On Tuesday, April 10th, Mark Zuckerberg, Co-Founder, Chairman and CEO of Facebook (FB) testified before a joint session of the Senate Commerce and Judiciary Committees. At least 42 senators attended Mr. Zuckerberg’s five-hour question and answer session. Mr. Zuckerberg responded to questions from senators regarding the Cambridge Analytica data theft scandal, what he knew about it, when he knew it and what he was going to do about it. Mr. Zuckerberg, 33 years old, educated some senior senators as to the nature of his business and was scolded by others on how he runs it.
84 year-old Senator Orrin Hatch (R-Utah) asked, “Did any of these individuals ever stop to ask themselves why Facebook and Google... don't charge for access?” He continued, “Nothing in life is free. Everything involves trade-offs.” When Mr. Zuckerberg affirmed, “There will always be a version of Facebook that is free,” Senator Hatch followed up:
Hatch: Well, if (ph) so, how do you sustain a business model in which users don't pay for your service?
Zuckerberg: Senator, we run ads.
Hatch: I see. That's great.
Senator Patrick Leahy (D-VT) pointed out that the United Nations blamed Facebook for aiding the incitement of genocide in Myanmar. Senator Lindsey Graham (R-S.C.) quoted Andrew Bosworth, a Facebook Vice President saying,
Maybe someone dies in a terrorist attack coordinated on our tools. And still, we connect people. The ugly truth is that we believe in connecting people so deeply that anything that allows us to connect more people more often is *de facto* good.
Senator Graham then asked, “Would you say that you did a poor job, as a CEO, communicating your displeasure with such thoughts? Because, if he had understood where you -- where you were at, he would have never said it to begin with.” Mr. Zuckerberg responded, “Well, Senator, we try to run our company in a way where people can express different opinions internally.”
Mr. Zuckerberg hired Reginald J. Brown, a former special assistant to President George W. Bush, to put the Facebook CEO “through a crash course in humility and charm.” His rehearsals included lessons on how to handle interruptions, mock hearings and outside advisers role-playing members of Congress. His preparations appear to have paid off. Facebook stock (FB $165.84 4/24/18) rose by $7.11 on the first day of Mr. Zuckerberg’s testimony, adding $17 billion to the company’s market value.
But the long-term outlook for Facebook and its business plan may be in jeopardy. Senator Bill Nelson (D-FLA.) closed his questioning by warning, “If Facebook and other online companies will not or cannot fix the privacy invasions, then we are going to have to -- we, the Congress.” Mr. Zuckerberg promised, “What I can commit is that we're going to invest significantly” to prevent breaches of user data in the future. Either Facebook will have to change its “move fast and break things” business model or Congress will change it for them.
Mark Zuckerberg repeatedly referred to the changes Facebook intends as “significant” and used as an example its intention to develop an artificial intelligence filter for hate speech “over a 5 to 10-year period.” Mr. Zuckerberg claimed to already be doing “a better job of identifying fake accounts.” He further stressed, “By the end of this year, we're going to have more than 20,000 people working on security and content review.”
Change is not easy, especially after doing things in a certain way for a long period of time. Facebook may add a version of itself that relies on subscription rather than advertising for its revenue. Amazon (AMZN) is considering a PayPal-like service that would allow its Alexa virtual assistant to pay the light bill by voice command. Alphabet (GOOG) promises “a fresh, clean look for Gmail on the web.” Apple (AAPL) announced an iPhone that comes in a new color—red. Netflix (NFLX) continues to add new content and raise its prices. Implementing significant change for an established and dominant technology company might be compared to a driver fixing a flat tire without first pulling over to the side of the road.
One dominant technology company could be opting for significant change. Founded in Latvia in 2010 as a social question answering web search engine, Ask.fm is now the largest such service. With over 200 million users and billions of questions already answered. Ask.fm may be readying for an upgrade of their platform to blockchain technology with an underlying digital token. Content contributors, in a distributed ledger version, could be compensated for their work, and content readers would reward the most credible and authoritative contributors. The Ask.fm brain trust, the question answerers, in an anticipated communal blockchain economy, would be remunerated in an Ask.fm issued cryptocurrency. As cryptocurrency transactions are verified on a blockchain before completion, expert answers might be confirmed by users who fund the question with Ask.fm tokens. While we don't know for sure if this is in the works and if so, how long they have been working on this, the move of such a platform to the blockchain could set a precedent for social media companies to prioritize the protection of their users' data and incorporate innovative technology to compete in the market. It could also indicate a complete overhaul of social media as we know it today.
With demand for privacy and security on the rise, “free” information and communication services may go the way of the antiquated party line shared by multiple telephone service subscribers. Once upon a time, one could find out what was going on with the neighbors by deftly and noiselessly picking up the handset and listening. The telephone service that offered such primitive communication was usually the only one available—AT&T (“Ma Bell”). In 1982 The United States Justice Department, by a consent decree, forced AT&T Corporation to relinquish control of the Bell Operating Companies. Ma Bell, it was determined, operated a vertical monopoly of most telephone service in the United States in violation of antitrust law. It even owned their customers’ telephones.
Facebook has already been the subject of a Federal Trade Commission (FTC) consent decree to settle allegations over illicit sharing of user and privacy concerns. The next government action against Facebook may involve antitrust law.
Senator Lindsey Graham (R-S.C.): Who's your biggest competitor?
Zuckerberg: Senator, we have a lot of competitors.
Graham: Who's your biggest?
Zuckerberg: I think the categories of -- did you want just one? I'm not sure I can give one, but can I give a bunch?
Graham: You don't think you have a monopoly?
Zuckerberg: It certainly doesn't feel like that to me.