What Realistically Happens Next To Facebook

The market, advertisers, and Congress likely won’t challenge Facebook. Some other things might.

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The question of whether this round of scandal would do immediate, direct damage to Facebook seemed settled soon after the Senate adjourned its Tuesday hearing. Facebook’s two most important stakeholders — investors and advertisers — didn’t run away after whistleblower Frances Haugen testified that it harms teen girls’ mental health and profits from outrage. They already knew the drill.

“This is gonna effectively be a storm that comes through,” Jeffries analyst Brent Thill told CNBC Wednesday morning. “And in past storms, this has been a great buying opportunity.” 

Facebook scandals tend to run hot and cool down quickly. About once a year, something startling comes out about the social network: A campaign illicitly uses its data to psychologically profile voters; the company lies to advertisers and publishers about crucial metrics; its own researchers find it’s dividing a society it hopes to bring together. Then, after a round of outrage from U.S. lawmakers, everything returns mostly to normal. The scandal moves on like a passing storm.

For all of Facebook’s pitfalls, advertisers — its actual customers — can’t get enough of its targeting and scale. Facebook made $29 billion in the second quarter of 2021, up 56% from the year prior, with a net profit of more than $10 billion. The company’s ad system works so well that advertisers didn’t even bother to feign a boycott after the Facebook Files dropped. They’re hooked. “I've been trying to find an advertiser - any advertiser - to let me know they're pulling spend,” Insider Intelligence director Jeremy Goldman said. “I still haven't found any.” 

With such loyal customers, Facebook has commanded Wall Street’s loyalty. Though the company’s stock is down 12% this month (and trading at a discount compared to Google), it’s outpacing the S&P 500 this year, up 23% compared to the S&P’s 19%. Facebook stock reliably pops after each stretch of difficulty, so Thill and his counterparts are directing their clients to buy. “How do investors make money?” Thill said. “In times like this, usually when the stock gets hit, that’s when you make a lot of money.” 

As the money pours in, Facebook floods Washington with cash to deter lawmakers from taking a hard stance. “I remember one of our staffers was at a happy hour a few years back and one of their lobbyists started yelling about how they were going to go after Cicilline,” said one person close to Congress's antitrust efforts led by Rep. David Cicilline. “And then once we dropped the bills, they activated all the association groups they fund.”

Dark money has poured into these “associations,” third-party groups who will sometimes disclose — but would rather not — that Big Tech funds them. Now, Rep. Cicilline’s antitrust bills appear stuck. “Members see that Facebook doesn’t play nice,” the person said.

Sen. Richard Blumenthal, who led this week’s hearing with Haugen, is aware this money is working to stop him from taking concrete action. “Big Tech’s big money & army of lobbyists are arrayed against us,” he said on Thursday. But it’s unclear how he plans to counteract it. Sen Blumenthal’s office declined to elaborate or make him available for an interview. And so the status quo prevails. 

What Might Change

Even if advertisers, users, Washington, and Wall Street don’t take action, this scandal might exacerbate some of Facebook’s existing problems. 

For Facebook, the most concerning part of this wave of criticism is it might encourage more people to opt-out of its tracking in iOS. Facebook already gave guidance that it expects to take a revenue hit this quarter after loads of people stopped it from tracking them across the web, making life more difficult for its advertisers. Facebook has earned those “ask not to track” designations after years of privacy scandals, and this moment isn’t likely to help. 

Facebook could also further struggle to recruit good people after taking yet another hit to its brand. In her testimony, Haugen said, “Facebook is stuck in a cycle where it struggles to hire — that causes it to understaff projects, which causes scandals, which then makes it harder to hire.” Facebook is still considered a “prestige” brand among many tech workers, but it’s difficult for recruiters to make calls when the company is on blast before Congress.

Finally, European regulators seem likely to press for regulation, and Haugen is already working with the European Union to get something done. Should the EU enact something, it could have a material impact on Facebook’s business. But that’s only if the rules don’t end up unintentionally harming Facebook’s competition, which is not a given. 

From the moment the Wall Street Journal published its first Facebook Files story, the company has responded defiantly, some might say recklessly, without a hint of introspection. This might be because it genuinely believes it’s in the right. But it’s also likely that Facebook is responding to the incentives. The company has seen few consequences for its actions up until now. So it’s thus adopting an ascending mantra among those facing criticism today: Never apologize and press on. 

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News Briefs

The division in charge of Apple's future in the $4 trillion healthcare industry has been in turmoil for years (Insider)

Apple’s culture doesn’t prioritize employee feedback, something I report on in-depth in Always Day One. This choice, in the past, has hampered its efforts to break into new product categories, like smart speakers. But now, it’s leading to concerning consequences in Apple’s health division, where some employees believe dissent is unwelcome and that the company has misrepresented aspects of the business. "If people aren't comfortable telling execs this isn't going as planned," said one former employee, "what does that say about the quality of the products that are on the market and that are expected to be on the market?"

Twitter sells MoPub mobile ad network to AppLovin for $1.05 billion (CNBC)

The fallout from Apple’s anti-tracking changes in iOS continues. Last month, we discussed how Apple dealt Facebook a significant blow by allowing people to stop it from tracking them off of Facebook. Now, Twitter is bailing on its “off-platform” ad-tech. It just sold MoPub, its mobile ad platform, to AppLovin for about three times what it paid in 2013 (gotta love ad-tech names). It’s a nice return for Twitter but a disappointing outcome for a company that once wanted to sell ads across the web using its data. 

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Further Reading

Changing The Facebook Conversation (Galaxy Brain)

The Facebook whistleblower testifies (Platformer)

A Star Corporate Lawyer Now Set to Take On Corporate America (New York Times)

The Facebook whistleblower says its algorithms are dangerous. Here’s why. (MIT Tech Review)

Facebook's own data is not as conclusive as you think about teens and mental health (NPR)

The Facebook Whistleblower Is Heroic... And Terribly Wrong (BIG)

Jeff Bezos’ Rocket Company Accused of Toxic Culture and Safety Issues (New York Times)

Facebook Hearing Strengthens Calls for Regulation in Europe (New York Times)

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This week on Big Technology Podcast: Why Facebook Will Keep Building For Kids — With Michael Sayman

Michael Sayman was 16 years old when Facebook recruited him to join the company. The overture arrived as he was sitting in math class, and the teacher promptly took away his iPad. Sayman joins Big Technology Podcast to discuss why and how Facebook builds products for kids and teens (something he has intimate knowledge of) and the reasons why it won't stop.

You can listen on Apple, Spotify, or wherever you get your podcasts.

Thanks again for reading, and see you next Thursday!