Side Views

Facebook, the most cynical tech giant ever — Kevin Kelleher

May 30, 2012

MAY 30 — For all its vaunted idealism, Silicon Valley can be just as cynical as any other area of commerce. The tech companies set up to profit from spam and search-engine trickery are too numerous to count. But Facebook’s short history makes one thing clear: There has never been a tech company that built so much fortune from the exploitation of ordinary people while giving so little in return.

Yes, Microsoft was vilified — and rightly so — for crushing competitors and forcing customers into an inferior operating-system software, but its iron-fisted dominance helped shape an immature and inchoate computer-software industry into a single standard that made PCs everyday devices in offices and homes. Microsoft’s brutal strong-arm tactics were directed at rivals. Its sin against its customers was that its software, for decades, just wasn’t that good.

Facebook, by contrast, built the best social network of its time, so good it left rivals like MySpace in the dust. And that should have been enough to make Facebook a Silicon Valley success story. Once it came time to make money, Facebook exploited its users’ personal data to a degree that no company had ever achieved before.

Over the years, Facebook has curtailed some of its more blatantly exploitative practices, but only after a string of controversies forced its hand. It reluctantly let users control their privacy settings, and then it had to simplify those settings after many found them unnecessarily complex. (Some say they’re still too complex.)

Facebook also backed off changes in its terms of service that allowed it to license users’ data even after they left the site. But even now, regulators are objecting to Facebook’s insistence that users grant the company a “non-exclusive, transferable, sub-licensable, royalty-free, worldwide license” to any photo, video or passing thought they see fit to publish on the site. Facebook has not only redefined the social Web — it’s redefining the very definition of “sharing.”

Even if Facebook has lost some privacy battles, it still seems to be winning the war on private moments. It has, as one of its earliest backers wished, conditioned users to accept the creepiness of advertisers stalking their personal lives. And Facebook just keeps raising the creepiness bar.

But why must we users be used this way? It’s not because we all long to be closet exhibitionists for Madison Avenue but only because it pays a handsome profit to Facebook and its early investors. We are digital sharecroppers, but it’s not our work lives being exploited for the gain of others, it’s our personal lives.

 One out of every five cents of revenue Facebook brings in goes to its bottom line. We have handed the fruits of our labour over to Goldman Sachs, Digital Sky, Accel Partners and Zuckerberg himself. And in return we get memories that Facebook expects to license and sub-license.

It used to be that a successful Silicon Valley startup would aspire to share its success with the customers who helped create it. Not long ago, investment gurus would counsel people to “invest in what you know” — and this would be sane advice. But in the era of Facebook, that advice is nonsense: Facebook is so cynical it doesn’t even trust its own users to also be owners of the company (as some have sensibly suggested).

Zuckerberg did all he could to keep his users from being his company’s owners. Three years ago, he sought — and won — a regulatory exemption that allowed his company to remain out of public ownership. Once it was inevitable that Facebook would have to go public, Zuckerberg made sure the site’s users could never have voting control over the company built on the content they created.

Confronted with the mundane reality of a publicly traded company, Facebook revealed the true depths of its cynicism. The company didn’t trust its users to vote on its future. Zuckerberg disdained Wall Street as if he were an Occupy protester.

He wore a hoodie to roadshows — a gesture that would carry more weight if he weren’t in the upper echelons of the one per cent. Facebook snickered at would-be investors by making them wait in line for a roadshow, then making them watch a 30-minute video that could have easily been posted on YouTube.

It was all a terrific joke, except for one thing: Facebook was every bit as arrogant — if not more arrogant — than the Wall Street firms it looked down on. Zuckerberg the hacker was mocking the financial elite — but somehow he had forgotten he was now part of the financial elite. Maybe that’s why he seems to have handed the details of the IPO to his underlings, and that’s where he went wrong.

There is much discussion of who’s to blame for epic mishaps of the Facebook IPO, but this much seems evident: A week before the stock’s debut, Facebook declared its revenue in the current quarter would be slower than it expected because more users were logging in through mobile devices, where it serves fewer ads. Facebook didn’t announce this on its blog — where users who wanted to invest in the IPO could see it — but on page 57 of a 208-page document, the sixth revision of its IPO prospectus.

Given the importance of this pre-IPO disclosure, it felt weirdly opaque. It used insider jargon like “DAU” and “immaterial number of sponsored stories” before referring investors to an even more obscure section of the prospectus. Luckily for underwriters, Facebook actively notified them it was lowering its growth forecasts. Underwriters would in turn inform their favored clients.

Meanwhile, most Facebook users who wanted in on the IPO were stuck with parsing legalese inserted discreetly at the 11th hour. This is taking technicalities to the extreme: Expecting a typical Facebook user to figure out a financial reality that had to be explained to a Wall Street analyst is as cynical as it gets. And even worse: Despite its lowered revenue forecast, Facebook still increased the number of shares for sale (all of them sold by insiders, Facebook itself wouldn’t get a cent) and raised the offering price.

Common sense says that if revenue is weakening before an IPO, the number of shares for sale as well as their price should fall. But not with Facebook, which looked on its users and investors with such derision it believed it could get away with anything.

Mark Zuckerberg may have distanced himself from Facebook’s IPO, but some strong leadership would have easily prevented this mess. Instead, as the saying goes, the fish stinks from the head: Leave your underlings to handle an IPO you dread, and they won’t take it seriously either.

On the day of Facebook’s IPO, Zuckerberg still claimed that Facebook’s mission is not to be a public company, but to “make the world more open and connected.” I get it: Facebook would love to remain private.

But even so, Facebook isn’t about its users. It’s about exploiting its visitors. Listen to Zuckerberg’s one-minute IPO speech, where he thanks “all the people out there who use Facebook and our products” and ends on a flat note. The tepid applause that follows is all you need to know about how Facebook thinks of you as a user or investor.

That speech reminded me of the infamous Zuckerberg IM transcripts from the earliest days of Facebook, where he told a friend

    i don’t know why

    they “trust me”

    dumb f****

In a 2010 profile, Zuckerberg said about that earlier exchange:

    If you’re going to go on to build a service that is influential and that a lot of people rely on, then you need to be mature, right? … I think I’ve grown and learned a lot.

Zuckerberg was right. He has indeed grown up. Not in the sense of outgrowing cynicism, but in the sense of learning how to harness a faith in the weakness of humanity into a multibillion-dollar company. And that’s what’s most cynical of all. It’s one thing to profit from your customers — that’s simple capitalism. It’s another to exploit them so shamelessly, while claiming you’re helping them to live better lives. — Reuters

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.