Question marks on Facebook's content

While the failure of Facebook's IPO has spawned a number of theories, one fact overlooked by many is the risk that users might begin to question the network's claim to full ownership of information generated by them.

The feeble showing of Facebook’s stock in the weeks since its $US16 billion  initial public offering has left people casting about for explanations. Maybe Morgan Stanley, which organised the IPO, got complacent. Maybe Facebook neglected to adapt its platform fully to the world of mobile devices. Maybe, if we are to believe the  Los Angeles Times, the company,  for all its 900 million users, is “losing its cool”. Those explanations are wrong. There may be a simpler explanation: political risk.

Facebook is an exciting business because it promises to put a price on something that has heretofore been priceless: friendship and social life. In this it resembles nothing so much as the first ever equation for valuing options. The upside for investors is that there may well be a way - presumably through advertising -  to carve a profit out of this uncommercialised resource.The downside is that, sooner or later, regulators could decide that what Facebook is selling does not properly belong to it.

We know that technology is changing the nature of ownership. In their new book Interop, John Palfrey and Urs Gasser, co-directors of the Berkman Center for Internet and Society at Harvard, speak of attempts to engineer “society’s most complex and fundamental systems”. It is a telling phrase. Older readers will assume that what is complex is not likely  to be fundamental and what is fundamental is not likely to be complex. The authors take a generally Panglossian view of the internet. But they do note that,  back in the old days, if you bought a book it was yours. How you read it, whom you lent it to, whether you resold it . . . this was your business. Today, if you purchase certain ebooks or MP3s from the “cloud”, you access them only so long as you remain on good commercial terms with the corporation that sold them to you.

Internet sites and platforms manipulate the conventions of “digital rights management” so that you cannot take the things you have “bought” and read them on all similar devices or platforms. Amazon’s Kindle and Apple’s iTunes have been striking examples. 

“Sustainable interoperability” 

On top of that, technological questions of “sustainable interoperability” arise. In the digital world, our old objects do not just gather dust in the attic. In effect, they self-destruct. If the programmes we used to create them are discontinued or merely modified, or if the companies that designed those programmes go out of business, our “things” may become inaccessible. Anyone who has tried to open a 20-year old document saved in a defunct word-processing programme will realise this. How do we know the same will not happen to our family photo albums?

The internet turns out to be a very complicated place in which to protect one’s rights. Consider privacy. Chief executives talking up their stock on Yahoo and authors plugging their own books on Amazon have found their expectations of privacy to be spectacularly misplaced. On the internet, everyone knows you’re a dog. But that is not all. Sites “track” users, sometimes without their permission, because that is how valuable commercial information is generated. If you don’t like that, you have few real alternatives beyond leaving cyberspace. Increasingly that means leaving society and the job market. If you stay online, you will find that “network effects” rob consumers of real options about which social network to sign on to. Facebook dominates the market the way a utilitydoes but pockets the proceeds the way a business does.

The market valuation of social networking sites rests on the pretexts they can find for squeezing ever more personal information out of users and exploiting it ever more systematically. In 2007, Facebook signed many of its members up to a programme called Beacon. It was designed to follow them through the websites of Facebook’s commercial partners - which at the time included Coca-Cola, the National Basketball Association, the New York Times and Verizon - and inform their friends about everything they bought. The programme led to inconveniences and embarrassments. The ring one man bought to surprise his wife was displayed to his list of 720 contacts. Beacon was unpopular with Facebook’s users and Facebook backed off, settling a lawsuit for $9.5m. But the company’s future profitability may rest on replicating what Beacon sought to do.

No room for banner ads

The common observation that Facebook has failed to make the  leap to the world of mobile phones does not mean the experience is unsatisfactory for users. Those who access Facebook on their iPhones think it’s great. The problem is that it is hard to run banner ads - the source of an estimated 85 per cent of the company’s revenue - on a screen two inches wide.

In his great work on the economics and sociology of networks, Network Power, the Yale law professor  David Singh Grewal noted that contemporary cheerleaders for the internet, like the anarcho-syndicalists who followed Jean-Pierre Proudhon in the 19th century, are only slowly being disabused of the idea that they are living at the dawn of some libertarian utopia. Mr Grewal speculated that we might some day “reflect nostalgically on the free internet of the 1990s in the way that anarchists once looked back to the Barcelona of 1936: there, once and briefly, we ran things ourselves”. As technology changes, social networks will evolve - not necessarily in ways that make people like them more. Google’s motto “Don’t be evil” seems like a vestige of the 1990s.

It is easy to imagine a government or supreme court responding to popular demands to rein in the corporations that have changed things. Perhaps skittish investors sense this. Facebook is less a revolution in technology than a revolution in property rights. It is to social life what enclosure was to grazing. Fed-up users might begin to question Facebook’s claim to full ownership of so much valuable personal information that they, the public, have generated.

The writer is a senior editor at  The Weekly Standard.

Copyright The Financial Times Limited 2012

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