Risky business

The craziest part of reporting on Facebook’s endless onslaught of scandals and embarrassments for more years than I care to remember is: None of them have ever really mattered to the company’s growth.

Remember 2017 when the company ‘fessed up to the whole Russian trolls thing? That ended up being a record quarter for Facebook. Or that day in 2019 when the FTC approved Facebook’s $5 billion fine for the Cambridge Analytica issue? Its stock price soared. Or last fall, when Frances Haugen told Congress about the threat Facebook posed to kids and elections and, for the love of God, democracy itself? Wall Street shrugged and said, “So, tell us more about this metaverse thing.”

No crisis, no matter how catastrophic, has ever really stuck to Facebook. But that changed last week when, for the first time in its history, Meta announced an earnings shortfall and dwindling user numbers. It turns out the one thing investors absolutely won’t stand for is the possibility that Meta might not keep minting money at quite the same rate forever.

For all of the leaked memos, the privacy failures, the hate speech and the apologies, the only threat Meta ever really faced has been its business model. Specifically, there are a lot of people who think that business model — personalized advertising — shouldn’t exist.

• Those people include lawmakers, regulators, regular Joes and apparently, Tim Cook, the one person with perhaps more power than anyone else to actually make that business model go poof.
• When Apple started allowing iPhone users to block apps from tracking them, it upended Facebook’s ad system, which relies on that tracking. Suddenly, Facebook’s ads became less efficient and more expensive — which, the numbers suggest, advertisers didn’t like so much.
• Meta now says those changes will cost the company $10 billion this year.

It’s not that Facebook didn’t warn everyone this would happen. It just couldn’t get enough people to care.

• If there was any consequence of all those “PR fires” over the years, it’s that when Facebook started shouting that Apple’s changes would be devastating for its business, a lot of people thought: good.

Of course, as Facebook executives frequently mention, it’s not just Facebook that suffers. Other businesses, many of them small businesses, rely on those ads too.

• The difference is, for those businesses, ads are a way to sell other stuff: clothes, cars, plumbing services. Take away the Facebook ads, and selling might get harder, but at least they still have stuff to sell and other ways of reaching customers.
• Break Facebook’s ability to sell ads, and what’s left for it to sell? What are its options? No wonder the company seems to really — like really, really — want the metaverse to work.

This problem isn’t going away any time soon. Meta’s business model today may just be incompatible with a world increasingly interested in putting an end to tracking and targeting.

• Congress is already floating legislation to ban what senators are calling “surveillance advertising.” And in Europe, lawmakers have already voted to ban certain subsets of targeted ads.
• As Alexis Ohanian recently put it, "The Facebook ad product — thanks to the Apple iOS changes — just doesn't cut the mustard anymore."

The silver lining for Meta is that it already collects a tremendous amount of information about what people do and like and click on its own apps.

• Facebook can still use that data to power ads, even if it can’t see what those users are doing on other apps.
• And even after last quarter’s drop, Meta still has more users across its apps than just about any other company in the world.

Still, there’s no denying that when a company loses $200 billion in a single day, it’s in real trouble — and this time, it might actually matter.

— Issie Lapowsky (email | twitter)

In Washington

The Treasury department is transitioning away from its plan to use ID.me’s facial recognition software, according to Sen. Ron Wyden’s office. Wyden was one of several lawmakers to express concern to the IRS about its plan to use facial recognition this tax season. “I understand the transition process may take time, but I appreciate that the administration recognizes that privacy and security are not mutually exclusive and no one should be forced to submit to facial recognition to access critical government services,” Wyden said in a statement.

The FCC’s rip-and-replace plan is expected to cost $5.6 billion, up threefold from the original estimate of $1.8 billion in 2020. (This is where we all feign surprise.) The agency promised to cover the bill for wireless carriers to remove Huawei and ZTE equipment from their networks, after both companies’ products were banned over national security concerns. Now wireless providers have filed over 181 applications for a total of around $5.6 billion in reimbursements.

State treasurers want the SEC to investigate Apple over its claims that it doesn’t use concealment clauses in employee agreements. “Multiple news reports have stated that whistleblower documents demonstrate Apple uses the very concealment clauses it repeatedly claimed it does not use,” the state officials wrote in a letter.

Lawmakers are asking Amazon to answer for its role in selling a preservative used by at least 10 customers to commit suicide. According to The New York Times, some people who purchased the preservative from Amazon even began receiving suggestions for other products used to assist in suicide. Amazon said sodium nitrite is used for a wide range of purposes and can be purchased from many other retailers.

The head of the White House’s Office of Science and Technology Policy bullied staff routinely and extensively, according to an administration investigation revealed in POLITICO. Eric Lander, who is a member of the Cabinet and key to President Biden’s efforts on both COVID-19 and cancer, has apologized for the conduct in a staffwide email, the report said. A former aide who had complained about him said the apology “did not come close to addressing the full extent of his egregious behavior.”

A MESSAGE FROM CHAMBER OF PROGRESS

The numbers are in. Voters want new regulations harnessing the power of America’s tech sector, but there’s a wide gap between where they stand and the tech legislation in Congress.

When asked about their top priorities for tech regulation:

• Top Choice: Cybersecurity (35%)
• Second Choice: Protecting data privacy (12%)

In the courts

Unsealed documents reveal the FBI used geofence warrants during Black Lives Matter protests in Seattle in 2020. The warrant, part of an investigation into a case of attempted arson against a police union, ordered Google to produce account information for any devices that were in the vicinity of the police guild building during an hour and 15-minute period.

A Swedish price-comparison service called PriceRunner is suing Google for $2.4 billion, arguing that the search giant has violated antitrust laws by manipulating search results to favor its own shopping tools.

On Protocol

Chipmakers are primed for a $52 billion windfall from Uncle Sam. The House passed a heavily amended version of the America Competes Act, which aims to bring chip production to the U.S. The House and Senate will now need to reconcile their bills before a version can go to the president’s desk.

Coinbase’s new content moderation policy won’t sit well with the crypto utopia community. In a Friday night announcement, Brian Armstrong noted the company’s stance “that governments, not companies, should be deciding what is allowed in society.” But he said the guidelines will help when “difficult decisions arise.” Coinbase is about to get into NFTs, which helps explain the timing of the announcement.

Around the world

The U.K.’s forthcoming Online Safety Bill will criminalize certain types of online abuse and threats, with punishment of up to five years of jail time. It is also set to levy heavy fines on social media platforms that host revenge porn and content including drugs, weapons dealing, suicide promotion and human trafficking.

Meta is threatening to pull Facebook and Instagram from Europe. In its annual report to the Securities and Exchange Commission, the company said if it’s unable to process European data in the U.S., it will “likely be unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe.” The uncertainty stems from the invalidation of the Privacy Shield agreement that previously allowed such data sharing.

Coming soon

How do you regulate an all-new, rapidly evolving, $3 trillion industry? Join Protocol Fintech reporter Benjamin Pimentel and an expert panel of speakers to explore the future. Crypto Regulation: From buyer beware to federal oversight starts at 10 a.m. PT/1 p.m. ET Wednesday; RSVP here.

A MESSAGE FROM CHAMBER OF PROGRESS

From Florida to Texas to Oklahoma, lawmakers are introducing and passing legislation aimed squarely at social media platforms’ content moderation policies in an effort to keep hate speech and misinformation online. Read the latest on the spread of anti-content-moderation bills in the states.

Learn more

In data

$50,000: That’s how much Sen. Ted Cruz may have invested in Bitcoin, according to a new disclosure citing a purchase of between $15,001 and $50,000. No wonder he’s criticized legislation aiming to crack down on cryptocurrency and urged “supporters of crypto” to “make their voices heard.”