows it to extract something just as valuable: personal data.
On April 16, NBC News’s Olivia Solon and Cyrus Farivar revealed that 4,000 pages of leaked company documents from 2011-15 show Facebook CEO Mark Zuckerberg leveraging user data to crush competition and reward friends — all while presenting a public face of concern about privacy. In a move that appears to anticipate increased challenges to its privacy policies, Facebook has just hired as its general counsel Jennifer Newstead, co-author of the Patriot Act, which expanded the government’s powers of surveillance.
Things didn’t start out this way. When Facebook entered the social networking market back in the early 2000s, it didn’t compete on price because nobody was charging. Instead, it had to compete on quality. At the time, users were concerned that social networks like MySpace didn’t provide enough privacy.
So Facebook, as Srinivasan details, distinguished itself as the network that would make privacy the top quality concern. For years, the company tread carefully around the issue, even backing off plans if users protested.
After all, users could go somewhere else if Facebook insisted on doing things they expressly didn’t want — like spying and mining their personal data for commercial purposes.
In 2007, for example, Facebook attempted to use an advertising program called Beacon to share information about users’ purchases and reading habits when browsing outside the network. Consumers cried foul. A chastised Zuckerberg apologized for the “mistake” and promised to do better. Randall Rothenberg, a former New York Times writer, cheered in The Wall Street Journal that the free market was working.
Until it didn’t.
Why is Facebook doing this? Because it’s too big to care.
As long as Facebook had rivals, the fear of losing consumers restrained its behavior. But as it got bigger, surpassing MySpace as the largest social network and eventually gobbling up nascent competitors like Instagram (acquired in 2012), the game began to change. The privacy promises began to erode. Only now, they had nowhere else to go.
Srinivasan documents how Facebook began violating its own privacy policies about 10 years after it launched. The company reneged on past promises and misrepresented its tracking activities.
Srinivasan’s research focuses on one particular promise: Never to use off-site tracking to follow people around on the internet and then use their data for things like ad targeting.
But that’s just what it did — through a series of deeply deceptive maneuvers.
Facebook developed “social plugins,” such as “Like” buttons and “Share” buttons, that it offered to license to other websites. This required businesses to install a piece of Facebook code on their sites, which opened a pathway of communication between users’ devices and Facebook’s servers.
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Facebook asserted for years that it would not use this pathway to conduct commercial surveillance. Believing that, CNN, The New York Times, The Wall Street Journal, Slate and ABC were among the first companies to sign up for the “Like” button.
In June of 2014, however, Facebook publicly reversed course. It announced it would use its code on third-party applications to surveil consumer behavior. By now, Facebook’s code was installed on millions of sites and mobile apps, spread through the internet like a Trojan Horse.
Today, all you have to do is visit a page with a “Like” button, and Facebook is able to collect data on you — what you’re reading, what you’re buying. It can trace those activities to your real identity. Facebook knows when you are reading an article about alcoholism on a small blog, or buying vibrators online — even if you never clicked “Like.” It can track you even if you’re not a Facebook user.
As Srinivasan recounts, Facebook has worked strategically to maintain this vast invasion of privacy — including not allowing consumers to opt out of the off-site tracking, ignoring consumers’ explicit requests to stop the monitoring through their browsers’ “Do Not Track” option and figuring out how to circumvent ad blockers.
Why is Facebook doing this? Because it’s too big to care.
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Srinivasan argues that this intrusive behavior is not only bad for consumer welfare, it harms millions of other businesses, such as shops or publishers. Facebook is now able to undercut them in the advertising market because it knows far more about their own customers’ preferences and behavior than they do and piggybacks on their labor.
Consider: The New York Times may know that its readers click on health-related content. But Facebook knows which Times health-content readers vacation in Florida, shop for Nike shoes and read workout blogs because its widespread coding gives it the capability to track people all over the web and connect online behavior to their real identity. The Times can’t compete with that in the advertising market. Plus, the Times has to pay all its content producers, while Facebook can take a free ride on everybody else’s labor.
This is one big reason why newspapers and other online publishers are bleeding money — a grave worry in a democracy.
Clearly, nobody but Facebook wanted things to turn out this way.
Which brings us to the Sherman Antitrust Act of 1890, written at the height of the Gilded Age to confront the out-of-control growth of concentrated power in business and the anti-competitive conduct of monopolies. Srinivasan argues that Facebook violates that law by harming consumers, restricting competition and acquiring its monopoly position through deceptive conduct.
In the wake of increasing public ire, Zuckerberg recently proclaimed a new privacy vision for Facebook, which, Srinivasan told me, “doesn’t touch on any of the concerns from an antitrust perspective.”
There are various ideas about how antitrust law and regulation could be deployed to bring Facebook back down to size. Srinivasan favors using tools such as the creation of a straightforward “Do Not Track” option for consumers that actually works.
Others, like Wu, Sen. Elizabeth Warren, D-Mass., and the New York Times’ Kevin Roose, favor breaking up tech giants such as Facebook and Google. Some, including Warren, also call for reclassifying them as public utilities.
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Meanwhile, like John D. Rockefeller, J.P. Morgan and other titans of yesteryear, Zuckerberg insists that his company is only interested in the progress of civilization, in “bringing the world closer together.”
Wu points out, however, that what monopolies typically do is tear the world apart. Historically, he notes, they’ve added to problems like economic inequality, stifled innovation and created widespread public anger that can lead to an appetite for “nationalistic and extremist leadership.” Sounds about right.
Fortunately, the last Gilded Age taught us something about how to tackle the plutocrats and titans. It won’t happen under President Donald Trump, but challengers like Warren are making breaking up the tech giants a central part of their appeal to voters.
By now, one thing ought to be clear: The market is not going to correct this. Just like it didn’t in the Gilded Age. Armed with the law, the people had to do it.