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Featured Post | Perspectives | Policy

Seeing through Facebook’s transparency report

“Transparency is an important part of everything we do at Facebook.” Well, at least that’s according the first line of the company’s just-released Widely Viewed Content Report. The report is intended to provide insight into what content flowed across Facebook in the second quarter of 2021. In particular, it examines what content was viewed most in consumers’ News Feeds.

Facebook claims that most of the content on its platform comes from its users’ friends and family. The report states that news (or content that appears to be news) only represents a small fraction of what users see and share. It appears the company wants us to believe its platform is filled with family pictures and GIFs of kittens. Move along, industry watchers. According to Facebook there’s nothing to see here!

Cleaning house

The New York Times uncovered that this wasn’t the company’s first such report. According to the Times, Facebook prepared a Widely Viewed Content Report for Q1 but not release it. Apparently, the picture it painted wasn’t pretty.

According to the Times, “the most-viewed link was a news article with a headline suggesting that the coronavirus vaccine was at fault for the death of a Florida doctor.” Although the article came from a major publisher, it was the headline – and the way it was shared in a particular context by anti-vaxxers – that put it on top. Meanwhile, the 19th most popular page during Q1 was from the Epoch Times, an outlet widely known for pushing conspiracy theories.

Weird. These aren’t exactly posts about grandma’s mouth-watering apple pie or dare devil kittens hanging from ledges.

Remember, Facebook only reluctantly published the Q2 report after it spent a year discrediting external research from its own CrowdTangle data, which measures engagement (liking and sharing). When Facebook dismissed these reports, academics and researchers responded by pointing out that they were simply using the data Facebook had, itself, put out into the market. Meanwhile, CrowdTangle’s personnel were dispersed to other parts of Facebook, and the tools were pared back by Facebook, in what looked like an effort to regain control of the data and narrative.

It kind of feels like Facebook is hustling us in a giant game of Three-card Monte.

Revisionist history on repeat

Maybe there are those still inclined to give the company the benefit of the doubt. As Facebook spokesman Andy Stone soft-played their actions when he tweeted “we might have been guilty of cleaning up our house a bit before inviting company.” Unfortunately, the dumpsters full of incendiary trash impacted untold numbers of “guests” way before Facebook purportedly tidied things up and invited the “company” of critical analysis.

Facebook has a long track record of covering up and thwarting transparency at critical moments including the countless times where they enabled companies to collect data about consumers and then repurpose that data for number of reasons. Notably, these included selling Facebook’s data to third parties like Cambridge Analytica, which turned out to be one of the largest data breaches in history.

Deception is part of the business model

Recently, Facebook blocked researchers ability to gather information about what political ads are being shown across their services. It was especially galling that Facebook justified its decision as a protection of “user privacy.”

Given the company’s track record, it shouldn’t be surprising that Facebook once again opted to block full transparency. And yes, once again, the real reason is because it could hurt the business model. Even the FTC weighed in and warned Facebook not to use privacy “as a pretext to advance other aims.”

Truth told

For the Facebook model, it doesn’t matter whether the content is truthful. In fact, if there is a bias at all, it must be in favor of the least trustworthy, most salacious content (e.g. vaccine misinformation, Epoch Times) because that content tends to catch fire more quickly. And profits are way up. The business model is clearly working.

On top of that, at key junctures in Facebook’s history, executives have unequivocally chosen to hide the truth to maintain these profits. Vague commitments to transparency come only when they find themselves once again caught with a hand in the proverbial cookie jar. And now, even those promises to “do better” come with a giant caveat: We’ll only tell you something if it makes the company look good.

At this point, there are legitimate questions about whether Facebook is a good-faith actor that can ever play a constructive role. Facebook’s business model is at odds with transparency and their executives seem committed to running the business like a Three-card Monte hustle. With deep political divisions in our country hindering our ability to tackle a shared crisis (or even have a thoughtful discussion), we need leaders to step forward and demonstrate an unequivocal commitment to transparency and trust.

Featured Post | Perspectives | Policy

Today’s tech policymakers are more knowledgeable – and more aggressive

I will never forget back in 2006, when former Senator Ted Stevens (R-AK) infamously referred to the internet as a “series of tubes.” The cringe-worthy statement has gone down in the annals of unintentionally hilarious politician-speak. In defense of Senator Stevens, however, it merely belied a massive lack of understanding throughout the U.S. Congress about the then-burgeoning tech industry.

There are many reasons for this knowledge gap, not the least of which is that politicians aren’t technologists. In addition, most members aren’t “digital natives.” Meanwhile, the internet has grown ever more complex — as have tracking, monetization, and devices. And let’s not forget that Congress has responsibilities for governing on a wide swath of other complex public policy issues, which often leaves members and their staff stretched a mile wide and an inch deep.

Even in 2018, there were still examples of monumental ignorance about tech. But they are becoming fewer and farther between. In part, that’s because Congress has held numerous hearings over the years on tech issues, which has forced the members to become smarter. One tangible piece of evidence is that you can see a huge improvement in the questions asked by Members of Congress to tech executives over the last few years.

Europe first out of the gate

European policymakers have long outpaced their U.S. counterparts in digital savvy, even if the results have been less than groundbreaking. The ePrivacy Directive was an early attempt to provide more transparency for consumers about the mechanisms for online data collection and tracking. The ensuing “cookie banners” were not so great. The General Data Protection Regulation (GDPR) was the first major consumer privacy framework against which nearly every new privacy law is compared. Yet we’ve been waiting for more than three years for significant enforcement. This year might be the year… maybe.  

Then, in late 2020, Europe rolled out the Digital Markets Act (DMA) and Digital Services Act (DSA). The DMA is intended to rein in the anticompetitive behavior of “gatekeeper platforms” while the DSA is focused on providing protection and transparency for consumers and on addressing harmful content that flows across the web. These proposals represent a more thoughtful and aggressive approach than we have seen in the past from European policymakers who clearly understand how big tech companies have cemented their dominant positions. 

[Side note: If you are a DCN member, I highly encourage you and a member of your policy or legal team to attend an event we’re hosting on June 22, "Digital Markets Act: What Is It and Why Should Publishers Care?" We will provide an overview of the DMA followed by a panel of DCN members discussing the pros and cons of the DMA and the parallel proposals in the U.S.]  

Congress steps up to the plate 

Fast forward to last week, when a bipartisan collection of members of the House Judiciary Committee announced five bills to rebalance competition in the tech marketplace. These bills are an outgrowth of multiple committee hearings held over the last several years. The outcome of those hearings was a comprehensive blueprint for action released by the Committee last October.

The five bills are intended to:

  1. give greater authority to US regulators to break up dominant platforms which unfairly use their dominance to promote their own services;
  2. require platforms to offer data portability and interoperability to consumers;
  3. prohibit platforms from “self-preferencing” and/or discriminating against competitors;
  4. raise the bar for platforms seeking to acquire potential rivals; and
  5. increase filing fees for companies proposing mergers.

Action across party lines

While Washington D.C. is still deeply divided along partisan lines, it is striking to note that a number of Republicans  co-sponsored all of these bills. And they did this just days prior to the confirmation of Lina Khan (69-28) in a largely bipartisan vote as she was appointed as the new Chair of the Federal Trade Commission.

Earlier this year, Representative David Cicilline (D-CT), Chairman of the House Judiciary Subcommittee on Antitrust, re-introduced the Journalism Competition and Protection Act (JCPA) with bipartisan support, including from Rep. Ken Buck (R-CO), the top Republican on the Antitrust Subcommittee. Our understanding is that they are working together on ways to strengthen the JCPA in light of the lessons learned from the European Copyright Directive and Australia’s News Media Bargaining Code.   

Meanwhile on the other side of the Capitol, Senator Amy Klobuchar (D-MN) introduced a comprehensive proposal for reforming antitrust law. Senator Mike Lee (R-UT), her Republican counterpart on the Senate Judiciary Antitrust Subcommittee, recently introduced his own anti-trust reform bill. However, it isn’t likely to garner any support from Democrats.

While they offered starkly different solutions, the two lawmakers have a long history of working together to highlight the harmful conduct of big tech platforms. With the news that Senator Klobuchar is reportedly working on counterpart legislation to the House bills, it will be interesting to see whether a similar bipartisan dynamic plays out on the Senate side. 

Taken together, there is a distinct shift in the posture of Congress. They have moved from hearings and investigations to remedies and solutions.  

What’s next? 

If Vegas bookies offered odds on whether Congress will pass any significant legislation in the next 18 months, it would be considered a long shot. It’s not easy to get a majority of 435 members in the House to sing off the same choir sheet. It’s even harder to find agreement between Senate Majority Leader Chuck Schumer (D-NY), Senate Minority Leader Mitch McConnell (R-KY) and 60 of their colleagues (most of whom have their own fiefdoms and presidential ambitions). But you have to start somewhere. And, right now, both parties appear to be clamoring for legislative action to rein in big tech platforms. 

There will be a lot of debate in the coming months about the specifics of the House bills, the companion bills which are reportedly coming from the Senate Judiciary Committee, and the DMA and DSA in Europe. And you can be sure that the big tech platforms, which are the unquestioned targets of this scrutiny, will be spending copious time and money trying to muddy the waters and blunt these proposals.

But this much is clear: Policymakers have a come long way in better understanding the tech industry since the “series of tubes” analogy. We have reached the point where they are poised to write rules for the road that reflect how the modern world operates.

Featured Post | Perspectives | Policy

Accountability and opportunity go hand in hand

Relationships matter. As humans, we diverge from acting out of self-interest to accommodate the people with whom we have relationships. This might mean little things like saying “thank you” or holding the door open for the person behind you. It could be bigger things like buying a birthday gift for a friend or helping a neighbor in need.

People make sacrifices every day for those they care about. And, in any kind of relationship, there is some level of accountability. If I am jerk to a grocery store clerk, the five minutes during checkout could be really awkward or that person might decide to double-charge me for an item. Being rude to my server is not likely to speed up my dinner order. If I’m inconsiderate of my wife, I will probably be miserable until I make amends. These sorts of simple relationship dynamics play out hundreds of times every day.

The relationship business

Commercial relationships have similar dynamics. From my perch at DCN, I see premium publishers working hard every day to earn the trust and loyalty of consumers. News organizations employ journalists, who investigate and check facts, and editors, who vet content and ensure rigorous standards are followed. If they mislead, they can be held accountable by under libel laws. If they fail to engage and inform, they lose traffic and advertisers or subscribers.

Movie companies hire directors and actors to create humor, drama, or horror to entertain consumers. If they don’t do so, their movies fail to draw at the box office, they command lower fees for other distribution channels. They lose money.

Whether it’s weather, health, sports, or financial information, publishers in every vertical and across every medium work hard to create quality, compelling consumer experiences. In all of these cases, the publisher’s brand is closely tied to the content because the publisher is trying to build a relationship. And, as with any successful relationship, trust and accountability are key to developing a deeper commercial relationship with people as well.

Responsibility issues

Some of the currently pressing public policy issues have arisen in areas where there is little accountability to consumers. One big example is Section 230. It was enacted into law in 1996, as part of the Communications Decency Act, when the burgeoning tech industry was a darling of all politicians. Things have changed dramatically since those halcyon days with multiple members on both sides of the aisle introducing legislation to overhaul or eliminate Section 230.

Ironically, Section 230 was intended to empower platform companies to take responsibility. Instead, this liability shield tends to be used mostly by companies who can’t or won’t take full responsibility for their services. Tech companies tend to use Section 230 to avoid taking action. Backpage was one of the highest profile examples. However, Facebook regularly invokes the legal protections to avoid responsibility for the toxic content flowing across its services.

It’s not a coincidence that news organizations are far less reliant on Section 230 than platforms, because they stand behind their content. Content is their calling card and if customers reject it, that relationship is over.

Accountability issues

Consumer privacy is a hot topic these days because there are big tech companies building profiles about consumers behind the scenes with little transparency or accountability. From hyper-targeted advertising to potential discriminatory offerings, consumers are increasingly aware that they are being manipulated and their data is being used for myriad unexpected purposes.

Consumers have generally felt fine about their data being used within the context of a relationship with a company – e.g. ensuring the site or app loads properly on their device, remembering log-in information, or recommending new content. However, when data is used outside of that relationship, consumers react negatively. Hence, the blowback for Facebook around Cambridge Analytica. These public policy spats underscore a key difference between companies that have direct relationships with consumers versus those that are intermediaries. Direct relationships create accountability.

Building business with relationships

Accountability is an inherent part of direct relationships. That said, solid relationships provide opportunity as well.

The most visible sign of the power of direct consumer relationship is the growth of subscriptions. The New York Times and Netflix are notable success stories. However, hundreds of other media brands are finding loyal audiences that are more than willing to pay for premium content.

In addition, publishers with trusted brands are well-positioned to thrive in a world where privacy laws and tech controls increasingly restrict web-wide data surveillance. Whether it’s GDPR in Europe, CCPA and CPRA in California, or the handful of other states that are actively considering privacy laws, policymakers are trying to give consumers greater control. They seek to prevent the kind of unexpected data harvesting that happens outside of a consumer’s relationship with a company.

At the same time, key companies are rolling out privacy-friendly features. Apple built Intelligent Tracking Prevention (ITP) into Safari and is preparing to unveil App Tracking Transparency (ATT). Both are designed to crack down on companies following consumers everywhere they go online. However, they do allow for tracking within a consumer’s direct relationship with a company.

Google announced that Chrome would follow the lead of every other major browser in blocking third-party cookies. To be clear, there are a lot of suspicions about whether Google might try to give itself preferential treatment here. But, at its core, it looks like a positive move toward consumer privacy.

Real relationships

Companies with direct, trusted relationships have an opportunity. This window of opportunity, especially for news providers, could not come at a more important time for publishers — and for our society. The news industry has taken a beating in the last decade or so as intermediaries aggregated publishers’ content and retargeted audiences. Big tech platforms incentivized scale over trust. On top of that, there has been a raging debate about the impact of platform-driven disinformation and algorithmic bias on our democracy.

Well-paid lobbyists for some big tech companies are actively working to deflect accountability. However, publishers are embracing the direct, trusted relationships (and the ensuing accountability) they enjoy with consumers. News organizations continue to produce and stand behind quality journalism – researched, fact-checked and vetted. Local news publishers are leaning into what has always made them unique – critical context and deep understanding – to serve their communities.

Strong relationships are built on open, honest, accountability. They are built on trust. For quality media brands, this is nothing but good news. 

Featured Post | Policy

Australia’s new media bargaining code: What’s really up down under

“Don’t worry about the world coming to an end today. It is already tomorrow in Australia.”

—Charles M. Schultz

For those focused on where the future of the internet media economy is headed, all eyes turned to Australia in recent weeks. And, despite a last-minute PR spin campaign filled with half-truths and outright deception by pundits around the world vying to influence the debate, the end result is a new law, the News Media and Digital Platforms Mandatory Bargaining Code, which foreshadows the future for Google and Facebook.

We’ve had enough hot takes. It’s time to kill off, once and for all, the disinformation, misinformation, and talking points of the infamous duopoly, which I’ll try to do here by busting 10 myths. (Happy to talk through any of these further. Just reach out: publicly or privately.)

Myth busting

1. The bargaining code resulted from an arbitrary process.

This couldn’t be further from the truth. The Australian government undertook a thorough, multi-year process to establish this new law. Importantly, its competition regulator (ACCC) spent nearly two years investigating the dominance of Google and Facebook. The result was a 600+ page report that clearly demonstrates the imbalanced bargaining power held by the duopoly. At the same time, the Australian government – with support from all political parties – formulated a public policy decision about how to better fund journalism. The only assumption made was that the press is critically important to democracy. This should not be a controversial assumption. 

2. The inventor of the web has called this a “link tax” that will break the internet.

Yes, Tim Berners-Lee wrote a letter rightly expressing his concern that if it was possible to require payment for links throughout the web, it could break the internet. In the letter, he often hedged and clearly wasn’t focused on the specifics of the law, which does not require payment for links. We’ve seen this “link tax” talking point high on Google’s list in the past. And it’s a galvanizing force for defenders of the open web – as it should be. The law does mention linking but only in the context of describing what a digital platform does by publishing, curating, and linking to the news. It’s narrowly focused on the two platforms and in no way does it suggest a platform should be required to compensate for its links to news outlets.

3. Facebook won key concessions at the final hour.

The concessions for Facebook were, in fact, relatively minor. When Facebook pulled news off Australian users’ feeds, their goal was to trigger global outrage, shake up the press cycles, and turn the globe against Australia. Then, by throwing its PR might behind some elegant spinning about a great compromise, Facebook saved face. That’s all they did.

The final concessions included the addition of a couple windows of time (measured in months) in which Facebook will lobby and protest about having to pay for news. The “concessions” also included two changes that clarify the mechanics of the code.

4. This law is a gift to Murdoch and hurts everyone else.

Yes, News Limited has a lot of influence in Australia as its leading news company. In fact, as the ACCC Chairman noted, 80-90% of the journalists in Australia work for one of three companies (News, Nine, ABC). However, the idea that Google or Facebook would negotiate with these three companies and hang the other 10% of the market out to dry seems very unlikely considering the modest amount of additional funds it will take to round out the rest of the industry.

Having spent a significant amount of time on Australia’s 600+ page report, I would suggest that the law is much more clearly in the camp of increasing bargaining power for all journalism. It’s hard to argue that any news publisher with more than $150k in revenue per year isn’t better off with this law in place. Moreover, the law also allows for publishers to collectively bargain if they prefer. That does seem likely if they’re not getting what they need from Facebook and Google.

5. News Corp’s global deal with Google will result in settlements of antitrust lawsuits.

This anti-antitrust argument is the silliest thing I’ve heard. There is no greater fallacy in digital media right now than attributing the global antitrust scrutiny on Google and Facebook to one or even just a few parties. The antitrust lawsuits currently filed have the weight of the U.S. government, in 49 out of 50 states, and both parties in Congress.

The cases are robust, particularly the Texas-led advertising tech case against Google (which mirrors some of the work of the ACCC), Congress. Another is from the CMA, which is the UK’s comparable regulator. It also alleges a Section 1 charge of bid rigging between Facebook and Google. No market regulator walks away from these cases based on the whims of one complainant. The work in Australia has only added weight to these cases.

6. Publishers in Europe should be celebrating.

Globally, there is a lot of positive reaction to the work done in Australia. However, it’s also notable that the European market has been working for even longer on better funding professional content. In successfully passing an updated copyright directive, they’ve taken an approach that establishes additional rights for publishers through a publisher’s “neighboring right.”

Importantly, the European approach is not restricted to just news. It covers all content including snippets offered on Facebook and Google. France was first to bake this new right into law. Google responded by trying to avoid paying for anything that they’ve historically taken for free.

They’ve even invented a new product offering, Google News Showcase, to bury their payments and bundle in all rights needed. This minimizes any increased bargaining power for publishers, which has caused even more scrutiny. This opaque bundling of payment for rights by Google and Facebook keeps popping up wherever they face regulatory threats. If payment for snippets isn’t clearly delineated, and the financial terms aren’t transformative, the EU is likely to view Australia’s new law as a missed opportunity.  

7. Government will set an arbitrary price for platforms to pay for news content.

The reality is that Australia has come up with a solution that uses market forces by requiring negotiated deals with publishers ahead of a mandatory bargaining code or an arbitration process. It uses a clever “final offer” process (also known as “baseball arbitration”) to finalize deal terms. In both cases, the government recognizes its weaknesses in over regulating a fast-growing digital marketplace. Instead, it leverages its antitrust enforcement to create a carrot and then a stick to get companies benefiting from a gross imbalance in bargaining power to the table to properly and quickly negotiate.

8. A straight platform tax would be a better solution.

The simple problem with a straight tax is all content would need to be “treated equally.” A click on Breitbart would have the same value as a click on The Wall Street Journal. The government would then divvy up a pot of money between everyone. This creates all sorts of uncomfortable government leverage over news. And one can only imagine how they would choose to split the loot. Think about the market incentives if they divided it up based on monthly uniques or page views. Better to push negotiations back into the market where intangibles such as brand, heritage, trust, consumer perception, and scoops have significant value.

9.This is unique to Australia and won’t translate to other countries.

Every lawmaker in Canada, Europe, the U.K., and U.S. who is focused on these issues will draft off Australia. Arguably, this was the biggest concern for Google and Facebook. They hoped to limit discussion to an island on the other side of the world. Our global market no longer works this way. Everyone learns from each other. Despite Facebook and Google’s ability to leverage their global dominance to protect their fortresses through trade deals, lobbying, and ducking lawmakers, the whole world is catching up to them.

Also, there are major allies in these fights to support the free and plural press. Microsoft, one of the few companies larger than Google or Facebook, has aligned with publishers on the new policies in Australia and Europe. (Forgive me, as Microsoft’s support evokes the classic “That’s not a knife” scene in Crocodile Dundee.)

10. Facebook and Google have pledged $1 billion each to news publishers so we should be happy.

Together, these two companies will easily surpass $250 Billion in global advertising revenues in 2021 without even participating in China. As of now, they’ve pledged $1 billion each towards journalism over three years. Thus, Google and Facebook are pledging barely 0.2% of their global advertising revenues towards journalism. Facebook’s protesting of payments was evidence in itself for Representative Cicilline to state that the company “is no longer compatible with democracy.” (And I tip my hat to the publisher that flatly stated that Facebook’s offer was not enough.)

These are two globally-scrutinized companies which pride themselves on moonshots. Yet they have failed to properly address how their algorithms help spread misinformation, disinformation. This has led to genocide in Myanmar, an insurrection on our Capitol, and health misinformation causing untold illness and death worldwide … to name just a few “unintended consequences.”

The future is now

The simple fact is that Facebook prefers to pay into journalism no more than it does for fake news from Macedonia, while continuing to grow its nearly $100 billion per year business of surveilling and microtargeting citizens with ads against the cheapest engagement available. They’ve devalued context. They’ve devalued facts. And they’ve devalued journalism for profits. In Australia, we see democracy fighting back.

Australia’s law has been endorsed by all major political parties in a representative democracy as a means to better fund journalism. Importantly, though this was rarely discussed, the code has a one-year review period to see how it’s working. If you listened too closely to American pundits the last few weeks, you would have thought this was the end of the open Internet – hypocrisy considering the closed platforms of those who shaped it.

The law prevailed. The world didn’t end.  In fact, it’s already tomorrow in Australia. They are ahead on this one, and there is a lot we can learn from it.

Featured Post | Perspectives | Policy

Why healthy competition would heal our big tech problems

Public policy debates over consumer privacy and platform liability will feature prominently in 2021. Some are even hopeful that policymakers can reach bipartisan agreement on solutions. These are two important issues that I want to explore. However, I wonder if they aren’t the byproduct of a bigger problem.

Consumer privacy: A policy patchwork

One could argue that the digital advertising industry has been “regulated” (even if enforcement was less than robust) since 2010 when the industry’s self-regulation group, the Digital Advertising Alliance (DAA), rolled out its AdChoices program. In 2018, Europe began enforcing the General Data Protection Regulation (GDPR). In 2020, the California Consumer Protection Act (CCPA) came online followed by the November passage of the GDPR-like California Privacy Rights Act (CPRA).

Against this alphabet soup of patchwork regulation, we may be reaching a tipping point. For one thing, more states are expected to pass consumer privacy laws in 2021. Even with pandemic-altered legislative calendars, 16 states nearly passed laws in 2020.

Additionally, Congress has held countless hearings over the last two years to investigate big tech’s massive data collection operations. Those hearings are sometimes painful to watch, but they are serving to educate members of Congress, who appear to be much more knowledgeable now than they were a few years ago. (Remember when one of them asked Mark Zuckerberg how Facebook makes money? Oy.)

As further evidence of an increasingly savvy Congress, there is a bipartisan group of Senators quietly negotiating to craft a national consumer privacy framework. From what I’ve seen and heard, their approach is fairly solid. With slim Democratic majorities in both houses of Congress, this kind of bipartisan approach is the only way that any meaningful privacy law can get passed. However, the deck may be stacked against them. It is difficult to move major legislation with slim majorities in the House and Senate because the margin for error is very small.

All that said, the California laws (CCPA and eventually CPRA) are likely to serve as the de facto national standard. Many companies already apply those laws nationwide, not just for California residents. Besides which, most of the big tech giants are based in California. While the CCPA was a strong first law designed to give consumers more control over how their data is collected and used, CPRA is directly targeted at curbing Google and Facebook’s massive data collection and profiling operations.

GDPR has a similar focus. However, Google and Facebook have employed creative compliance strategies that have allowed them to temporarily evade a direct hit to their businesses. The big question is whether European and California regulators can force big tech companies into finally complying with the spirit of these consumer privacy laws. Fines are fine. But the laws were actually intended to empower and protect consumers.

Section 230: A Tale of two parties

Often referred to as “The 26 Words That Created The Internet,” Section 230 became a target of both political parties in 2020. Prominent Republicans and Democrats — including each party’s Presidential nominee — have called for the elimination or massive overhaul of Section 230. And yet Congress is not all that close to resolving anything.

The problem is that each party’s concerns lead them to propose different solutions. Democrats and Republicans both agree that big tech platforms have too much market power. Hence, the flurry of antitrust lawsuits filed by a Republican Department of Justice (and likely to be carried forward by a Democratic Department of Justice) and a bipartisan flotilla of state attorneys general.

With regard to Section 230, however, Democrats criticize tech platforms for not taking action quickly enough to combat disinformation, harassment, and demagoguery. Republicans, on the other hand, allege that big tech companies use the legal shield of Section 230 to suppress conservative speech. Essentially, Democrats want tech companies to do more while Republicans want tech companies to do less. These fundamentally different viewpoints are likely to make it difficult for Congress to agree on any big changes to Section 230.

Big picture, bigger issue

What’s interesting to me is that the public policy debates around consumer privacy and Section 230 are largely driven by dominance and anticompetitive behavior of big tech companies. I wonder if we would even be having these debates if Google and Facebook faced meaningful competition.

The aforementioned alphabet soup of consumer privacy regulations was developed to address consumer concerns about the ubiquitous and non-transparent collection of consumer data for use in behaviorally targeted ads. The two most dominant players in the digital ad industry, Google and Facebook, have built massive ad targeting businesses (basically the digital equivalent of junk mail), which are fueled by the collection of consumer data across the web and our lives. The duopoly, as we have called Google and Facebook for years now, accounts for 70 to 80% of the growth in the digital advertising marketplace. Much of this advertising is delivered on their own properties regardless of where they mined the data.

With regard to Section 230, the original intent of the law was to incentivize companies for making “good faith” actions to clean up their services. However, without meaningful competition among digital platforms, those companies are merely incentivized to protect themselves against legal action as opposed to competing for consumer loyalty.

Anticompetitive by design

Imagine a world where Facebook and Instagram were separate companies competing for consumers. I think they would be vying to prove which company would be the best at snuffing out disinformation, stamping out illegal activity, and generally providing the most trustworthy service.

Significantly, when Facebook was first launched, it touted a super strong set of privacy protections and controls to differentiate from the established market players at the time. But not now. The “like” button was originally designed as a user signal to show content interests. It has become an opaque means to track people’s movement around the web. Facebook’s business model is so reliant on tracking users it ran a national ad campaign last month to publicly pressure Apple to blink on its plan to restrict the use of its advertising identifier (IDFA). And let’s not forget that Facebook only reluctantly and belatedly de-platforms hate groups and removes disinformation.

If there was meaningful competition, big tech platforms would behave very differently within the industry and for consumers. The latest bit of evidence that Google and Facebook agreed to cooperate rather than compete with each other was particularly appalling. The two dominant players in digital advertising decided to carve up the market for themselves while icing out everyone else. The fact that the agreement exists at all is quite amazing. Perhaps more amazing is that these two companies had enough chutzpah to even engage in the negotiation in the first place. In many ways merely confirmed what many industry insiders already suspected. It’s the Duopoly’s world and we’re just living in it.

While we engage in meaningful and important debates about consumer privacy and the responsibilities of companies in a digitally-dominated world, let’s not lose sight of the fact that the competitive landscape is heavily tilted in favor of the big tech companies. The antitrust lawsuits and regulatory scrutiny faced by Google and Facebook are hugely important for restoring a heathy dose of competition, which could alleviate some of the downstream public policy concerns.

Featured Post | Perspectives | Policy

Here are 3 big changes coming for digital media

In case you haven’t heard, there is an election coming up in a couple of weeks. Regardless of which party wins, the public policy landscape for digital media is likely to undergo some major shifts in the next couple of years. Let’s take a look at three big changes on the horizon:

Google and Facebook will pay for premium content

In 2019, the European Union approved the Copyright Directive and underlying publishers’ right, which gave news publishers legal leverage to demand better terms from platforms. Now, all eyes are on France where a court ruled earlier this year that Google must negotiate in good faith with publishers. Of course, Google will avail itself of all the legal channels to slow down any effort to force them to pay for content. However, it’s likely just a matter of when, not if.

On the other side of the globe, in 2019, the Australian Competition and Consumer Commission (ACCC) to develop a voluntary code to rebalance the relationship between news organizations and big tech platforms. As the latter predictably dragged their feet, the ACCC switched gears earlier this year and moved to the development of a mandatory code, which appears likely to be easily approved by the Australian parliament in 2021.

In response, Google and Facebook have threatened to drop news from their services and/or pull out of these markets altogether. However, we know these are empty threats. For one, there’s common sense. If Facebook’s news feed and Google’s search results were devoid of trusted news organizations, what kind of miserable consumer experience would that be?

Really, given the massive profit margins of these tech companies, and the political scrutiny they are facing on multiple fronts, it makes sense for them to simply buy their way out of this problem. Case in point: Earlier this month, Google launched Google News Showcase, which will pay out approximately $1 billion in licensing fees to a select group of news publishers. As News Corp’s CEO, Robert Thomson, noted, “…the principle and the precedent are now established.” My take: Google sees the writing on the wall and is trying to get ahead of regulators in an effort to set the market.

Also, earlier this month, the House Judiciary Committee issued a lengthy report that summarized their investigation into big tech platforms and laid out a host of legislative solutions. One of those proposals would allow news publishers to collectively negotiate terms with platforms like Google and Facebook. It’s pretty clear which way the wind is blowing. Platforms will pay for premium content in the not-to-distant future.

Consumer privacy laws will impact data collection and profiling, especially programmatic advertising

The EU’s General Data Protection Regulation (GDPR), which went on the books in 2018, was meant to give citizens new rights and protections over their data. Since then, the common narrative from big tech’s apologists has been that GDPR didn’t work. It only resulted in annoying pop-up notices while Google and Facebook cemented their dominance in digital advertising.

I dispute the narrative that GDPR didn’t work. It hasn’t been enforced…yet. The most significant enforcement action to date has been a French court ruling (currently under appeal) that Google improperly gained consent from consumers, which resulted in a $50 million fine. The resolution of that case could have huge implications for the entire industry, not just Google.

Meanwhile, Google, Facebook, Apple, and other companies claim Ireland as their European headquarters, which gives primary jurisdiction to Helen Dixon, Ireland’s Data Protection Commissioner (DPC). Last month, in response to a European court ruling, she announced that Facebook and other companies could not transfer data about European citizens back to the U.S. because the U.S. does not have equivalent privacy safeguards. In response, Facebook sued the DPC and declared that they might pull out of the European market if this ruling stands. (Sound familiar?)

At the same time, there are hundreds of cases pending before the Irish DPC, any one of which could have wide-ranging ripple effects. Adding to the pressure for her to act, the Belgian data protection authority issued an initial finding just last week that the IAB Europe’s Transparency and Consent Framework (TCF) is not compliant with GDPR. While the IAB Europe is expected to push back on these findings, the ruling could have massive implications worldwide for programmatic advertising, in particular the real-time bidding systems for open exchanges.

According to the United Nations, 132 out of 194 countries have enacted some kind of data privacy law – many of which are modeled after GDPR. This November, California voters are likely to approve a ballot initiative called the California Privacy Rights Act (CPRA), which will align California’s privacy law much more closely with the GDPR.

Of course, Google and Facebook have enormous legal and lobbying budgets that they will leverage to forestall regulation and enforcement for a time. But, eventually, the same public pressure that led to the enactment of GDPR and other data privacy laws will lead to the enforcement of these laws, which are primarily targeted at limiting the ability of big tech platforms to collect data about consumers.

Platforms will soon face new responsibilities and liabilities

Policymakers on both sides of the Atlantic seem to be hell-bent to make platforms more accountable for what’s happening across their services. This morning, the U.S .Department of Justice, along with 11 state attorneys general, filed suit alleging anticompetitive practices by Google with regard to the search marketplace.

The suit does not lay out specific remedies but could include breaking up pieces of Google into separate companies and/or imposing new obligations on the company. While the suit is likely to take years to play out in the courts, it dramatically ramps up the pressure on Google while also ensuring the conversation will remain top of mind for policymakers. It’s also widely expected there will be additional suits filed by the bipartisan state attorneys general who have been investigating Google on a range of practices including digital advertising.

Meanwhile, members of both political parties in the U.S. have expressed grave concerns about the anti-competitive practices and dominance of the big tech platforms. Democrats have expressed additional concerns about the impact on democracy, news organizations and vulnerable segments of society. Republicans have lambasted the platforms for allegedly suppressing conservative speech.

Importantly, both parties agree that platforms’ algorithms should be transparent. They think regulators should have greater authority to oversee their actions and mergers. And both sides believe that that Section 230 protections should be significantly narrowed. The CEOs of Google, Facebook and Twitter will likely be walking into a political minefield next week as they testify to Senate Commerce on this sensitive topic under threat of subpoena.

In Europe this month, European Commission Vice President Margrethe Vestager announced plans to move forward by the end of this year with two major legislative initiatives designed to impose a whole new set of obligations on big tech platforms. These big tech companies used to be the darlings of innovation. Now they are nearly uniformly seen as impediments to economic growth and democracy.

What does all this mean for publishers?

Taken together, these three unfolding and inevitable changes should provide a unique opportunity for premium publishers. Obviously, public policy debates are messy. And lawmakers and regulators don’t have the best track record in terms of truly understanding tech.

But, as we’ve seen with enforcement action in Europe, investigations by various competition authorities and hearings before the US Congress, policymakers have gotten a lot savvier and are poised to act in bold, new ways. Going forward, companies that enjoy trusted, direct relationships with consumers and advertisers are likely best positioned to flourish in a world where premium content and contexts will have greater value.

Featured Post | Perspectives | Policy

Taking a bite out of Apple’s trustworthy talking points

Given the recent congressional hearing in which the CEOs of Apple, Amazon, Facebook, and Google testified around the topic, antitrust scrutiny is undeniably intensifying. Each of these tech titans raises distinct competition issues. However, there was an interesting collision of concerns around Apple and Amazon at the hearing. It was revealed that Apple’s seemingly inviolate store terms – long questioned for favoring Apple’s own services and apps – may well bend for those who have sufficient power to wield in their negotiations.

Sometime in 2017, Apple and Amazon, two giant platform companies, struck a deal where Amazon Prime Video would be available on Apple TV and Apple products would be available on Amazon. As part of the terms of that deal, Apple would reduce its fee for consumers who subscribed to Prime Video from 30% to 15%. For existing Prime Video subscribers, Apple agreed to completely waive its normal 15% fee. The cherry on top for Amazon was that they could use other payment systems outside of Apple.

At least those are the terms of the deal according to an email uncovered by the House of Representatives Judiciary Committee. Neither Apple nor Amazon have ever publicly disclosed the deal. Given that they are the two most valuable companies on the planet, and the huge number of businesses that rely on these platforms, it is remarkable that such a deal has been shrouded in secrecy for so long. Some would point to this deal and say, “It’s the platforms’ world, we’re just living in it.” Frankly, the deal stinks of favoritism at best – and collusion at worst.

Non-negotiable?

Apple’s “non-negotiable terms” have been an issue for some time. The company charges 30% commission on any app store purchase. That fee reduces earnings potential for app developers while also driving up prices for consumers. Most merchants charge a flat fee. Apple takes 30% of the sale of, say, a $25 newspaper subscription. It also takes 30% for the sale of a $500 newspaper subscription. Thus, the more the publisher is able to charge for its service then the more Apple benefits, despite providing the same service.

Notably, Spotify has been banging the drum about Apple’s unfair practices for years now. They have even filed a formal complaint in Europe. Their concern is that Apple charges a fee for any subscription music service on their platform. At the same time, Apple offers its own competing subscription music service, which pays no fee. On that uneven playing field, neither Spotify nor any other music service will be able to fairly compete with Apple on price. The dual role of platform and competitor is inherently unfair.

Recently, Epic joined the fray with a similar complaint. Epic added a feature to its popular game Fortnite that allowed players to purchase V-Bucks in the Fortnite app. It skirted the ‌App Store‌ rules prohibiting developers from accepting payments outside of the in-app purchase system. Apparently, this was a direct salvo from Epic. Just hours after the direct payment option was added, Apple pulled Fortnite from its App Store. And Epic immediately filed suit “to end Apple’s anti-competitive restrictions on mobile device marketplaces.”

Epic released a short mocking Apple shortly after the iPhone-maker removed Fortnite from the App Store for skirted its in-app payment ‌rules.

The chorus of critics is only growing as Apple gets into more vertical business lines – news, shopping, TV, games, etc. Apple even acquired a popular weather app earlier this year.

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The dynamic in the media industry is especially interesting to consider. It’s no secret that advertising revenues for news organizations have cratered over the last decade. As a result, many news organizations have instead emphasized direct audience revenue, (e.g. subscriptions, events, etc.) which tends to better align with trusted brands than the wild west of digital advertising.

Apple also leans into consumer trust as a foundational principle of their business. For years, Safari has blocked 3rd party cookies and other tracking workarounds. Apple has long held the line on encrypted devices in an effort to preserve consumer trust in their products and services.

Paradoxically, Apple’s fees and anti-competitive practices push companies away from direct audience revenue and toward the murky world of digital advertising where a publisher doesn’t have to take a 30% haircut on all customer revenue and keeps all of the upside from its advertising earnings. In some ways, Apple’s behavior actually works to the disadvantage of companies looking to follow their lead on consumer trust.

Fair terms

At a hearing before the Committee on July 29th, Rep. Hank Johnson asked Apple CEO Tim Cook whether the terms between Apple and Amazon are available to other developers. Cook assured the Congressman that they are “available to anyone meeting the conditions.” Interestingly, at the same hearing, Cook talked about how platforms are in fierce competition for developers.

So, this week, DCN’s CEO Jason Kint, wrote to Cook to publicly call for the disclosure of the terms of this deal so that “anyone meeting the conditions” can apply for them. This is a key test for Apple: Will app developers of any size (the ones for which Apple claims to be competing) be able to get the same terms? Did Cook speak the truth before Congress? Will Apple’s behavior match its trust-based branding?

The monopolistic behavior of big tech puts a wide range of industries – not the least of which is the news industry – at a distinct disadvantage. It is laudable that EU and American regulatory bodies are digging in and uncovering these anti-competitive behaviors. Talking trust is not enough. We need to level the playing field and transparency is a critical first step.

Featured Post | Policy

An insider’s guide to next week’s Antitrustpalooza

EDITOR'S NOTE: As of 4 p.m. July 24, 2020
Monday's first-of-its-kind congressional hearing with the CEOs of Amazon, Apple, Facebook and Google was been officially postponed due to a conflict with the memorial services for the late Rep. John Lewis, the House Judiciary Committee confirmed Friday. 

How to watch 
Congressional Hearing: Online Platforms and Market Power, Part 6: Examining the Dominance of Amazon, Apple, Facebook, and Google
Who: Tim Cook, Mark Zuckerberg, Sundar Pichai, Jeff Bezos
Date: Originally, Monday, July 27 / Rescheduled for Wednesday, July 29
Time: 12:00 p.m. ET 
Stream: on YouTube of course!

As CEO of DCN I have the privilege of addressing the executive leaders from our membership at our annual Next: Summit. This past January, my remarks were titled “2020 Vision.” When I look back at my presentation just six months later, it is astounding to me how little we knew about what 2020 would bring.

However, my first slide had a close-up of the eyes of the CEOs of the four companies who have most benefited from the growth of our industry: Google, Facebook, Apple, and Amazon. On Wednesday – halfway through this tumultuous year – we will hear from them directly. “The 4 Horsemen of the Techopolypse” – as Kara Swisher called them in The New York Times – will testify under oath before Congress for the first time, on antitrust matters, an area where they face the most risk to their massive businesses.

Two of the companies, Google and Facebook, are already under highly sensitive antitrust investigations by nearly every state, federal, and international regulator of note. And Apple is being investigated by EU antitrust regulators. So, this is the public accountability portion of the show. Get the popcorn ready, because this is going to be one to watch. 

Tuning in

There is a well-paved road of industry concerns around these four companies. Like many topics these days, they tend to gravitate towards specific concerns of the left or the right. For serious experts, though, antitrust becomes a critical focal point because nearly every one of the grievances is a symptom of too much power and too much control over the design, delivery, data and dollars that fund the media ecosystem. This hearing offers an unprecedented opportunity to discuss these issues with the chief executive at each of these organizations. And while it is clear that everyone involved in these antitrust investigations has become far more knowledgeable on the issues in play here over the past few years, we can’t afford to waste a moment.

Having closely studied prior global testimonies for these companies, I am optimistic the committee will be confined to lawmakers focused on antitrust. But I’ve been thinking a lot about the way these lines of inquiry usually go. And while there are absolute must-ask questions for each of these companies, there are also those that should be avoided. I call the latter group “rabbit hole” and “sand trap” questions.

The trouble with rabbit holes is that – while the question may well be a good one – the answer is likely to be complex, unwieldy, and take the inquiry places that will confuse many and clarify little. As for the sand traps, these are the types of questions that the PR and lobbying machines at these companies adore. They lend themselves to unrelenting spin and little actual insight. And critically for this hearing, they will do little to illuminate the issue of antitrust.

Targeted questions and unwanted detours

Here’s my list of burning questions that must be addressed, along with likely rabbit holes and sand traps to be avoided.

What to Watch For – Apple

Tim Cook, CEO 

Burning question: App store terms 
This is of particular concern as Apple rolls into TV, Music, and now News. The company even acquired a weather app last month.

Rabbit hole: Security
Whether it be backdoors for law enforcement, data access by China, or app security, this discussion won’t get anywhere; it leads to a false choice between security and privacy. Consumers deserve both. Period.

Sand trap: Privacy
Tim Cook, on behalf of Apple, has been a unique and powerful voice carrying the torch for the human right to privacy. This is good and favors them significantly, most notably in contrast to the practices of Google and Facebook. However, it is important to remember that Apple doesn’t have an advertising business. So, it is happy to criticize the core asset of Google and Facebook.

What to Watch For – Google

Sundar Pichai, CEO

Burning question: Advertising marketplace
All parties – the UK, Australia, France, the Department of Justice and State AGs – seem to be focusing antitrust investigations on Google’s advertising systems. This includes its vast data collection across its dominant search, operating system, browser and its many adtech acquisitions. An expert economist described it as a “walled garden” yet across the open web. Remember this every time Google champions the “open web” and the small publishers all while taking half of the revenue for itself.

Rabbit hole: Censorship
Republicans would love to nail Google for bias in its search engine. I’m empathetic because all searchers should readily find their trusted news sources in search results. Algorithmic bias is an issue of concern. And censorship is a troubling topic. However, these are complex issues that cannot be adequately addressed in this context. The short answer is that you need competition to provide alternatives, as I testified to Senate Judiciary last year.

Sand trap: Revenue share confusion
In previous testimony and in press reports, there has been significant debate around the “ad tech tax” or the percentage taken by Google whether it be 70/30 or 30/70. Don’t go there. It’s a time suck. Google has powerful spinners working on obfuscating their dominance here.

What to Watch For – Facebook

Mark Zuckerberg, CEO

Burning question: Data collection
As the German courts concluded, Facebook uses its data collection across the web and its own apps to dominate social media. Copious research and leaked documents have shown how Facebook has used this access to data to cut out competition and control markets. Facebook has created an advertising marketplace fueled by its massive data and has turned away from addressing issues of quality of the experiences around it, harming both publishers and advertisers.

Rabbit hole: Content moderation
Don’t get me wrong, the push for Facebook to better moderate its content is incredibly important. But the solution isn’t simply tighter enforcement and arguably outside the scope of this hearing. Mark Zuckerberg will point to EU audits on Facebook policing hate speech and their tens of thousands of “moderators.” Put simply, if Instagram and Facebook were two different competing companies, the incentives to act on issues such as harassed journalists like Maria Ressa, boycotting  advertisers or persecuted people, would be much higher.

Sand trap: Censorship
Zuckerberg would love to have a partisan debate in which Facebook carries the torch of free expression and he cloaks himself in love for the First Amendment. The real conversation Facebook wants to avoid is its algorithmic amplification decisions which provide velocity and reach to the content and advertising on Facebook’s platforms, regardless of its potential harm and without any liability for it. However, this issue is better suited for a hearing on CDA 230. In the context of antitrust, alternative and competitive social platform choices for consumers and advertisers will only drive more quality.

What to Watch For – Amazon

Jeff Bezos, CEO

Burning question: Platform privilege
Did Amazon lie under oath to the committee? Do they use data from retailers to inform their own product decisions as WSJ reported? Do they unfairly control prices and exclude competition? Lawmakers want to know, and Congress should find out.  

Rabbit hole: Getting personal
Anything related to Bezos’s ownership of Washington Post or personal life. It’s his first time testifying and let’s hope this hearing stays on topic.

Sand trap: Pandemic savior
Amazon, more than any company represented, has a critical role in supply chains and is vitally important during the pandemic. While they are certainly the fox in the hen house, they’ll happily talk about how they benefit online small businesses (even launch an entire association to do it!) The fact is that local businesses are struggling mightily during the pandemic while Jeff Bezos is reported to be closing in on $200B as the wealthiest man on the planet. His fortune grew a record $13B on a single day last week – during a global pandemic. That pretty much tells you what need to know about who benefits the most. So, why even go there?

There is so much that we’d all love to see uncovered in the interrogation of these powerful tech CEOs. But this hearing is focused on antitrust. And frankly, there are so many issues with these companies that would be addressed, or at least alleviated, if their unrelenting market dominance was diminished. It is critical that this questioning stay on point and avoid rabbit holes and sand traps. It is clear that each of these companies has been allowed to benefit from rules that were intended to foster capitalism and  innovation – strong American principles that everyone can still get behind. As Scott Galloway has consistently pointed out, real competition is the basis for both of these.

It is time for change.

Featured Post | Policy

The Google antitrust ship has set its course

When DCN created our original chart, where we coined the term “duopoly,” it marked the first wave of what would become five years of interest and activity, marked by intense journalistic investigation – which heats up as antitrust scrutiny does. The line of inquiry often starts with challenging whether anything is new or different. While some industry pundits like to posit that they’ve already “seen this show,” this time around the players are wiser and the stakes are even higher.

In the seven years since the Obama-era FTC issued its decision not to take action against the cool kid in their class, Google, the company has managed to triple its U.S. ad revenues (source: GOOG SEC filings) in line with the overall U.S. digital ad market (source: IAB/PwC Internet Advertising Reports). Put differently, Google has maintained its market share, which is hovering at around 50%.

How on earth has Google maintained share during the same period in which Facebook has grown from virtually nonexistent to the other half of the two-headed duopoly monster? Answer: Pilfering the open web by establishing a walled garden to shift revenues from everyone else to Google’s own properties.

Tired arguments

Yet a small handful of academics, analysts, and influencers (who often fly too close to the sun) continue to rehash the tired arguments that were widely shared back in 2013. They start by broadly painting any scrutiny of Google as a combination of the jealousy of dying legacy media and protectionism by Europe. Often, they claim that news media is manufacturing outrage with an “axe to grind” rather than rightly doing its job of holding the powerful accountable.

They misleadingly suggest that Google makes no revenue from Google News while turning a blind eye to the billions in value they collect from harvesting news content. Much of the value of search would disappear without news content for consumers to find. And when these pundits finally get down to pragmatic analysis, they point out the “gift of web traffic” publishers receive from Google’s free search engine, as if the web, and publishers, couldn’t exist without Google’s pixie dust.

The new wave

However, what these arguments miss is that the voices and minds leading the case in 2020 have evolved their understanding of tech and the marketplace. There is a significant and growing body of consistent research and investigation around the globe about Google’s anticompetitive action from savvy digital thinkers in academia, think tanks, state and federal regulator offices. Say what you want about the various Congressional hearings these days, but they undoubtedly make the committees, public, press, and thought leaders wiser on the topic

Reading long investigative competition reports may not be your cup of tea, particularly during a global pandemic. So, I’ll summarize what DCN is focusing on, what the latest research shows, and what is most important to the health of our members’ businesses.

The latest research

Two key investigative reports have been released: The Australian Competition & Consumer Commissioner (ACCC) July 2019 Final Report and the U.K.’s Competition & Markets Authority (CMA) Dec 2019 Interim Report. If you can only read one, read the latter (and don’t miss Appendix E). The U.K. investigation launched well before those in the U.S. and it offers a solid look into how Google and Facebook are being examined.

I was also delighted to see a Yale professor, Dr. Fiona Scott Morton and co-author David Dinielli, publish “A Roadmap for a Digital Advertising Monopolization Case Against Google” earlier this week. They lean heavily on the U.K. CMA report and did a masterful job of translating hefty regulator documents into a readable form that anyone who has followed our industry will understand. They assert that any eventual court case will demonstrate how Google’s established monopoly in the search business was subsequently leveraged for market power in the design, growth, and capture of value through its intermediation of ads across the open web.

Inside Google’s walled garden

It is important to understand that approximately 90% of Google’s revenue growth (3x over the last seven years) was captured on its own properties (search, Gmail, YouTube, etc.). This led to a shift of Google’s source of revenue to increase from a total of 74% to 84% from their own properties, where their costs to acquire traffic approaches zero. Not coincidentally Google was, all the while, cementing a dominant position in the buying, selling, serving, and measuring of all ads across the open web.

This shift in revenue growth towards areas where Google keeps the most revenue has only been possible because of Google’s market power and ability to see large amounts of data throughout the consumer and advertiser journey, in its own so-called “walled garden.” This allows them to optimize the customer experience in a way that will inevitably keep consumers and advertisers driving the most profit to Google.

Revealing revenue research

Just a few weeks ago, the U.K. advertiser group ISBA published a transparency report. For the first time, the report laid out empirically just how much revenue was captured by intermediaries. Google was, of course, the most substantial player on all sides of the market. (Though there was a curious mystery 15% that the researchers couldn’t lock down.) At this point, it’s beyond hypocrisy each time Google preaches “transparency” but refuses to report both gross and net revenue for its advertising services.

Based on various investigations, Scott Morton and Dinielli expose how Google has achieved this dominance. They examine how Google collects 40% of the revenues across the open web, limits the use of data, and steers consumers to its Google-owned properties with its own higher-margin ads. Google does so while appropriating publishers’ data and audiences for its own gain on its own properties and elsewhere on the web.

Anticompetitive conduct

Morton and Dinielli clearly lay out 20 examples of Google’s potential anticompetitive conduct. Many of them tie to previously published concerns and research from DCN. All will require further investigation and subpoena power – but I’m sure we can agree that they pass the sniff test.

  1. Acquiring Independent Companies To Cement Its Role Across the Ad Stack
  2. Leveraging Market Power in General Search into Display
  3. Designing Auctions That Facilitate Arbitrage and Rent Seeking
  4. Cross-Subsidizing Competitive Functions of the Ad Tech Stack with Monopolized Functions In Order to Rise Rivals’ Costs and Foreclose
  5. Deceptive Gathering and Integration of Data
  6. Strategic Disabling of Interoperability To Disadvantage Rivals
  7. Withholding Interoperability to Steer Demand and Supply Through Its Own Exchange
  8. Providing Exclusive Programmatic Access to YouTube Though Google’s DSP
  9. Retiring the Third-Party Cookie
  10. Disadvantaging Rival Exchanges by Google’s Publisher Ad Server
  11. Undermining Header Bidding Through the Development of So-Called “Open Bidding”
  12. Undermining Header Bidding Through Exclusionary Features of AMP
  13. Designing Analytics to Steer Market Participants to Google Products and Prevent Entry
  14. Resisting Transparency at All Levels of Ad Tech Stack
  15. Obscuring Fees So That Competitors Cannot Enter and Compete Effectively
  16. Using Privacy Laws as an Excuse to Hide Performance Data
  17. Thwarting Publisher Efforts to Understand Source of Payments
  18. Designing Attribution to Favor Search and Disadvantage Publishers
  19. Raising Rivals’ Costs and Foreclosure of Existing and Potential Horizontal Competitors
  20. Capturing Publisher Data in Order to Monetize Their Audiences

Antitrust investigations

Finally, we should still ask whether Google’s lobby and power somehow afford it unique protection in the U.S. market. Only time will tell. But we expect Congress’ antitrust investigation to issue a report in the next 90 days.

Nearly 50 state attorneys general, who previously announced their inquiries, are expected to move forward along with the (not easily intimidated) Department of Justice. Both have broad subpoena power as well as the U.K. and Australian reports to inform their deliberations. Providing further confidence thus far is that the Texas Attorney General office is leading the states’ investigation. They provided Google with an extensive list of nearly 130 questions focused mainly on Google’s advertising business. (Note: DCN received this “CID” through a public records request). It certainly looks like they want answers to Morton and Dinielli’s claims.

The internet has evolved, and it continues to do so. While many of the arguments media pundits and academics may have made a few years ago seemed plausible at the time, that time has passed. It is clear that serious research and reflection is being done that will inform any discussions around the duopoly, antitrust in the advertising ecosystem, and restoring the value exchange between premium content and the “virtual pipes” of technology that control and make money off its flow.

Featured Post | Policy | Revenue

The dominance and obstinance of big tech platforms

Earlier this month, the French competition authority ruled that Google must negotiate in “good faith” with news publishers to pay them for using news snippets in Google’s News and search products. This is the first European country to enforce the European Copyright Directive, which seeks to ensure that there is a more balanced relationship between content creators and platform aggregators.

The issue at hand is the ability of these aggregators to monetize content that they did not create, to the detriment of those who created the content – often at significant cost. The original value proposition was the delivery of a click/consumer to the content creator’s site. However, over time, aggregators have taken great liberties with the quantity of content they display, often negating the need for consumers to visit the content creator’s site at all.

Snipping snippets

The directive was specifically intended to extend copyright protection to news ledes and snippets. In response to French law that memorialized the Directive, Google announced that it would flaunt the new law altogether by removing from Google News and Google Search the snippet descriptions, news organization brand, and photographs associated with the news articles.

Instead, Google would only display the headline and URL putting the content at a disadvantage to other results. Aggressively but maybe not surprisingly, Google said it would reinsert the snippet description, news organization brand and any photographs if the publishers would give a free license. The French authority ruled that this constituted an abuse by Google of its dominant position.

Coming off the heels of the French ruling, Australia’s Competition and Consumer Commission reached a similar boiling point with big tech platforms. For months the Commission has been negotiating with Google and Facebook on a voluntary code to ensure a fairer balance between news publishers and platform aggregators. And, for months Google and Facebook had been reportedly stonewalling.

Revenue matters

On Monday, Australian Treasurer Josh Frydenberg pulled the plug on talks and announced that the Commission will release mandatory rules in July to compel platforms such as Google and Facebook to, among other things, fairly compensate news publishers for the use of their content. The move could not come at a more important time as over 50 news publishers in Australia have recently closed shop. Meanwhile, Google rakes in approximately 47% and Facebook approximately 24% of digital advertising revenue in Australia.

The impact could be profound, particularly if the platforms respond as Google did in France. Imagine Google search results, news, or your Facebook feed without any reputable media sources. Clearly, quality news content is valuable to the big tech platforms, just as the ability to reach new audiences is valuable to publishers. As the Commission recognized, the current value exchange is not a fair balance of interests.

Big tech, big flex

Of course, these countries’ frustrations with big tech platforms should not be surprising to anyone. Google has a particularly long track record of using strong-arm tactics to achieve and maintain its dominance. A recent example occurred when the European Union was preparing to enforce the General Data Protection Regulation (GDPR), the sweeping data privacy and security regulation.

While GDPR is intended to give consumers greater control over the collection of their data, Google used it as a land-grab opportunity. Just weeks before enforcement began in May 2018, Google announced to industry (and only after journalists were prepared to break the news) their non-negotiable terms for publishers and advertising in complying with the GDPR. Any company which used any Google service or product would 1) need to get express, affirmative consent from consumers for Google to collect consumer data; 2) would not be told how Google would use or secure the data (which would render any consent invalid); and 3) would be liable for any GDPR violation by Google.

Along with several other trade associations representing publishers, we detailed our concerns directly to Google. Of course, it’s not surprising that Google would attempt to deflect as much legal risk as possible. Liability is often a major point of negotiation in any contract. However, Google is so dominant, that this is not a real negotiation.

Perhaps more surprising is that Google did not even entertain the possibility of restraining its massive data surveillance regime. Under the GDPR, companies that collect and use data only on behalf of the website or app (and do not use the data for an unexpected secondary purpose) are considered “processors” of data. Typically, processors are not required to get consumer consent, instead they can rely on other legal bases such as “legitimate interest.”

Reverting to the role of a processor would have placed Google more in line with consumer expectations and it would have made for a much better user experience (e.g. no messy pop-ups asking for vague consent). Instead, Google dictated its “take it or leave it” terms to the industry and consumers. And it’s data profiling would continue uninterrupted. Sounds familiar.

Titanics do sink

The French and Australian rulings could have huge implications going forward. And they are likely only the tip of the iceberg. Many other regulators in Europe and the U.S. are actively looking at the anticompetitive behaviors of big tech platforms. As we noted above, this couldn’t come at a more important time.

As the Covid-19 crisis continues to impact the world, news organizations are redirecting significant resources and personnel to cover the health and economic impact, separate fact from fiction, and hold public officials accountable. More broadly, entertainment companies are working overtime to create and distribute content to audiences “staying at home.” Yet, these content creators are often swimming up-stream to generate sufficient revenue to fund the news and entertainment that consumers love and need because the digital distribution channels are dominated by the big tech platforms.

We’re glad to see public officials pushing back on the anticompetitive behavior of big tech platforms and helping ensure a more equitable balance of interests. As the current crisis has clearly demonstrated: We need quality, reputable, trusted content more than ever.

Policy

DCN submits comments on CCPA’s revised implementation regulations

Today DCN submitted the final version of comments regarding the proposed revised regulations for implementation of the California Consumer Privacy Act (CCPA) to the California Attorney General (AG). The comments were developed with input from the DCN membership. They are in response to the revised comments the California Department of Justice, Office of the Attorney General released on Friday, February 7, 2020 to address the feedback received on their first draft of regulations, originally published and noticed for public comment on October 11, 2019.

DCN is actively involved and tracking the regulations, created to provide guidance for businesses about what is required under the CCPA, to ensure they take into account the needs of our membership. We’ll continue to review any updates and make sure that our members are up-to-date.

For reference, here are the comments filed by DCN in December 2019 regarding the initial set of proposed regulations.

Featured Post | Policy

Want to clean up Facebook? Don’t listen to Menlo Park

Mark Zuckerberg is reportedly “begging to be regulated.” He has made several statements to that effect, suggesting that he supports state-backed regulation in four areas: elections, political discourse, privacy, and data portability. This week, Facebook released a white paper that outlines the company’s suggested path forward for content regulation. It does little to drive forward meaningful discussion around these serious issues. Instead, it clearly illustrates that Facebook would like to eschew responsibility for some of its profoundly negative effects in these areas while protecting its ability to continue business as usual in others.

As Zuckerberg put it in a recent op-ed, “regulation could set baselines for what’s prohibited and require companies to build systems for keeping harmful content to a bare minimum.” That said, Facebook’s plan suggests that companies like his should be required to have procedures for taking down offensive or illegal posts and to prepare quarterly reports on their efforts. If this isn’t the absolute bare minimum, I don’t know what is.

Clicky content

It is interesting that Facebook’s paper cites the European Convention on Human Rights which supports the needs of governments to regulate speech for “[T]he interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals…”

Some have argued that Facebook’s algorithms and data targeting capabilities, the same tools which have been refined and optimized for immense profits, actually encourage these sorts of activities. The argument goes like this: The algorithms promote content that gets clicks. The content that gets the most clicks is often salacious (yes, even to the point of being false) or highly targeted based on consumer data.

In this way, drug dealers target members of addict recovery groups, for example. Or false stories that reinforce specific bias, racism, or extremist views are targeted at specific individuals. Of course, those Facebook functions would remain very lightly regulated under the company’s proposal.

Competitive advantages

In his op-ed, Zuckerberg said he believes that “good regulation may hurt Facebook’s business in the near term but it will be better for everyone, including us, over the long term.” However, Facebook’s proposal clearly brings with it the added benefit (for Facebook) that the suggested regulations would build barriers and add compliance costs that entrenched companies are best equipped to overcome. It’s already a daunting challenge for a start-up social media company to break through in the current marketplace. This proposal would only increase that burden.

In what is quite possibly the icing on Zuckerberg’s cake, the proposal would grant global immunity to big tech platforms to carry out content moderation policies, which could also be used to shut out competitive services on their platforms. The proposal would essentially reinforce Section 230 of the U.S. Communications Decency Act globally, so that Facebook could claim legal protection for removing offensive posts and adjusting algorithms to disadvantage repeat offenders.

The last thing the world needs exported from America is blanket liability protection for Facebook. But Zuckerberg’s proposed immunity is intentionally broad to allow for all kinds of activity under a content moderation policy, including favoring its own services or certain business partners over others.

Anti-competitive landscaping

Facebook’s proposal includes an entire section about how – even with the proposed content moderation – enforcement of any guidelines will not only be a challenge; it will be imperfect.

Imagine if Instagram were still a separate company. Do you think Zuckerberg would be talking about how it’s too hard to scrub racist and sexist content from the service? Do you think he would offer only muddled, hazy responses about whether foreign governments manipulated his service to impact elections? Do you think he would be complaining that it’s hard to prevent drug dealers from targeting recovering addicts? No. He would be taking aggressive action to clean it up.

In fact, there is documented evidence that Facebook cared a lot more about these issues when they had competition. Acquiring WhatsApp and Instagram were likely a cheaper alternative to changing Facebook’s underlying and unhealthy business. Zuckerberg’s calculation could have been that turning his back on the public’s welfare was more acceptable than turning his back on shareholders.

The compliance question

As Facebook’s own report puts it, “Designed poorly, these efforts may stifle expression, slow innovation, and create the wrong incentives for platforms.” And Zuckerberg should know.  

While Zuckerberg calls for “regulation,” it’s important to consider Facebook’s track record of complying with existing regulations. Their approach to the EU’s General Data Protection Regulation (GDPR) is disingenuous and sometimes misleading. In California, which recently rolled out the CCPA, Facebook is making case the that they don’t “sell” consumer data even under California’s very broad definition.

And that’s the point: Facebook is a for-profit company with responsibility only to its shareholders. Zuckerberg isn’t offering a real plan for regulation that will benefit society and democracy. He’s offering a plan to minimize the obligations and responsibility for Facebook. And this is why the best perspectives on how to clean up the mess that is Facebook are coming from outside of Menlo Park.

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