November 1, 2021

Facebook tries to change the subject

After becoming the scapegoat of choice for all of society’s ills, from the “death of democracy” to teenage girls’ social comparisons to amplifying hate speech, Mark Zuckerberg announced a change to the company’s name and a shift in its focus. While the timing could not be worse given FB’s travails, the change has been in the works for months. Zuckerberg told one publication that Facebook would transition from “primarily being a social media company to being a metaverse (virtual reality) company” back in July. 

There is a huge amount of commentary – and entertaining ridicule – of the move, but we are focusing on one rather neglected aspect of it. Zuckerberg’s new focus is a useful reminder that the platform economy is still evolving. What is now a dominant social media may not be so for long. Facebook’s leaked internal research shows a deep concern that its user base is stagnating and that the platform is losing appeal to younger users. Zuckerberg’s explanation of how “3D spaces in the metaverse will let you socialize, learn, collaborate and play in ways that go beyond what we can imagine” may come off as awkward and creepy, but may also indicate a new stage in the evolution of social media. Whether Facebook is meta-stasizing or merely meta-morphosing remains to be seen. One thing seems certain however: if the metaverse takes off it will certainly display all the bad forms of human behavior that existing social media does. Indeed, One thing that could make metaverses popular – virtual sex – is certain to be excluded by FB-style moderation policies.

Privacy vs. competition tradeoffs start to come to light

Ever since Apple stopped sharing the Identifier for Advertising (IDFA) in iOS as a user privacy-enhancing move, there have been questions about what competitive effects the decision might have. Before the change, the IDFA was used by app developers and the adtech industry to target advertising at users and measure ad impressions. Post change, users would have to opt-in to allow IDFA use by app developers and adtech firms. A recent report put the opt-in figure at around 16% of users, although other reported numbers have ranged from 4% to 38%. Only Apple knows for sure.

With companies now reporting quarterly financial results since the change went into effect, we have more insight into the trade-off between privacy-enhancing technology and competition policy concerns. Snap reported its revenue (almost exclusively driven by advertising) up 57%, but its quarter to quarter growth slowed. Facebook similarly reported revenues up 35% to $29.01B, but it missed expectations due to a slowdown in the growth of their ad revenues. Both companies blamed Apple’s IDFA policy for the declines, and said they believe the trend will continue. 

Apple, in contrast, seems to be benefitting. While Apple doesn’t break out advertising from overall services revenue, that part of their business continues to grow rapidly (quarter results). Their advertising product (Apple Search Ads), which helps users find apps on its App Store, is now gaining market share, which could be related to the IDFA change. (Credit: Apple Search Ads Benchmarks report. Q1-Q2 2021) So a distributional shift in market and revenue associated with redefined IDFA property rights that exclude app and ad tech competitors appears to be happening, as one would expect. It will be interesting to see if the perceived privacy gains outweigh possible economic harms from less competition in adtech. 

Lest Apple get all the press for promoting privacy while capturing adtech economic value, Google seems to be following a similar playbook. The growth we see in Apple Search Ads could be viewed as a competitor to Google’s search capability, which gives them direct insight to consumer demands. But it doesn’t appear to matter much. Google reported $53.13B in advertising revenues, a 43% increase since 2020, and vastly exceeded expectations. Google’s massive haul has become the focus of regulators. A US states’ Attorney Generals’ complaint accused Google executives of allegedly saying “We have been successful in slowing down and delaying the [ePrivacy Regulation] process and have been working behind the scenes hand in hand with the other companies.” Again, if this goes to trial, it will be interesting to see what is revealed.

Shooting yourself in the foot: the US 5G Sanctions

The European Centre for International Political Economy (ECIPE) has issued a study documenting the effects of American 5G sanctions policy. Setting aside the question whether the sanctions should have happened at all, the report shows how inconsistent and counterproductive they were. Sanctions targeted Huawei, a relatively independent private Chinese company, but exempted the state-backed, state-owned ZTE. They thus “weakened the most western-oriented (and arguably most cooperative) Chinese vendor” while reinforcing China’s state-dominated economy. The sanctions also forced Huawei to give up control of its Honor business to the state-owned consortium Shenzhen Zhixin New Information Technology. 

According to the report, Huawei 

“has been pushed closer towards China’s Central Government due to an increased dependency on the domestic market where all carriers are SOEs. [The] company’s founder, Ren Zhengfei, needed government support and may have been politically indebted to the CPC leadership in his campaign for his daughter’s release from Canadian custody. The selective and inconsistent targeting of US sanctions have conveyed an inadvertent message to Chinese entrepreneurs: The world is a dangerous place for Chinese entrepreneurs without government protection.” 

The secondary impact of US sanctions has been the marginalization of foreign vendors in China’s 5G network. This, too, has redounded to the benefit of ZTE. The 5G market share in China of ZTE – a state-owned entity with military links – has increased. The report also raises interesting questions about the O-RAN Alliance, noting that it “is not, and does not behave, like an SDO in its current form,” and that some sanctioned Chinese firms are members of it.

Indian Court Orders Probe Into Use of Pegasus by Government 

In July a consortium of media agencies revealed a list of 50,000 potential targets including over 300 Indian mobile numbers that were targeted for surveillance using the Israeli NSO Group’s Pegasus software. Three months later, on October 27, the Supreme Court of India (SCI) appointed a three-member expert panel to investigate charges against the Indian state for using Pegasus to illegally spy on citizens including journalists, activists and political opponents. The court was compelled to order an independent investigation as the Indian government refused to file an affidavit denying the use of Pegasus. It is unclear why the committee is needed at all or what it can achieve given the government’s resolute silence in the court. However the order is significant for two reasons. First, the court recognises that spying on an individual is a violation of privacy and any limitation on fundamental rights should be proportional and based on evidence.  Second, the court also questions the State getting a free pass “every time the spectre of “national security is raised” and notes that the “mere invocation of national security by the State does not render the court a mute spectator.” 

Following the revelations, France and Hungary launched independent investigations into the use of Pegasus and in August French security agencies confirmed traces of Pegasus spyware on the phones of five current French cabinet ministers. Since then, French authorities have been demanding a commitment from their Israeli counterparts that French phone numbers will not be targeted by Pegasus. A similar ban already exists on hacking U.S. and U.K. numbers. Earlier this month Axios reported that Israeli national security adviser Eyal Hulata met with Macron’s national security adviser, Emmanuel Bonne, in Paris and agreed to ban the hacking of French mobile phone numbers in any future spyware deal between an Israeli firm and a third country. Israel’s government has also established an inter-ministerial team to look into the allegations against NSO Group and hinted at a possible “review of the whole matter of giving licences” to export cyber products. On its part the NSO Group maintains that Pegasus is sold only to governments, and has denied that the leaked list of targets has anything to do with the company. 

Global Encryption Day 

In response to the rising threats against encryption, several organisations and institutions came together as part of the Global Encryption Coalition (GEC) to organize the first ever Global Encryption Day on 21 October 2021. In the days leading up to Global Encryption Day, the GEC ran the Make the Switch campaign. GEC members organized events and activities around the world to promote strong encryption for all. The GEC also hosted leading advocates of online freedom and civil society groups in a conversation about why we need end-to-end encryption and how to counter efforts to undermine it.