“Facebook Is Unaccountable to Shareholders, to its Users, to Government”

At the Stigler Center’s annual competition conference, Facebook co-founder Chris Hughes called for the unwinding of Facebook’s WhatsApp and Instagram acquisitions and the creation of a new regulatory agency to oversee digital platforms.

 

 

Left to right: Chris Hughes, Luigi Zingales

Late last week, Facebook co-founder Chris Hughes caused a global media frenzy when he published a remarkable 6000-word piece in the New York Times calling for the government to break the company up.

 

Hughes was the latest in a long line of prominent figures who have called for Facebook to be broken up. But Hughes’ critique was particularly significant. Not just because of the thoughtful, scathing arguments he put forth, but also because of his unique perspective on the company. After all, he isn’t a longtime antitrust advocate with a distaste for bigness, or a business rival, or a presidential hopeful, but rather Zuckerberg’s former college roommate and friend, who in the early 2000s helped Zuckerberg turn what was then a dorm room project into a real company. And here he was, excoriating Facebook and its CEO and describing Zuckberberg’s power as “unprecedented and un-American.” [Zuckerberg himself dismissed this characterization] A survey published by Business Insider this week suggested that 40 percent of Americans now support antitrust action against Facebook, and only 15 percent oppose it.

 

Yesterday, in a conversation with Luigi Zingales [one of the editors of this blog] that took place during the first day of the Stigler Center’s annual antitrust and competition conference, Hughes reiterated the message he made in his Times piece, calling for Facebook to be separated from WhatsApp and Instagram and for the creation of a new regulatory agency to oversee digital platforms.

 

Hughes left Facebook in 2007 and sold his shares in the company in 2012. In 2016, with the rise of Donald Trump and the proliferation of racism and nationalist sentiments on the platform, he began to feel uncomfortable about the company. “Facebook, I want to be clear, is not the cause of the rise of Trump or nationalist leaders around the world,” he said. “But I do think it played a role.”

 

After Cambridge Analytica and the numerous privacy, security and election scandals that followed it, “it just became too much. I think Facebook is unaccountable. I think Mark is unaccountable. To shareholders, to users, to government. That unaccountability is corrosive. I think it’s what’s driving [Facebook’s] problems. It’s not a coincidence that this keeps happening. It’s not because the media is out to get Facebook.”

 

The reason for Facebook’s lack of accountability, Hughes argues, is lack of competition. Back when Facebook first started taking over from MySpace, he recalled, users who sought an alternative to MySpace’s chaotic vibe could “vote with their eyeballs” and flock to Facebook’s cleaner interface and real identity-based service. Nowadays, they can’t do that, because Facebook has no competitors. Facebook’s monopoly has led to harms for consumers, in the form of privacy scandals that led to “a breakdown in security and trust.” But another major, identifiable harm, said Hughes, is the freeze on the market and innovation.

 

“We have not seen another major social networking company started in eight years. Snapchat was started eight years ago, in 2011, and its revenues last year were $1 billion compared to Facebook’s $56 billion. It is tiny. It is a rounding error. And it is an excuse for Facebook to say ‘there’s competition,’ even though by any way you measure it, there is not.”

 

Instead of providing competition, he argued, Instagram and WhatsApp provide an “illusion of choice,” since many people in the US and abroad don’t seem to know that they are owned by Facebook, which still gets to collect their data. “People say, ‘I’m done with Facebook, I’m so frustrated with it—I’m going to move to Instagram.'”

 

As he did in his New York Times piece, Hughes argued that the Federal Trade Commission and Department of Justice should unwind Facebook’s acquisitions of WhatsApp and Instagram. If that were to happen, he explained, the three companies would be able to exist independently. “There’d be a CEO of Instagram, CEO of WhatsApp, Mark would likely still be the CEO of Facebook, and they would be competing tenaciously,” he said. “There will be other entrants to the field. It would give Snap an opening, and who knows, it could get LinkedIn or some of the other marginal players in the field an opening.” Undoing those mergers, however, would become more difficult if Facebook completes its integration of Instagram, WhatsApp, and Facebook Messenger. In a later conversation with ProMarket, Hughes said Facebook’s attempt to integrate the back ends of those three apps complicates any effort to separate them into three companies. “It just raises the question of who gets what share of the data.”

 

But break up alone, he cautioned, is not enough. “The bigness of the idea has overshadowed some of the other things that I talked about in the piece,” he said. “It’s not clear to me that just breaking up Facebook is going to solve our privacy concerns. Nor do I think that just regulation will create the accountability that a competitive market requires… You’ve got to do both.”

 

Hughes voiced support for the creation of a new digital regulatory authority to implement privacy protections, interoperability, and data portability. He cited a proposal by a government-commissioned expert panel in the UK led by Harvard economist Jason Furman. The various subcommittees of the Stigler Center’s Digital Platforms Project have also suggested the creation of a new regulatory body of a similar nature.

 

Yet structural solutions, Hughes claimed, are necessary to make Facebook accountable. The day after Facebook announced it is expecting a $5 billion fine from the FTC for violating its 2011 consent decree, the company’s stock surged, and its market cap grew by $30 billion.” It’s’ not even a slap on the wrist for them,” said Hughes. “It’s a call for us to think about structural remedies. Even historic fines are just rolling off their back.”

 

Later, when discussing the role of Facebook and other digital platforms in the crisis of the news media—a topic described by many of the conference attendees as one of the main harms caused by tech platforms—Hughes expressed support for some form of public subsidy for news. “News is a public good. We had a unique period of 40-50 years in the post-World War II era where there was a business model, and I think a lot of us got fooled. At least I got fooled, thinking, as a student of that period, that the A1 [section], where the real news was written, was a self-sustaining product and not realizing that it’s the automobile section, the travel magazine, the style magazine on Sunday that made the business model work. Those business models are much harder [today], and we should confidently say that they may need public subsidies from the not-for-profit sector, from corporations in theory, perhaps government.” When asked whether governments should tax digital platforms’ ad revenues to pay for news, Hughes opined: “Facebook, I think, has taken a lot of money from the advertising revenues of media organizations and now enjoys the benefit of it. So expecting them to give back some of that feels more than reasonable to me.”

 

Asked about his repeated characterization of Mark Zuckerberg as a “good guy,” both in the Times piece and during the event, Hughes dismissed attempts to portray the Facebook CEO as malicious. “The truth of the fact is that Facebook is a monopoly that is problematic for Americans and that Mark’s a good person and an entrepreneur with hustle, who’s made mistakes,” he said.

 

The point, however, is not that Zuckerberg is particularly good or bad. It’s that he has too much power, and that the lack of competition in our digital economy gives him this enormous power. “I want a competitive market where I have multiple news feeds to choose from, multiple newspapers and multiple different ways of learning about the world,” said Hughes. “Right now, there is one, and we don’t really know how it works.”

 

When asked about potential negative implications of aggressive antitrust action, Hughes contended: “Saying the world could be worse if we make markets competitive feels awfully like AT&T saying in 1981 ‘Just imagine what your telephone service is going to be like after we get broken up.’ Phone works great today.”

 

The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy