Facebook and Googles Dirty Secret: Theyre Really Junk Mail Empires

Three and half years. $50 billion. These numbers represent the ticks of the clock and the growth in Facebooks revenue since we first called out the social network for its harmful data practices in the pages of The Wall Street Journal. In the (eventful) years since, weve seen an evolution: Influential voices that initially challenged our premise have joined the collective outcry against the duopolyGoogle and Facebook. The two companies are finally losing some of their grip over academia, think tanks, and Washington.

However, while industry insiders and major media companies have started to see through the shiny were-a-free-service veneer of these tech giants, consumer awareness and regulatory threats are just beginning to catch up.

Sentiment is certainly shifting. In an inspiring move shortly before the holiday break, Germanys Federal Cartel Office published preliminary findings that Facebook has abused its dominance to collect internet users browsing history and personal data. Its hard for a move like this to break into the current, insane U.S. press cycle. But make no mistake: This is significant. I would expect that few developments received more attention at the companys Menlo Park headquarters last quarter including their lawyers summoning to our nations capital.

On one hand, Germanys top antitrust enforcers move is a harbinger of the General Data Protection Regulation (GDPR), which the EU will begin to enforce on May 25, 2018. This new regulation, coupled with an expansive and updated set of privacy laws, will force Facebook and Google to obtain specific, unambiguous (and likely unachievable) consent for some of the ubiquitous data collection practices that they are uniquely able to impose on the public.

This means that Google and Facebook will no longer be able to default to requiring consumers to allow nearly web-wide monitoring and selling of their personal activities as a condition of using Gmail or their social network. In fact, Google already stopped doing this in Gmail last summer as it was likely the most prominent, yet indefensible, practice it would need to defend in the court of public opinion.

The rise of Facebook and Google has literally flipped competition law on its head. In the U.S. over the past 40 years, the first (and most-often last) judgement of fair competition has been consumer welfare, the measure of which was mostly pinned to whether a companys dominance can drive up consumer prices. Times have changed, and the high cost to consumers cant just be measured in dollars. Now, consumer costs are also measured in harm to competitive offerings and innovation.

Importantly, its also the first time weve seen a major regulator truly connect the dots between competition and data policy. The Google suiteas well as Facebooks App, Messenger, WhatsApp, Instagram, and a plethora of other social productsshare some common traits that should shake up competition regulation:

  1. All of these products are free to consumers. If competition is judged simply based on consumer pricing trends, Google and Facebook can dismiss the conversation before it even begins. I can now keep up with my relatives in Asia for free thanks to Facebook while Google has given me one-click access to virtually everything on the internet. Whats not to love?
  2. All of these products collect real-time data. Google tracks your web usage on nearly 80 percent of the top 1 million websites according to Princeton research. As we posited in our original WSJ column, Facebooks ubiquitous Like buttons spread across the web pass your browsing history back to Facebookeven when theyre not clicked. This occurs completely outside of consumer knowledge, let alone what they would expect. The publisher and consumer expectations for these Like buttons were simply to allow users to signal stories they liked. This shady practice identified by DCN in 2014 is the source of the recent German findings.
  3. Google and Facebook use this data collection to help micro-target advertising to users across the web. Advertising is 98 percent and 87 percent of Facebook and Googles respective revenues. Both companies have significant troves of organic data from the use of their sites and products to target this advertising. But they are also able to grow with the entire internet by leveraging web-wide data in real time. In the digital world, big data requires scale, and it loses value quickly as it becomes stale. Its the web-wide data collection that is the most troubling and outside consumer expectations; and also provides their unique power and influence over the content, traffic, and monetization of the internet.

Underneath their moon shots and free services, the duopoloys core revenue stream is quite simply the targeted junk mail business of the 90s reinvented and turbocharged for the 21st century. Google and Facebook clearly state in their SEC filings that their businesses are primarily funded by cost-effective, highly targeted advertising, and changes to data ownership policies are a significant risk to this business.

So, we find ourselves at a place in which one of the most suspect advertising models ever devised underpins the vast wealth and unnerving data collection and manipulation of some of the most powerful companies on earth. The dubious ethics that drive these businesses have wide-ranging impact on the tech communityventure capitalists and startups all racing to build a comparable scale of automated consumer surveillance.

Perhaps more importantly, the rise of the duopoly presents profound challenges for our society as democracies struggle to defend against nation-state attacks made possible by platforms overly reliant on algorithms, as citizens increasingly seclude themselves in news bubbles, as quality journalism becomes harder to fund and as individuals lose private spaces to ask questions, converse, and interact. Regardless of political stripe, we all need to be asking hard questions about what kind of society we want to leave for the next generation.

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