Facebook Co-Founder Chris Hughes Calls For Facebook's Breakup… But Seems Confused About All The Details

Say That Again

from the details-matter dept

Lots of folks are talking about a new opinion piece in the New York Times by Chris Hughes, one of the small group of college buddies of Mark Zuckerberg who are often called “co-founders” of the company. Hughes left pretty early, and has dabbled (unsuccessfully) in politics and (unsuccessfully) in media. The key point of the opinion piece is obvious from the title: It’s Time to Break Up Facebook.

It is absolutely worth reading and thinking about. It’s also does not make a very compelling argument. It does seem to have people who already think Facebook should be broken up declaring that it’s a compelling argument, but that’s because it’s confirming their prior feelings, not because of anything in the article. To be clear: I’m actually on the fence about the idea of breaking up Facebook. I’ve previously discussed why I think Elizabeth Warren’s plans to break up all of the big internet companies don’t make sense, but as a short version, my main issue is that I’m not sure any of these plans actually solve the problems people think they will solve (for a debate on this, listen to my podcast with Cory Doctorow where he and I disagreed over this point).

Facebook’s value comes from the fact that it’s a global service in which everyone can reach everyone. So, you couldn’t break up “Facebook” in a way that separates the company into, say, geographic regions or that limits the overall reach of the company. Instead, most of the focus is on splitting off some of its big acquisitions, mainly Instagram and Whatsapp, to create “competing” social media and messaging platforms. Again, I’m not totally against this idea — it’s the cleanest possible setup and at the very least would create some greater competition — but I’m not convinced that it actually solves any of the “problems” people are really concerned about, such as the company’s sucking up lots of data on everyone and (sometimes) exposing some of that data to those who shouldn’t have it. It is possible that a broken up Facebook faces more competitive pressure to be a better actor in the space, but I’m not really sure how true that is. For all the claims of people being concerned about privacy, their own actions don’t show that in practice. If people were truly concerned about these issues, we’d see more movement to other kinds of platforms, but we haven’t yet seen that.

So, I’m not convinced that cleaving off Instagram and Whatsapp would necessarily be bad, but I’m equally confused as to how it would actually help deal with any of the concerns people normally raise.

That’s my bias. Now, let’s dig into Hughes’ piece.

Mark?s influence is staggering, far beyond that of anyone else in the private sector or in government. He controls three core communications platforms ? Facebook, Instagram and WhatsApp ? that billions of people use every day. Facebook?s board works more like an advisory committee than an overseer, because Mark controls around 60 percent of voting shares. Mark alone can decide how to configure Facebook?s algorithms to determine what people see in their News Feeds, what privacy settings they can use and even which messages get delivered. He sets the rules for how to distinguish violent and incendiary speech from the merely offensive, and he can choose to shut down a competitor by acquiring, blocking or copying it.

This opening is the most compelling argument in the piece. Perhaps by controlling all three of those platforms, Zuckerberg does have too much power over the internet as a whole. But, again, I’m not convinced that splitting up those companies truly changes things in any significant way. There are, already, plenty of competitors to Whatsapp. And Whatsapp already offers end-to-end encryption, so the “privacy” concerns people usually scream about aren’t nearly as present with that platform. There are (reasonable) concerns about the spread of disinformation on Whatsapp, but that seems to have little to nothing to do with Facebook’s dominance and power. Before everyone was screaming about disinformation on Whatsapp, they were doing the same about Telegram, a program not owned by Facebook.

Mark is a good, kind person. But I?m angry that his focus on growth led him to sacrifice security and civility for clicks. I?m disappointed in myself and the early Facebook team for not thinking more about how the News Feed algorithm could change our culture, influence elections and empower nationalist leaders. And I?m worried that Mark has surrounded himself with a team that reinforces his beliefs instead of challenging them.

Again, that’s a valid criticism of Zuckerberg and his top execs, but it’s unclear how breaking up the company solves any of that. The “influencing elections” and “empowering nationalist leaders” aspect doesn’t rely on the fact that Facebook owns three separate platforms. It is based on the reach of those platforms — which wouldn’t be broken up via antitrust anyway. And, of course, there are lots of other platforms with global reach as well. So, breaking up Facebook doesn’t… actually… change any of the things Hughes says he’s concerned about.

The government must hold Mark accountable. For too long, lawmakers have marveled at Facebook?s explosive growth and overlooked their responsibility to ensure that Americans are protected and markets are competitive.

Accountable for what? For reflecting the fact that there are awful people in society? And that those people will abuse systems for power? It’s a cheap shot to blame Facebook for awful people. And Facebook’s “responsibility” is not to make sure people are “protected” (whatever that means) or that “markets are competitive.” We may value both of those things (and we should), but if you think they’re somehow Facebook’s responsibility, then that leads to a much larger discussion about fiduciary responsibility and how public companies are measured and valued. That may actually be a really important and relevant discussion, but it’s an entirely separate discussion from whether or not Facebook should be broken up.

Sense a pattern here? Hughes is certainly highlighting some societal issues that have been exposed and arguably exacerbated by Facebook. But he fails to explain how breaking up the company actually tackles those problems. It’s the same old “we must do something, this is something, we will do it!” kind of argumentation that gets us into trouble so often.

After Mark?s congressional testimony last year, there should have been calls for him to truly reckon with his mistakes. Instead the legislators who questioned him were derided as too old and out of touch to understand how tech works. That?s the impression Mark wanted Americans to have, because it means little will change.

Again, Hughes is pointing fingers in semi-random places. Is it Facebook’s fault that Congress didn’t bother to educate itself or figure out how to ask good questions? If that’s the problem, then (again!) the solution has little to do with breaking up Facebook, but reforming the political system or (at the very least) how Congress is educated on tech issues.

We are a nation with a tradition of reining in monopolies, no matter how well intentioned the leaders of these companies may be. Mark?s power is unprecedented and un-American.

It is time to break up Facebook.

I’d argue that this kind of power is both extremely precedented and extremely American, but fair enough. What’s still lacking is how “breaking up Facebook” actually solves any of the problems.

America was built on the idea that power should not be concentrated in any one person, because we are all fallible. That?s why the founders created a system of checks and balances. They didn?t need to foresee the rise of Facebook to understand the threat that gargantuan companies would pose to democracy. Jefferson and Madison were voracious readers of Adam Smith, who believed that monopolies prevent the competition that spurs innovation and leads to economic growth.

America also has a long, long history of having tremendous power concentrated in just a few people. Sometimes those companies get broken up by antitrust, and sometimes they don’t. I also agree that monopolies can be quite dangerous and am all for the proper application of antitrust to break up abusive monopolies. But this opinion piece does little to reckon with the larger question: is the problem Facebook or is the problem humanity, when connected. It points to the latter and assumes the former. But if the problem is humanity, then that’s a different discussion, and one that is not solved by breaking up Facebook.

A century later, in response to the rise of the oil, railroad and banking trusts of the Gilded Age, the Ohio Republican John Sherman said on the floor of Congress: ?If we will not endure a king as a political power, we should not endure a king over the production, transportation and sale of any of the necessities of life. If we would not submit to an emperor, we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity.? The Sherman Antitrust Act of 1890 outlawed monopolies. More legislation followed in the 20th century, creating legal and regulatory structures to promote competition and hold the biggest companies accountable. The Department of Justice broke up monopolies like Standard Oil and AT&T.

This is all true and something that many in the “break up Facebook” crowd like to repeat, but they fail to recognize that Facebook is a very, very different kind of beast. It’s not price-fixing. It’s not a monopoly in the sense of Standard Oil or AT&T (the latter of which had a literal monopoly in that there were no other phone companies). On the internet, there are lots of other players. And while it’s true that Facebook has bought up a few competitors, there remain many more. And it’s quite easy for many more to pop up as well. Indeed, the continual beating that Facebook has received over the past few years seems to be inspiring a bunch of new competitors seeking to provide better solutions.

Starting in the 1970s, a small but dedicated group of economists, lawyers and policymakers sowed the seeds of our cynicism. Over the next 40 years, they financed a network of think tanks, journals, social clubs, academic centers and media outlets to teach an emerging generation that private interests should take precedence over public ones. Their gospel was simple: ?Free? markets are dynamic and productive, while government is bureaucratic and ineffective. By the mid-1980s, they had largely managed to relegate energetic antitrust enforcement to the history books.

This shift, combined with business-friendly tax and regulatory policy, ushered in a period of mergers and acquisitions that created megacorporations. In the past 20 years, more than 75 percent of American industries, from airlines to pharmaceuticals, have experienced increased concentration, and the average size of public companies has tripled. The results are a decline in entrepreneurship, stalled productivity growth, and higher prices and fewer choices for consumers.

So, uh, just to be clear, the two industries he directly cites as evidence of the “gospel” of free markets–airlines and pharmaceuticals–are two of the most heavily regulated industries in existence. Neither are anything even remotely like a free market. And, at least in the airline space, the elements of deregulation that have occurred have in fact created significant competition in the market, including much lower airfare than what was there before. I do think there are arguments that crony capitalism, regulatory capture, bad intellectual property laws and more have contributed to the concentration of megacorps, but it’s difficult to argue with a straight face that it’s “free markets” that are the problem here. Also, the “higher prices” argument doesn’t exactly apply to free social media services, now does it?

The same thing is happening in social media and digital communications. Because Facebook so dominates social networking, it faces no market-based accountability. This means that every time Facebook messes up, we repeat an exhausting pattern: first outrage, then disappointment and, finally, resignation.

“The same thing” being higher prices? Again, the services are free to users. And the price of advertising keeps going down and down. Not up. And, yes, the outrage over Facebook’s regular fuck-ups don’t seem to lead to a grand exodus, but that might have more to do with the fact that most people aren’t as concerned about the impact of those fuck-ups as the media and politicians are.

Facebook?s dominance is not an accident of history. The company?s strategy was to beat every competitor in plain view, and regulators and the government tacitly ? and at times explicitly ? approved. In one of the government?s few attempts to rein in the company, the F.T.C. in 2011 issued a consent decree that Facebook not share any private information beyond what users already agreed to. Facebook largely ignored the decree. Last month, the day after the company predicted in an earnings call that it would need to pay up to $5 billion as a penalty for its negligence ? a slap on the wrist ? Facebook?s shares surged 7 percent, adding $30 billion to its value, six times the size of the fine.

Ignoring the consent decree is a real problem. But how does breaking up Facebook change that? How does it make the company any more likely to abide by the FTC’s rules?

For the next part, let me pull together two separate paragraphs that are a few paragraphs apart in Hughes’ piece, but should be read together:

It was this drive to compete that led Mark to acquire, over the years, dozens of other companies, including Instagram and WhatsApp in 2012 and 2014. There was nothing unethical or suspicious, in my view, in these moves.

[….]

The F.T.C.?s biggest mistake was to allow Facebook to acquire Instagram and WhatsApp. In 2012, the newer platforms were nipping at Facebook?s heels because they had been built for the smartphone, where Facebook was still struggling to gain traction. Mark responded by buying them, and the F.T.C. approved.

The moves were not unethical or suspicious… and yet the FTC made a big mistake by not blocking them? I’ve argued elsewhere that Zuckerberg’s internalization of Clayton Christensen’s concept of “The Innovator’s Dilemma” is what caused him to effectively overpay for both Instagram and Whatsapp, recognizing that rapidly growing competitors could present the kind of disruptive innovation that would undermine Facebook in the first place. The fact that he mostly let those companies run independently (until recently) seems to confirm that.

And that leaves us again wondering if the critique here is of Facebook, or the nature of technological change and innovation? If we want to establish as a policy goal that new disruptors always kill off older companies, that’s one view that perhaps makes sense, but might also lead to other troubling consequences and should be carefully considered. If the new position is that Facebook (and Google and Amazon and Apple) should never be allowed to acquire startups, there are deeper impacts to the competitive ecosystem. For example, that makes it that much more difficult for startups to exit, which means it will be more difficult for them to raise money in the first place. In other words, if the policy is to stop large internet companies from acquiring small ones to increase competition, it might actually decrease competition by shutting off the market for capital funds to make those companies viable in the first place.

None of this is to say that we should just let Facebook continue on its merry way. I get that the company is quite powerful and in a position to fuck up lots of stuff (which it regularly seems to do). But a remedy for the sake of a remedy, without any understanding of the wider impact, is bound to cause problems.

When it hasn?t acquired its way to dominance, Facebook has used its monopoly position to shut out competing companies or has copied their technology.

The News Feed algorithm reportedly prioritized videos created through Facebook over videos from competitors, like YouTube and Vimeo. In 2012, Twitter introduced a video network called Vine that featured six-second videos. That same day, Facebook blocked Vine from hosting a tool that let its users search for their Facebook friends while on the new network. The decision hobbled Vine, which shut down four years later.

And yet YouTube still dominates the video side, and Vimeo still appears to be going strong. Yes, Facebook’s practices concerning video have been obnoxious, but for whatever “market power” it supposedly has, it didn’t work against YouTube.

Snapchat posed a different threat. Snapchat?s Stories and impermanent messaging options made it an attractive alternative to Facebook and Instagram. And unlike Vine, Snapchat wasn?t interfacing with the Facebook ecosystem; there was no obvious way to handicap the company or shut it out. So Facebook simply copied it.

So, um, competition worked?

(There is little regulators can do about this tactic: Snapchat patented its ?ephemeral message galleries,? but copyright law does not extend to the abstract concept itself.)

It is difficult to take anyone seriously when they confuse patents and copyright.

As markets become more concentrated, the number of new start-up businesses declines. This holds true in other high-tech areas dominated by single companies, like search (controlled by Google) and e-commerce (taken over by Amazon). Meanwhile, there has been plenty of innovation in areas where there is no monopolistic domination, such as in workplace productivity (Slack, Trello, Asana), urban transportation (Lyft, Uber, Lime, Bird) and cryptocurrency exchanges (Ripple, Coinbase, Circle).

This seems like a very simplistic view of the market. There have been a bunch of new entrants in e-commerce and search (and even in parts of social media). Not all have been successful, but direct competition is never going to excite investors in the first place. It’s always the indirect competitors who represent the true disruption. The newer markets have more competition for now because they haven’t shaken out yet, but it seems likely that they will also over time.

Facebook?s business model is built on capturing as much of our attention as possible to encourage people to create and share more information about who they are and who they want to be. We pay for Facebook with our data and our attention, and by either measure it doesn?t come cheap.

And, again, splitting off Instagram and Whatsapp don’t change that one bit. If you want to force Facebook to change its business model that is, again, a different discussion.

The vibrant marketplace that once drove Facebook and other social media companies to compete to come up with better products has virtually disappeared.

I literally had a phone call this morning with a company looking to “disrupt” Facebook with a totally different approach. Just because Chris Hughes doesn’t know these companies exist doesn’t mean they don’t.

The most problematic aspect of Facebook?s power is Mark?s unilateral control over speech. There is no precedent for his ability to monitor, organize and even censor the conversations of two billion people.

Facebook engineers write algorithms that select which users? comments or experiences end up displayed in the News Feeds of friends and family. These rules are proprietary and so complex that many Facebook employees themselves don?t understand them.

I’m going to sound like a broken record (for those of you young enough to remember what that means) but how does breaking up Facebook solve this?

How would a breakup work? Facebook would have a brief period to spin off the Instagram and WhatsApp businesses, and the three would become distinct companies, most likely publicly traded. Facebook shareholders would initially hold stock in the new companies, although Mark and other executives would probably be required to divest their management shares.

How does that solve any of the problems Hughes outlined above?

But the biggest winners would be the American people. Imagine a competitive market in which they could choose among one network that offered higher privacy standards, another that cost a fee to join but had little advertising and another that would allow users to customize and tweak their feeds as they saw fit. No one knows exactly what Facebook?s competitors would offer to differentiate themselves. That?s exactly the point.

I’ve said many times in the past that I agree that more competition is valuable, but merely breaking up a bunch of big, centralized platforms doesn’t seem likely to offer that kind of solution. This is why I’ve long advocated a solution that focuses on moving to protocols instead of platforms as a way to truly “break up” big tech. Merely separating Facebook out into Facebook, Instagram and Whatsapp doesn’t solve most of the problems discussed above. People will still be locked into those proprietary, centralized platforms if they want to communicate with others on those platforms.

Moving to a world of protocols, in which you could move away from Facebook but still have access to the content and people who stayed on Facebook is the real solution. It removes the lock-in that is the true issue of dominance. And, unless antitrust somehow forces that to happen, a separate Instagram doesn’t solve any of these issues.

Just breaking up Facebook is not enough. We need a new agency, empowered by Congress to regulate tech companies. Its first mandate should be to protect privacy.

The Europeans have made headway on privacy with the General Data Protection Regulation, a law that guarantees users a minimal level of protection. A landmark privacy bill in the United States should specify exactly what control Americans have over their digital information, require clearer disclosure to users and provide enough flexibility to the agency to exercise effective oversight over time.

This is one of those “feel good” ideas that again requires actual details to understand. So far, remember, all the GDPR has done to date is concentrate the power of Facebook and Google, rather than diminish it.

The agency should also be charged with guaranteeing basic interoperability across platforms.

Hey, one thing I agree with! Though, it’s not clear why you should need an agency to enforce interoperability. Ideally we’d start moving to a world where interoperability on top of an open API is table stakes to play in the internet social media space.

Finally, the agency should create guidelines for acceptable speech on social media. This idea may seem un-American ? we would never stand for a government agency censoring speech. But we already have limits on yelling ?fire? in a crowded theater, child pornography, speech intended to provoke violence and false statements to manipulate stock prices.

Oh come on. We’ve spent years (decades?!) pointing out that the whole “fire in a crowded theater” line is bullshit. It is not the law, and is based on a throwaway comment from a case long since surpassed by other rulings, and was used to jail someone who was speaking out to protest the military draft. Pulling out that line here is just crazy.

We will have to create similar standards that tech companies can use. These standards should of course be subject to the review of the courts, just as any other limits on speech are. But there is no constitutional right to harass others or live-stream violence.

Hughes’ understanding of what the Constitution does and does not allow is not in sync with what the Constitution actually does and does not allow.

This movement of public servants, scholars and activists deserves our support. Mark Zuckerberg cannot fix Facebook, but our government can.

The amount of faith Hughes puts in our currently dysfunctional government is kind of shocking.

There’s a lot more in Hughes’ piece, but this is already long enough. Once again: even if you believe that Facebook is evil, you need to actually make the case for specifically what the problems are (is it disinformation? is it privacy? is it productivity? is it security? is it democracy?) and recognize that fixing one of those might make others worse (i.e., increasing privacy via encryption can increase the spread of disinformation by making it harder for companies to monitor content). And then you need to explain how these solutions (cleaving off Instagram and Whatsapp) actually solve the specific problems you’ve laid out.

Despite everything here, I’m very open to someone laying out an actual case of how antitrust would solve specific problems. My concern is that no one has yet done so. And Hughes definitely does not do so here. There’s a lot of handwaving highlighting many very real problems (though some of those problems appear to be with the nature of Wall Street, fiduciary duty, human nature and the like), more handwaving about the fact that Facebook is very big (mostly ignoring that there is real competition from other big internet companies, and some smaller ones to boot) and then saying we need to break up the companies, and heavily regulate them, to fix these things… without ever explaining how the last part deals with the first.

There may well be a good case for breaking up Facebook. Chris Hughes, however, did not make it.

Filed Under: antitrust, breakup big tech, chris hayes, mark zuckerberg, privacy, social ills
Companies: facebook, instagram, whatsapp