Fines don’t work. To control tech companies we have to hit them where it really hurts

Today’s Observer comment piece

If you want a measure of the problem society will have in controlling the tech giants, then ponder this: as it has become clear that the US Federal Trade Commission is about to impose a fine of $5bn (£4bn) on Facebook for violating a decree governing privacy breaches, the company’s share price went up!

This is a landmark moment. It’s the biggest ever fine imposed by the FTC, the body set up to police American capitalism. And $5bn is a lot of money in anybody’s language. Anybody’s but Facebook’s. It represents just a month of revenues and the stock market knew it. Facebook’s capitalisation went up $6bn with the news. This was a fine that actually increased Mark Zuckerberg’s personal wealth…

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StreetView leads us down some unexpected pathways

This morning’s Observer column:

Street View was a product of Google’s conviction that it is easier to ask for forgiveness than for permission, an assumption apparently confirmed by the fact that most jurisdictions seemed to accept the photographic coup as a fait accompli. There was pushback in a few European countries, notably Germany and Austria, with citizens demanding that their properties be blurred out; there was also a row in 2010 when it was revealed that Google had for a time collected and stored data from unencrypted domestic wifi routers. But broadly speaking, the company got away with its coup.

Most of the pushback came from people worried about privacy. They objected to images showing men leaving strip clubs, for example, protesters at an abortion clinic, sunbathers in bikinis and people engaging in, er, private activities in their own backyards. Some countries were bothered by the height of the cameras – in Japan and Switzerland, for example, Google had to lower their height so they couldn’t peer over fences and hedges.

These concerns were what one might call first-order ones, ie worries triggered by obvious dangers of a new technology. But with digital technology, the really transformative effects may be third- or fourth-order ones. So, for example, the internet leads to the web, which leads to the smartphone, which is what enabled Uber. And in that sense, the question with Street View from the beginning was: what will it lead to – eventually?

One possible answer emerged last week…

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Finally, a government takes on the tech companies

This morning’s Observer column:

On Monday last week, the government published its long-awaited white paper on online harms. It was launched at the British Library by the two cabinet ministers responsible for it – Jeremy Wright of the Department for Digital, Culture, Media and Sport (DCMS) and the home secretary, Sajid Javid. Wright was calm, modest and workmanlike in his introduction. Javid was, well, more macho. The social media companies had had their chances to put their houses in order. “They failed,” he declared. “I won’t let them fail again.” One couldn’t help feeling that he had one eye on the forthcoming hustings for the Tory leadership.

Nevertheless, this white paper is a significant document…

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Google’s big move into ethics-theatre backfires.

This morning’s Observer column:

Given that the tech giants, which have been ethics-free zones from their foundations, owe their spectacular growth partly to the fact that they have, to date, been entirely untroubled either by legal regulation or scruples about exploiting taxation loopholes, this Damascene conversion is surely something to be welcomed, is it not? Ethics, after all, is concerned with the moral principles that affect how individuals make decisions and how they lead their lives.

That charitable thought is unlikely to survive even a cursory inspection of what is actually going on here. In an admirable dissection of the fourth of Google’s “principles” (“Be accountable to people”), for example, Prof David Watts reveals that, like almost all of these principles, it has the epistemological status of pocket lint or those exhortations to be kind to others one finds on evangelical websites. Does it mean accountable to “people” in general? Or just to Google’s people? Or to someone else’s people (like an independent regulator)? Answer comes there none from the code.

Warming to his task, Prof Watts continues: “If Google’s AI algorithms mistakenly conclude I am a terrorist and then pass this information on to national security agencies who use the information to arrest me, hold me incommunicado and interrogate me, will Google be accountable for its negligence or for contributing to my false imprisonment? How will it be accountable? If I am unhappy with Google’s version of accountability, to whom do I appeal for justice?”

Quite so. But then Google goes and doubles down on absurdity with its prestigious “advisory council” that “will consider some of Google’s most complex challenges that arise under our AI Principles, such as facial recognition and fairness in machine learning, providing diverse perspectives to inform our work”…

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After I’d written the column, Google announced that it was dissolving its ethics advisory council. So we had to add this:

Postscript: Since this column was written, Google has announced that it is disbanding its ethics advisory council – the likely explanation is that the body collapsed under the weight of its own manifest absurdity.

That still leaves the cynical absurdity of Google’s AI ‘principles’ to be addressed, though.

What makes a ‘tech’ company?

The Blackrock Blog points out that something strange is going on in the investment world.

MSCI and S&P are updating their Global Industry Classification Standards (GICS), a framework developed in 1999, to reflect major changes to the global economy and capital markets, particularly in technology.

Take Google, a company long synonymous with “tech” and internet software. Google parent Alphabet derives the bulk of its revenue from advertising, but also makes money from apps and hardware, and operates side ventures including Waymo, a unit that makes self-driving cars. Decisions about what makes a “tech” giant are not as simple as they once were.

The sector classification overhaul, set in motion last year, will begin in September and affect three of the 11 sector classifications that divide the global stock market. A newly created Communications Services sector will replace a grouping that is currently called Telecommunications Services. The new group will be populated by legacy Telecom stocks, as well as certain stocks from the Information Technology and Consumer Discretionary categories.

What does this mean?

Facebook and Alphabet will move from Information Technology to Communications Services in GICS-tracking indexes. Meanwhile, Netflix will move from Consumer Discretionary to Communications Services. None of what the media has dubbed the FANG stocks (Facebook, Amazon.com, Netflix and Google parent Alphabet) will be classified as Information Technology after the GICS changes, perhaps a surprise to those who think of internet innovation as “tech.” The same applies to China’s BAT stocks (Baidu, Alibaba Group and Tencent). All of these were Information Technology stocks before the changes; none will be after.

Or, in a tabular view:

This change is probably only significant for index funds, but still, it must rather dent the self-image of the ‘tech’ boys to be categorised as merely “communications services”!

Why, sooner or later, societies are going to have to rein in the tech giants

My OpEd piece in yesterday’s Observer:

Spool forward to the tragic case of Molly Russell, the 14-year-old who killed herself after exploring her depression on Instagram. When her family looked into her account, they found sombre material about depression and suicide. Her father said that he believed the Facebook-owned platform had “helped kill my daughter”. This prompted Matt Hancock, the health secretary, to warn social media platforms to “purge” material relating to self-harm and suicide or face legislation that would compel them to do so. In response, Instagram and Pinterest (another social media outfit) issued the standard bromides about how they were embarking on a “full review” of their policies etc.

So is Molly’s case a crisis or a scandal? You know the answer. Nothing much will change because the business models of the platforms preclude it. Their commercial imperatives are remorselessly to increase both the number of their users and the intensity of those users’ “engagement” with the platforms. That’s what keeps the monetisable data flowing. Tragedies such as Molly Russell’s suicide are regrettable (and of course have PR downsides) but are really just the cost of running such a profitable business.

Asking these companies to change their business model, therefore, is akin to “asking a giraffe to shorten its neck”, as Shoshana Zuboff puts it in her fiery new book, The Age of Surveillance Capitalism…

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Google pays more in EU fines than it does in taxes

From The Inquirer

INTERNET GIANT Google now pays more in European fines than it does in taxes, the firm’s fourth-quarter earnings have revealed.

Google owner Alphabet company reported Q4 revenues up 22 per cent to $39.28bn, while annual revenues were up 23 per cent to $136.8bn.

The company also took the time to separate out “European Commission fines” in its consolidated statements of income in the company’s accounts. These increased from $2.7bn in 2017 to $5.1bn in 2018, with a further €50m already set to be added to the bill for its first quarter and 2019 accounts, thanks to French data protection authority CNIL.

That compares to a provision for income taxes of just $4.2 billion for 2018, or 12 per cent of its pre-tax income.

Shoshana Zuboff’s new book

Today’s Observer carries a five-page feature about Shoshana Zuboff’s The Age of Surveillance Capitalism consisting of an intro by me followed by Q&A between me and the author.

LATER Nick Carr has a perceptive review of the book in the LA Review of Books. John Thornhill also had a good long review in last Saturday’s Financial Times, sadly behind a paywall.

Obstructionism: Google and Facebook style

The Register has a rather good report of the two investigations carried out for the Senate Intelligence Committee — and it highlights something that other reports seem to have missed — how the social media giants did their best to be, er, unhelpful.

The second Senate-commissioned report, written by Oxford University’s Internet Institute, reached the same conclusion: that the Russian campaign was large, sophisticated, and focused on Donald Trump’s election as president.

Thanks, no thanks

In this report, however, researchers also take time to criticize the response of the social networking giants to their efforts to understand what had happened: the internet titans were extremely unhelpful, even after being publicly chastised in the press and in Congress.

The worst offender may have been Google, which supplied very little information and when it did, supplied in it hard-to-search PDFs, making it difficult and time-consuming to analyze. Facebook was no better: simply refusing to hand over information and limiting what it did send to English-language pages. Even the most responsive company – Twitter – only sent the researchers shortlinks, as opposed to full URLs, making it harder to use other tools to track their impact and links across the internet.

The New Knowledge report says the same, noting that the companies also appear to have stripped meta data from the information they sent i.e. they actively tried to disrupt efforts to understand the reach and impact of Russian propaganda efforts.

In short, the two reports tell us what we already knew: that there was a large, organized Russian campaign in favor of Donald Trump; that the campaign used divisive social issues to attract people’s attention and push its messages; and the tech companies were caught completely unawares and then responded incredibly defensively when the size and scope of the propaganda campaign was revealed.

The difference from previous dossiers is that these reports are comprehensive and detailed. And they clearly identify the strategies and targets where previously much of the detail was anecdotal or intelligent conjecture. And, of course, we learned that Instagram punches above its weight, and the Russian campaign was so well resourced that it even bothered to post on Google+.

Tim Wu’s top ten antitrust targets

He writes:

If antitrust is due for a revival, just what should the antitrust law be doing? What are its most obvious targets? Compiled here (in alphabetical order) , and based on discussions with other antitrust experts, is a collection of the law’s most wanted — the firms or industries that are ripe for investigation.

Amazon
Investigation questions: Does Amazon have buying power in the employee markets in some areas of the country? Does it have market power? Is it improperly favoring its own products over marketplace competitors?

AT&T/WarnerMedia
Investigation question: In light of this, was the trial court’s approval of the AT&T and Time Warner merger clearly in error?

Big Agriculture
Over the last five years, the agricultural seed, fertilizer, and chemical industry has consolidated into four global giants: BASF, Bayer, DowDuPont, and ChemChina. According to the U.S. Department of Agriculture, seed prices have tripled since the 1990s, and since the mergers, fertilizer prices are up as well.
Investigation question: Were these mergers wrongly approved in the United States and Europe?

Big Pharma
The pharmaceutical industry has a long track record of anticompetitive and extortionary practices, including the abuse of patent rights for anticompetitive purposes and various forms of price gouging.
Investigation and legislative questions: Are there abuses of the patent system that are still ripe for investigation? Can something be done about pharmaceutical price gouging on drugs that are out of patent or, perhaps more broadly, the extortionate increases in the prices of prescription drugs?

Facebook
Having acquired competitors Instagram and WhatsApp in the 2010s in mergers that were arguably illegal, it has repeatedly increased its advertising load, incurred repeat violations of privacy laws, and failed to secure its networks against foreign manipulation while also dealing suspicious blows to competitor Snapchat. No obvious inefficiencies attend its dissolution.
Investigation questions: Should the Instagram and WhatsApp mergers be retroactively dissolved (effectively breaking up the company)? Did Facebook use its market power and control of Instagram and Instagram Stories to illegally diminish Snapchat from 2016–2018?

Google
Investigation question: Has Google anticompetitively excluded its rivals?

Ticketmaster/Live Nation
Investigation questions: Has Live Nation used its power as a promoter to protect Ticketmaster’s monopoly on sales? Was Songkick the victim of an illegal exclusion campaign? Should the Ticketmaster/Live Nation union be dissolved?

T-Mobile/Sprint
Investigation question: Would the merger between T-Mobile and Sprint likely yield higher prices and easier coordination among the three remaining firms?

U.S. Airline Industry
The U.S. airline industry is the exemplar of failed merger review.
Investigation and regulatory questions: Should one or more of the major mergers be reconsidered in light of new evidence? Alternatively, given the return to previous levels of concentration, should firmer regulation be imposed, including baggage and change-fee caps, minimum seat sizes, and other measures?

U.S. Hospitals
Legislative question: Should Congress or the states impose higher levels of scrutiny for health care and hospital mergers?
Investigation question: In light of this, was the trial court’s approval of the AT&T and Time Warner merger clearly in error?