THE SCENE is becoming familiar: a Facebook executive is hauled before Congress in Washington, DC; a public grilling ensues. At least on July 16th and 17th American lawmakers looked better prepared than they were a year ago when they displayed little idea of Facebook’s business during hearings over its failure to stop a rogue consultancy from harvesting data on 50m users without permission. This time David Marcus fielded mostly sensible questions about the social network’s nascent cryptocurrency project, Libra, which he heads. Would transaction data be mined for valuable spending patterns? How will Facebook make money from Libra, which is to be governed by an independent body based in Switzerland?
Mr Marcus offered reasonable answers. User consent will be required to mine transaction data; money will come from advertisers, happy to pay to gain access to consumers more willing to part with their money thanks to easier online payments. The big question on everybody’s mind was different, however: why on Earth would scandal-plagued Facebook launch a global financial instrument at all?
The query is all the more relevant in light of a decision days earlier by the Federal Trade Commission to fine the company $5bn for its recent misuse of user data. If approved by the Department of Justice, as looks likely, the penalty will be the largest that the American government has ever meted out to a technology company (the EU has been harsher, see chart).
Facebook seems eager to convince governments that, despite piles of evidence to the contrary, it can be trusted. Mark Zuckerberg, Facebook’s boss, has called for more regulation of Big Tech, including his firm. On Capitol Hill Mr Marcus promised that Libra, and the division of Facebook which is meant to monetise it, Calibra, would not launch until the concerns of American lawmakers have been allayed. It now asks for permission rather than forgiveness, Mr Marcus appeared to be saying, not the other way around as in its youth.
Facebook’s new, mature face plays well with investors. After a year of scandal and abysmal press, its share price is just shy of record highs. It gained more than 1% on the news of the latest fine, which had already been priced in thanks to astute telegraphing earlier this year—a sign, perhaps, of a good working relationship with the American regulator. A Facebook which works with governments rather than around them appeals to shareholders.
So does Facebook’s ability to rake in money. The growth of its core social network is slowing down (see Graphic detail). But revenues from Instagram, its popular photo-sharing app, are growing apace. It has yet to realise the money-spinning potential of WhatsApp, its messaging service. Analysts expect Facebook’s second-quarter results, due out on July 24th, to show revenues up by 25% from last year, to $16.3bn. Unlike profits at some other technology firms (see article), its net income is expected to rise, by 6% to $5.4bn—more than enough to cover the fine.
Facebook is not out of the woods. Other regulators and politicians are lining up to take a swipe at Big Tech, and not just in America. Financial authorities are leery of Libra, worrying that it could become a vehicle for fraud and money laundering, as happened with some other cryptocurrencies. Central bankers fear that if adopted widely enough it could threaten financial stability. On July 16th Ursula von der Leyen, president-elect of the European Commission, the EU’s executive arm, said she wants the tech giants to pay more taxes. The next day the bloc’s competition chief, Margrethe Vestager, announced a probe into Amazon’s use of merchant data. In some countries data-protection regulators want to order non-compliant companies to stop processing data altogether. That would hurt considerably more than a fine.■
This post was originally posted at https://www.economist.com/business/2019/07/20/facebook-says-it-will-behave-better-from-now-on.