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By Jason Abbruzzese
The dissonance between the current political pressure on Facebook and the social network’s business success was made clear on Wednesday.
The company made headlines by announcing in its quarterly earnings that it was anticipating a $5 billion fine in the U.S. because of its questionable privacy practices. It would be by far the largest privacy-related fine ever levied by the Federal Trade Commission, which oversees business practices.
For just a few minutes, the fine seemed like the culmination of years of growing resentment at Facebook and tech companies in general. The company’s “move fast and break things” ethos had finally caught up to it.
But that sentiment was almost immediately tempered by investors who saw past the fine to even more important numbers: Facebook’s user base and ad revenue have continued to grow. Facebook shares shot up and remained about 6 percent higher on Thursday, adding roughly $40 billion to the company’s total market value.
Rep. David Cicilline, D-R.I., pointed to the stock movement as proof that even a multibillion-dollar fine from the FTC did not adequately address the company’s transgressions.
“Last month, I said that a fine in the low billions of dollars would amount to a slap on the wrist for Facebook,” Cicilline tweeted. “Tonight, we learned that’s how Wall Street sees it too — as a slap on the wrist.”
Political and regulatory pressures are just two of the many threats that Facebook has faced in recent years. The company has been hit by concerns that its core social network is not attracting younger users (plenty of them are on Facebook-owned Instagram) and is alienating users who have joined in the #DeleteFacebook movement. The general public that once worried whether Facebook was listening to them through their smartphones now says social media is a waste of time — and many also say it divides people and spreads misinformation. Even some advertisers are publicly lashing out at Facebook.
Almost a year ago, there was some sense that these problems had begun to affect the company’s business. In July, Facebook shares plunged more than 20 percent after the company warned that it would be less profitable in years ahead.
Facebook shares remain below their peak just before that drop, but investor worry appears to have dissipated in recent months. Facebook’s share price is at its highest point since the July drop.
The juxtaposition of the fine and the stock movement provided fresh fodder for politicians who have begun to argue that the U.S. is unequipped to effectively regulate Facebook and the other tech companies that now count among the world’s largest and most profitable companies.
Sen. Elizabeth Warren, D-Mass., who is running for the Democratic presidential nomination and has put forward a proposal to break up big tech companies, also tweeted that the fine was “a slap on the wrist.”
“Facebook is a repeat offender & fines like this won’t stop them from breaking the law & violating our privacy again,” Warren wrote. “It’s going to take big, structural change.”
Sen. Richard Blumenthal, D-Conn., tweeted that effective change will need to come in terms of new rules and regulations.
“Facebook must be held accountable — not just by fines (a predicted $3 billion seems paltry compared to $15 billion in profits last quarter), but also far reaching reforms in management, privacy practices & culture,” Blumenthal wrote. “Money matters. Policies & people matter too.”
Justin Brookman, director of consumer privacy and technology policy at Consumer Reports, a consumer advocacy organization, said frustration over the Facebook fine highlights how the FTC is not well positioned to effectively reign in big tech companies. He pointed to changes in the 1980s that weakened the FTC and still echo at the regulator as well as legal limitations.
“Their job would be a lot easier if there were a dedicated privacy statute,” Brookman said.
Other countries are also finding that their rules are not enough to adequately regulate Facebook. On Thursday, Canada’s Office of the Privacy Commissioner issued a report finding that Facebook “committed serious contraventions of Canadian privacy laws,” but also that the country needs to change its laws.
“The ability to levy meaningful fines would be an important starting point,” Michael McEvoy, a Canadian privacy commissioner, said in a press release.
But whether those rules will materialize remains an open question. And while Facebook has made some changes to its privacy practices, Brookman said that Facebook’s core business remains a privacy concern.
“The way they make their money is tracking people everywhere,” Brookman said. “And they’ve gotten worse on that.”