Facebook fined €110M for providing misleading information on WhatsApp takeover
europa.eu
europa.eu
USA got very liberal antitrust policy, allowing massive M&A. Good for shareholders, bad for everybody else.
E.g. the biggest four airlines in USA got over 80% market share. In Europe they just have 48%. That's why United can re-accommodate passenger and get away with it:
http://www.economist.com/news/leaders/21721201-americans-are...
According to Facebook Q1 2017 results, it had ~7.2 Billion EUR revenue and 2.7 Billion EUR as net income.
https://s21.q4cdn.com/399680738/files/doc_financials/2017/Fa...
> Indeed, the clearance decision was based on a number of elements going beyond automated user matching."Sure, you can have your acquisition. Here's a price sheet for the changes you've requested."
Less hide and seek or regulatory expense, you can assess much larger penalties for dishonesty than for up-front admissions, and you can point the fees to something pro-social and help mollify people about Facebook's low tax rate.
Another way of looking at it is that the courts deemed €110m the cost of the misleading information to society, in which case FB pays a fair fine.
My thoughts exactly. The information they gained is worth orders of magnitude more.
Also, facebook is not fined for breach of privacy. Userdata can be bought, privacy laws or not, so it seems.
Which information did they gain? The accounts of Whatsapp? If you read the press release, it says that even if the European Commission had known that they could merge the accounts, the decision would have been the same.
"Today's decision has no impact on the Commission's October 2014 decision to authorise the transaction under the EU Merger Regulation. Indeed, the clearance decision was based on a number of elements going beyond automated user matching. The Commission at the time also carried out an 'even if' assessment that assumed user matching as a possibility. The Commission therefore considers that, albeit relevant, the incorrect or misleading information provided by Facebook did not have an impact on the outcome of the clearance decision."
http://www.anna.aero/2011/02/02/aegean-olympic-merger-denied...
A part from Air France almost every country's dominating carrier has around 60% or less. And this is for domestic travel only, which is not very extensive due to the smaller size of European countries and the vast reach of high-speed rail.
If you look at international travel the main carriers have massive amount of competition from low-cost carriers as well as airlines from other European countries:
http://www.anna.aero/wp-content/uploads/2011/03/air-france-3...
European markets are more concentrated than American markets.
http://celent.com/reports/too-big-bail-bank-concentration-de...
But...the US is one country and Europe is...more than one? I get that airlines tend to be international, but in general it seems like we'd expect to see more companies in any given industry across all of Europe, than we'd expect in the same industry in the US. It's double the population, apart from all the borders involved.
You also not comparing apples to apples in Europe today you have A4E which makes up EasyJet, Ryanair, KLM, Lufthansa, IAG (which owns British Airways, Iberia etc.) and a few others and it controls over 95% of the market share.
The EC did the merger evaluation with the assumption that they could.
In 2016 FB announced they were linking accounts in a ToS update.
It is not that they could or could not do it, but that they knew they could, but chose to hide that fact.
If he's a true believer: "connecting people".
Zuck: Yeah so if you ever need info about anyone at Harvard
Zuck: Just ask
Zuck: I have over 4,000 emails, pictures, addresses, SNS
[Redacted Friend's Name]: What? How'd you manage that one?
Zuck: People just submitted it.
Zuck: I don't know why.
Zuck: They "trust me"
Zuck: Dumb fucks
But knowing everything we know about Facebook now, it's probably more than likely true.
Anyone read this and imagined the Facebook lawyers saw this clause, and said to Mark "Yes, the ROI on providing misleading information is completely in Facebook's favor"
This law fails on both counts. No investor/shareholder will actually worry about this paltry fine. All other companies will take notice and decide that the penalty cost of infraction is much smaller than the opportunity cost of expansion. This is the kind of precedent that emboldens companies to do as they please.
Of course, all this assumes that governments and top tech companies don't have some mutual back scratching agreements going on.
The possible gains due to all the loopholes are a big part of the problem. Seems that businesses like Facebook are incentivized to do the wrong thing.
But they also have to face the backlash of their actions. Though this sanction is barely going to deter any business from lying again, maybe public perception will.
More like:
"Today's decisions sends a clear signal that it costs €110M to escape EU merger rules."
Is this just the fine for lying? Or is this also the fine for combining personal information about european citizens?
If only the fine for lying, then what the EU should do next is investigate the privacy concern. And possibly another fine could be the result of that.
Knowing this in advance would have not changed the approval from the commission, your comparison is wrong, and it would set a bad precedent only for people who didn't actually read the case.
So $110M might be more like 3.5% instead of 3.5% or 10% of their yearly profit. Still not that much, but also not nothing.
“Consumer communications services: the Commission found that Facebook Messenger and WhatsApp were not close competitors and that consumers would continue to have a wide choice of alternative consumer communications apps post-merger”
The first part doesn’t sound right. If WhatsApp and Facebook Messenger aren’t close competitors, I need to figure out what a competitor is. Hmmm.. http://www.businessdictionary.com/definition/competitor.html
I suppose it's because they are not rivals? They were pre acquisition. Because they definitely operate in a similar industry with a similar product/service. It’s true that consumers can choose to use alternatives.
There are hundreds of messenger apps out there that roughly work the same way. If facebook suddenly charged $100/day for whatsapp, people would just use something different. Like Kik or whatever. Its true that those competitors dont really have market share. But thats not the point. They exist and are readily accessible. If facebook wants to shoot itself in the foot in trying to force its customers to use their competitors, thats just healthy competition.
Therefore, there's no real threat of a monopoly here. Facebook bought a network effect, not a monopoly.
Compare that to something like mobile carriers. If At&t buys verizon and spring or whatever they're called, there ARE no other options.
Antitrust laws are mostly about keeping market mechanics in tact. Facebook and Google cant really force anyone to use their products. If their products are too expensive, there are lots of competitors. That's why they want to get rid of net neutrality. Making it expensive to run competing services strengthens their position.
Should be fine plus undoing what they did. or spin Whatsapp...go back to square one.
* It constantly prompts people for their phone numbers (and most people provide it). * For new accounts, is REQUIRES a phone number.
Whatsapp accounts are based on phone numbers.
Isn't it quite obvious how easy it is to cross accounts? Do I REALLY need to spell this out further?
The fine is only because they lied about it.
"When Facebook notified the acquisition of WhatsApp in 2014, it informed the Commission that it would be unable to establish reliable automated matching between Facebook users' accounts and WhatsApp users' accounts."
"The Commission has found that, contrary to Facebook's statements in the 2014 merger review process, the technical possibility of automatically matching Facebook and WhatsApp users' identities already existed in 2014, and that Facebook staff were aware of such a possibility."
If governments want to stop being defrauded by corporations, they need to respond with criminal penalties like imprisonment, the same as they would to a regular citizen.
The Government makes the vast majority of their money off corporate profits, so they have a vested interest in seeing them succeed.
Why investigating after the fact, not during the M&A?
Don't do that. Ever.
Once advertising companies like Facebook or Google reach a certain size, they should be required to pay taxes where the ads are shown to users.
Make a set of basic EU user terms and privacy policy for advertising companies masked as social networks, search engines, email providers etc, some of it mandatory, some of it that they can opt out off. But advertising companies above a certain size shouldn't be allowed to set their own (American) terms.
And please, split up these behemoths. It's not good for anyone that one search engine and one social network rules it all. They have EU-wide market shares above 90 percent. We would never allow that in industries as automobiles or television. We would never allow it for newspapers or tv stations. Somehow, we allow it for social networks and search engines.
I haven't had regular TV in over 10 years and I surf with ublock origin yet I can still find the things I need to buy.
* My local news paper's webpage (which i pay for).
* HN which does not have ads
* neogaf which do not have ads
* youtube / twitch which I pay for (and block whatever else with ublock)
* Email (through google apps which I pay for).
On the rare occasion I visit something else I make damn sure to to have ublock / noscript active.
When it comes to apps, I pay for them. If there are no pay/ad free version I don't use them, it's that simple.
The problem is that many consumers might not even be aware that its a decision worth researching. For example, in some areas of the US it is cheaper and quicker to order online through Walmart than it is through Amazon. But most users order through Amazon by reflex, not even considering if there is an alternative.
Advertising helps here. It tells them "look there is an alternative. Consider it!"
People go to Amazon for online shopping because Amazon pays to have a bigger web presence through advertising than WalMart does. Had there been no advertising on either end, you'd have a level playing field where people would have to discover the best / cheapest / most efficient online shopping on their own.
Seems strange that you think advertising helps here when you also claim that people are responding to advertising with negative outcomes.
But can users please be given the choice if they want this information, especially if their privacy is being infringed upon?
On the plus side:
+ Inform users about products (which is a small convenience).
On the negative side:
- They provide unsollicited information, which distracts and irritates users.
- Users can also search products by themselves (no hand-holding needed).
- They use screen real estate.
- They use bandwidth.
- They use energy.
- They make websites slower.
- They introduce security problems.
- They track users, collect their data.
- They put users in an information bubble.
- Market failure: not the "best" product wins, but the one with the biggest advertisement budget behind it.
- They make people feel inconfident (see photoshopped fashion ads)
So, any value offered by ads is easily canceled by the negative points listed above.
This is actually a beneficial outcome. Similarly to how genetic algorithms and simulated anealing require and element of randomness to avoid getting stuck in local minima, so I suspect advertising serves the purpose of preventing us getting stuck in local minima.
Equally too much randomness and the algorithms fail to converge on the global minimum and so perhaps, too much advertisement prevents us truly discovering the best products and services.
Either way though, it is in finding the balance that real value is found.
I think this is the most important point. It changes the competitive landscape from being quality-based to being awareness-based.
By driving attention towards their own products, big companies are shifting attention away from more deserving competing products which have a smaller marketing budget.
I think this explains why big companies are so inefficient and yet still maintain their market share.
Advertising allows companies to substitute real quality with perceived quality in order to increase profit margins.
You think small companies would benefit from an advertising ban?
Remember that products can still be found through search. If there are no ads, there will probably be better "product discovery" websites to fill the gap if necessary. And of course there are the regular channels, i.e., recommendations by friends, forums, review sites, etc.
I don't disagree that there are many cons, but it's disingenuous not to include the services they power as one of the pluses.
Full disclosure: My career involves ads.
But I can add another minus: ads as a monetization scheme are unnecessarily restrictive, since the only way for an organization to increase their prices is to jump from an ad-based scheme to a paid scheme, and this jump is too big in many cases. Instead, if we paid for everything with money (not with data), then pricing would be more clear and there would not be any threshold in changing prices.
I'd also mention that many freemium businesses actually introduce paid models to control costs rather than improve profitability - particularly true for streaming media companies.
I'm quite sure I've received value from browsing ad-supported news outlets and using other ad-supported online services, so speak for yourself.
Furthermore, even though no one likes to admit they're positively persuaded by ads, it's universally true. How many times have you seen an ad for a movie and then gone to look up its reviews and considered watching it that weekend? Ads are just a way for companies to get the word out about their products / services, and sometimes they're legitimately useful.
They are categorically not just about informing people.
And saying you received value from ad-supported stuff strikes me as very backwards. You still pay, but you pay through being manipulated into buying stuff you don't need.
They use all kinds of sophisticated socio-psychological techniques to do so.
Unfortunately, most people (including yourself) don't even realise this, hence they become more prone to such techniques.
Sadly, when it comes to manipulation, human kind has already lost this battle.
> improve the public impression
Someone trying to influence your impression IS manipulating you.
That is what I think was meant by the comment above yours.
When I rip on the agency of consumers please consider that with any small amount of agency they would search for the best product to suit their needs and advertising would be worthless. In fact advertising makes the product more expensive. Entire product lines are sold on advertising alone despite the existence of better cheaper alternatives.
None of these decisions are forced by the advertiser, and "influence" as a concept is pretty plain on the face of it. The psychological hacks that advertisers use are mainly restricted to trying to make you under-price or over-value a product in your head, or in the case of late-night shopping channels, to get you to impulse-buy things (which I would consider to be fairly exploitative but is in the minority in terms of advertisers). Influence: The Psychology of Persuasion is a good book on the subject.
> When I rip on the agency of consumers please consider that with any small amount of agency they would search for the best product to suit their needs and advertising would be worthless.
I think you're conflating agency and rationality here. A rational agent would indeed shop around, but any old agent can choose to buy or not buy something based on whether they think it has value to them.
They just need to get to your not so gone weaknesses.
The extent of the grey area differs for each individual.
It's not force, but almost nobody will ask for the thing behind the counter. It's the effect that matters.
Pavements don't force you to walk on them, but I'd bet you tend not to stray off them. Pathways through the park don't force you to stay on them, but most people tend to stick to them.
By escalating the bar that advertising needs to reach to influence agents to "force", you're proposing a binary relation where there is a continuum. I think it's disingenuous.
> They are categorically not just about informing people.
> And saying you received value from ad-supported stuff strikes me as very backwards. You still pay, but you pay through being manipulated into buying stuff you don't need.
This was the ancestor comment I was responding about. This person is suggesting that an advertiser can make you buy things you wouldn't otherwise want. My point is that it isn't true - you have to want the product at some level to be interested. If you'd read my comment you'd realise that I agree that they can influence your decision, but not if you weren't at least mildly interested in the product in the first place.
But to suggest that a wife, husband or parent cannot influence our choices is naive. Even if we were perfectly rational actors these people have far too much insight into our inner mind and too much control over what information we observe.
Surveillance capitalism of the type google and facebook are currently trying to engineer is about putting this level of understanding & control over information sources in the hands of people with a massive incentive for you to make bad economic decisions.
With machine learning & big enough data sets it would be surprising if their ability to manipulate you wasn't eventually orders of magnitude better than the average partner or parent. You think playing Go against a top ranked player is harder than feeding lies to your average rube?
Do you claim that everyone always needed what they are enticed to buy by advertising? Because I'm pretty sure there's a boatload of psychology research that says otherwise.
Put yet another way, if ads weren't effective at making people buy shit, then why would companies make Google and Facebook obscenely rich?
If people would merely be informed by ads about the existence and benefits of products, why would the ads have such strong emotional messaging and be so free from actual solid information?
If you want to get informed you don't read the ads, do you?
Ads have one primary purpose: To make people make more irrational decisions.
Seems like you don't seriously disagree with that either, just over-interpreted my original statement.
I would also argue the idea of "genuine" needs is a fallacy. Unfortunately one that is common in economic thinking. There is not fixed hierarchy of external needs that we want to satisfy one after the other. That's a really bad model for human consumption behaviour.
If all your friends start having something most people will find that they start wanting it, too.
So 1st order problem: Adverts are harmful in that they distort markets increasing the effort required by consumers to make good decisions & increasing poor decision making.
But they also create a whole bunch of activity that is now not a buyer / seller interaction. Why do you get click bait and fake news? If the viewers had to choose to pay for it then this would never occur but with advertising the viewer is the product. So you get content that is compelling but worthless. Fake news & clickbait. You even get HSBC dictating content to the Telegraph [1].
I honestly think Google originally had good intentions "Don't be evil" but their business model is fundamentally at odds with the wellbeing of their users. If you have a market optimizing for user manipulation you will evolve effective manipulators.
So the 2nd order problems of advertising are that advert supported activity doesn't have it's interests aligned with it's users. Even if the people in these industries want to do good the market will eventually evolve corporations that harm their users since the more efficient the harm the greater the profit.
But the biggest problem in my mind is the 3rd order effect of wasted human capital. Much like the biggest problem with wall street is all our gifted peers who ended up doing zero sum bullshit for banks. Advertising, regulatory capture and other corporate innovation that isn't making a better product signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.
[1] - https://www.theguardian.com/media/2015/feb/17/peter-oborne-t...
Car manufacturers specifically optimize for this effect, which is why car ads are targeted at people who already own said car, not potential new buyers.
You correctly point out that the human waste caused by ads, like our banking industry, is monumental. What fascinates me about your view, though, is that I have always viewed the cause for US banks' human waste factor to be the absurd regulatory environment and the close ties it maintains to the upper echelons of government.
Media/Advertising, on the other hand, feels much more sparsely regulated at the government level, but it does maintain its own absurd regulatory environment in the private sector, and its own ties to the upper echelons of government. I think it's hard to deny that this industry's self-regulatory environment is as ineffective and chaotic as the politically-instituted regulatory environment enjoyed by the banks. But little research has been done into the impact of the media industry's self-regulation. Makes me wonder what exciting secrets may be out there to uncover.
For example, in the old days, most items of clothing would last a lifetime. These days most items of clothing tend to fall apart after a few years. Also, many kinds of food items used to be better quality (I've read many articles about how low the quality of farmed vegetables like Tomatoes have become).
I think that even Mcdonalds' used to be much better quality 20 years ago. At first I thought it was just because my memory was fuzzy but I later found out from someone who worked at McDonalds that one day, they suddenly swapped the buns of the Quarter Pounder burger to smaller buns but no one noticed except the employees.
Also big Pizza chains in some countries have been making the pizzas smaller and smaller over time in order to maintain the low prices. Advertising allows big companies to keep pulling back on real quality whilst replacing it with an illusion of quality.
There are two types of eyeballs:
1. Those who don't end up buying cranberry juice: In this case, you've wasted their time showing them the ad - especially if they never talk about the ad to anyone else. Companies have a very direct incentive to avoid false positives, so you don't need to do anything there.
2. Those who end up buying cranberry juice: Unless you have a problem with the cranberry juice itself, the only problem here is that the cost went up slightly to pay for the advertising. If I'm willing to pay 10 cents more for cranberry juice than an alternative like tomato juice and 10% of the total cost is advertising(on average), then the benefit of advertising is:
dValue = dBenefit - dCost = 0.10 - 0.1 * cost
which is negative if the juice costs more than $1. (This assumes that without advertising, I would've picked the alternative)
In order for dValue to always be negative(your claim), either nobody anywhere is innovating(dBenefit is never very large) or advertising companies are charging too much(dCost is very often large).
How cheap would advertising have to be for you to consider it a net positive? Give me a number as percentage of total cost for a few example items. Unless dBenefit is always 0, such a number must exist when you subset to the case #2 group. This number seems like it would be related to your proposed tax, too.
yeah screw moderation... let's be extreme all the way
Advertising is not "responsible" of urbanisation.. urbanisation is a fact of life.
BTW, ads are taxed, I believe the OP's point was that ads should be taxed in the locale in which they're shown, to give back locally rather than concentrating the tax revenue wherever adCorp is incorporated.
I used to be as against ads as you are, and then I tried to start a business. In today's landscape, it is impossible to get people to try your product. There is so much noise and clamor for consumer attention, and there are so many amazing choices for free content, that if companies aren't sending out reminders that they exist, most people will forget.
Overall, I'm in mild agreement that society would be better if it weren't ad-driven, but that's a utopian ideal we can't change with taxation, that's a brand new society and a brand new government. Taxing ads more won't make them go away, at all, it will just raise a few tax dollars. I'm in favor of using taxes on ads to pay for psychology and statistics education for all.
On a more serious note, it can be discussed when e.g. Google sells ad space to a German company which then advertises in France, whether the business is being done in Germany, France, or both. But it sure ain't Ireland or the Cayman Islands...
The $20 per user per quarter is mindblowing and that number is growing rapidly, no wonder selling user data is so lucrative.
In Europe, this is even regulated in the EU data privacy directive, the problem is that FB et al just do not care because there are hardly any consequences.
They could block them, if it wasn't for laws. But even if it was not for laws, who would really want to not have access to google?
To be real about any of this, the Internet is killing the concept of "jurisdiction".
Financial institutions tend to gravitate towards luxembourg. Favourable banking law and part of the EU etc.
There's quite a few big European companies (https://en.wikipedia.org/wiki/List_of_largest_European_compa...).
The problem is that they just won't care, the same as they don't care about the EU data privacy directives. All lawsuits end up at their irish subsidiaries who of course do nothing to anger their holy donors.
Google and Facebook are violating so many EU data privacy laws all the time, without real consequence, it's not even funny.
See http://www.europe-v-facebook.org/EN/en.html for some examples
Ever heard of Don Quijote? :)
Top reply > this is an excellent idea.
On what basis are you splitting these behemoths? It was easy to split Ma Bell on the basis of geography but how would you split Google? Into American, Asian and European arms perhaps? Even putting aside the thorny problem of splitting the global infrastructure, how soon before one of the Googlets swallows the remaining ones either through acquisition or by out-competing them?
And that's just Google. I can't even imagine how Facebook would be split up because a big draw of Facebook is being able to contact people no matter where they are. I don't need to register on a separate website if they move to a different country. I suppose its theoretically possible to force FB to spin off Whatsapp, Instagram etc into separate companies but you'll have the same problem of one of them making the others obsolete. That's exactly why Zuckerberg bought them in the first place - the fear that they would make FB obsolete.
Too often I see comments exhibiting very poor understanding of economics being showered with upvotes on HN. While I agree that these firms should be more tightly regulated, I do think this policy of breaking them up is misguided.
I see you did read that Economist article too haha
Right now the US is effectively sucking the money out of the EU using its massive social advertising armada. I bet that most of the ads are driving consumers towards US-based brands at the expense of EU-based brands.
If the EU imposed a tax on advertising, it would allow the EU government to reclaim some of these losses and level the playing fields for EU companies by reducing the power of advertising.
> Overall, I'm in mild agreement that society would be better if it weren't ad-driven, but that's a utopian ideal
Sounds like the typical conservative spiel. "I used to be idealist like you once, but then I realized how the world really works and sold out".
There's a short mini-doc freely available out there, made by an heir of the Johnson & Johnson family, about the 1%. He was inspired to do this partly because his father had, in his day, gone out of his way and caused trouble by participating in some controversial (at the time) anti-apartheid demonstrations. However, he was now berating his son for his "idealism" in discussing the issue of inequality, coming off as insanely hypocritical in the process.
It's a really poor way of arguing a point, imo.
That's hilarious; most people who know me consider me a socialist.
> There's a short mini-doc
I've seen it, and it's fantastic. It's not about advertising.
> It's a really poor way of arguing a point, imo.
That's hilarious coming on the heels of an ad-hominem. Do you have any counter argument? Poor as it is, it's true, I'm sharing my feelings as someone with experience on both sides. The person I replied to, and you, and me, we all have the power within us to make ads irrelevant to our lives. And yet we don't. Why? The person I replied to seems to suggest he has an inalienable right to consume free content. Is that true? Does he deserve high quality free content, ad-free? Is it really the advertisers' fault that ads exist? Do you believe that taxing advertisers is the solution to reducing the scourge of ads?
Anyway, I've upvoted you for making me laugh.
Facebook lied, twice! And now they reap the consequences.
They know who you are based on who else's phone book/friends list you show up in.
WhatsApp uploads the whole phone book - it doesn't matter if the numbers correspond to WhatsApp users or not.