Unfriended: Facebook is clearly losing trust

By: |
March 16, 2019 8:06 AM

The biggest recent blow was a report on Wednesday that federal prosecutors in the Eastern District of New York were conducting a criminal investigation into deals Facebook had made with other companies that gave them access to data, allegedly without the consent of users.

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Exactly when did Facebook become the Job of internet companies? Just like the beleaguered biblical character who endured woe after woe at God’s behest, this social media giant finds itself repeatedly hit by bad news. The difference is that Job was blameless while Facebook has brought many of these disasters upon itself. The biggest recent blow was a report on Wednesday that federal prosecutors in the Eastern District of New York were conducting a criminal investigation into deals Facebook had made with other companies that gave them access to data, allegedly without the consent of users.

Other calamities within the last week alone include a report from the British government accusing Facebook and other companies of hindering consumer choice and stifling innovation and calling for strong regulation; Facebook managing to look as if it was trying to block Senator Elizabeth Warren’s attempt to advertise her plan to break up big tech companies like Facebook on Facebook; its services, including the popular Instagram app, going down around the globe, and on Thursday, the announced departures of Chris Cox, Facebook’s powerful chief product officer, and Chris Daniels, the boss of WhatsApp—a giant neon sign that the company is in pain. I think we can safely say that only Aunt Becky from “Full House”—that would be Lori Loughlin, captain of the college admissions bad parenting squad—is having a worse time this week.

The Warren ad mess appears to reflect sloppiness by Facebook—she used its logo without permission in some ads, and the company typically pulls down those fast. They have since been restored. And the breakdown? The company has ruled out an outside attack, so it just looks like some Facebook technical issue.

But the other developments are more serious for the company. The 150-page report from the chancellor of the Exchequer in Britain calls for giving users the ability to move data to third parties, making that data available to rivals and creating a code of conduct that includes fines for violations. Senator Warren has gone further by calling for both a breakup of business units and also an unwinding of acquisitions.

Like Facebook’s purchase of Instagram. Like Facebook’s purchase of WhatsApp. Those. Basically, she is aiming directly at the social giant’s future, which Mark Zuckerberg, Facebook’s founder and chief executive, pretty much admitted last week when he wrote a memo about integrating those purchases and shifting the platform to a focus on privacy rather than public sharing.

That memo become more interesting to me after The New York Times reported on the new criminal investigation in the Eastern District. Facebook was already lousy with active investigations led by an alphabet of federal agencies including the Federal Trade Commission and the Securities and Exchange Commission, as well as state inquiries and tonnes of lawsuits. What is more, federal prosecutors in the Northern District of California are looking into whether Facebook was, in fact, misled by Cambridge Analytica or if it knew more than it has acknowledged. But that inquiry has been only flirting with the idea of criminal culpability. The new one revealed on Wednesday is a significant escalation for the company.

Let’s be clear: This is a criminal investigation, not an oops-we-made-another-sloppy-error one. Which is why Facebook is trying so mightily to lump it in with the other inquiries. “It has already been reported that there are ongoing federal investigations, including by the Department of Justice”, a Facebook representative said in a statement. “As we have said before, we are cooperating with investigators and take these probes seriously. We’ve provided public testimony, answered questions, and pledged that we will continue to do so”.

But the Eastern District inquiry is not the same, and this is new and worrisome territory for Facebook. Criminal anything is scary enough, but this news will also have an impact on its management’s ability to concentrate on creating innovative products or buying companies to help it get to the next phase of the always-changing tech game. That is no small thing. As the British report pointed out, there have been 400 acquisitions in tech, none of which has been rejected by regulators. That will surely no longer be the case for Facebook. The departure of the two Facebook managers is also a distraction; the internal situation is looking as unstable as the external.

All this is a reminder of what happened almost two decades ago when Microsoft was under investigation for anti-competitive behaviour and monopoly practices. Back then, the company was hit by the press and regulators daily, which drastically slowed its momentum. As the accusations piled up, Microsoft lost people’s trust. Of all the consequences that Facebook faces, this would be the most damaging.

You can’t calculate trust by coding or algorithms. But Facebook is clearly losing it. Everyone is beginning to assume the worst, even if it is not fair. What is ironic is that this is all escalating when it is evident that the management of the company does seem to get that it needs to change and quickly. “Mark knows he is over a barrel”, said one person familiar with Zuckerberg’s thinking. “That has sunk in very much now”. Good, because such self-reflection has been painfully slow for Zuckerberg and others at Facebook.

This doesn’t mean the situation is hopeless for the company. Despite being seen as the font of all that was bad with tech way back in 2001, Microsoft recovered nicely and is today considered one of tech’s most upstanding citizens. Zuckerberg may be able to pull something similar off. After all, this is one guy we can be sure didn’t need to bribe his way into Harvard.

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