Zuckerberg goes to Washington: Day 2

Mark Zuckerberg returned to Capitol Hill yesterday to complete his second round of testimony over the Cambridge Analytica data scandal. This time, he faced the House Energy and Commerce Committee.

Many believe that Zuckerberg’s appearance on Tuesday before the joint-Senate amounted to a success for the beleaguered social network. This was helped in no small part by the fact that many senators appeared to be completely oblivious about what it is Facebook actually does, with one West Virginian senator, in particular, asking if Facebook could provide her constituency with “fiber”.

But whereas Tuesday’s committee could ask pretty much anything they pleased, Wednesday’s hearing was ostensibly focused on “transparency and use of consumer data”. And with an opening statement questioning whether Facebook has “matured” as fast as it has grown, it became clear that Zuckerberg might have been in for more of a grilling this time around.

Let’s take a brief overview of the main points and see what the future might hold for Facebook:

“What is Facebook?”

This was the sort of information that the aforementioned West Virginian representative could really have used on Tuesday.

One of the first exchanges of yesterday’s hearing focused on Zuckerberg trying to give representatives an accurate definition of what Facebook is. This was dangerous ground for the CEO to navigate, as the definition a company gives itself could determine the type of regulation—if any—it will be subjected to.

Zuckerberg argued that Facebook was a technology platform that allowed people to connect with each other. Or to put it as poetically as the man himself, “we build planes to help connect people and I don’t consider us an aerospace company.”

This definition sets the company apart from many of the functions that can actually be carried out on the platform, however, including payments, advertising, and news media. Zuckerberg would likely want to avoid categorizing his company’s activities within any of these spheres as it could justify calls for more stringent controls on Facebook.

Zuckerberg was also forced to defend notions that Facebook had a monopoly on the social media industry, claiming that the average person uses eight apps on a daily basis. However, he conveniently failed to mention that, in addition to the native Facebook app, the company owns three of the other most popular apps in the U.S.—WhatsApp, Messenger, and Instagram.

Bias

In what was surely an uncomfortable line of questioning for the Facebook CEO, noted civil-rights activist and Illinois representative Bobby Rush drew parallels between Facebook’s data collection practices and the surveillance of civil-rights groups by the FBI in the 1960s.

A comparison to J. Edgar Hoover is certainly one that Zuckerberg will want to avoid, so he was keen to point out that the difference between Facebook and the FBI is that “on Facebook, you have control over your information. I know of no surveillance organization that gives people the option to delete the data that they have.”

Other representatives questioned the alleged suppression of conservative voices on the company’s platform, while there was also an inquiry as to the retention rates for the employment of women and people of color within the company.

Data Collection

Probably the biggest revelation in terms of illicit data collection was Zuckerberg’s admission that he himself was part of the 87 million Facebook users that had their data harvested.

He also indicated that Facebook is looking into suing both Cambridge Analytica and its head data scientist Aleksandr Kogan over the data breach. The company is doing an audit to ensure all of the compromised data is retrieved and properly destroyed, though Zuckerberg conceded that this might be difficult to do is the data is stored in foreign countries.

Separately, Zuckerberg told representatives that Facebook compiles data on people that don’t use the network “for security purposes”. He failed to elaborate on the type of data that was collected and whether people were informed that Facebook had taken their information or not.

One representative remained unconvinced that Facebook wasn’t listening in through his smartphone too, despite Zuckerberg’s assurances the day before that it was a “conspiracy theory.”

“It’s pretty obvious to me that someone is listening to me on the audio on our phones,” said Rep. Larry Bucshon. “If you’re not listening to us on the phone, who is?”

Regulation

And finally, back to the big word—regulation.

Echoing back to the words he said on Tuesday, Zuckerberg agreed that it is “inevitable that there will need to be some regulation,” but, “you have to be careful about what regulations you put in place”.

Once again, he pointed towards the small guy, stating his fears that any strict regulation would harm newcomers to the industry rather than a global behemoth like Facebook.

However, in an indication of the type of regulation the industry could face in the future, Rep. Marsha Blackburn cited the strict regulations other industries like medicine and finance currently have to operate under in comparison to the (relatively) lax rules for tech.

So what does this mean for Facebook?

Though the second day of testimony seems to have been more taxing on Zuckerberg, most commentators seem to agree that both him and Facebook have emerged relatively unscathed from the trip to Washington. In fact, Facebook’s share price remained relatively flat throughout the day yesterday, indicating that investors weren’t entirely dissatisfied with proceedings.

Zuckerberg’s testimony before Congress was noticeably different to testimonies we’ve seen in the recent past (specifically that of Wells Fargo CEO John Stumpf) because he voluntarily appeared rather than being summoned. This added an extra air of respectability to his testimony and made it easier to believe that he is willing to cooperate with future regulatory efforts.

Speaking of that future, it’s hard to imagine the continuance of lax regulation for Facebook and other tech companies around data going forward. Indeed Zuckerberg has said many times that he is open to regulation, though he remained tactically coy about what that regulation might actually look like.

Realistically, there will likely be laws drafted up in the not-too-distant future that Facebook will play a big role in creating, giving it the opportunity to compound its dominance.

There is also the possibility that this is just the tip of a bigger iceberg. The fact that there was a whistleblower in the Cambridge Analytica incident could suggest that there have been others that we, and perhaps even Facebook, don’t know about. It’s reminiscent of the food safety issues that have plagued Chipotle Mexican Grill. Investors shrugged it off the first time, thinking that it was a one-time thing that management will get sorted ASAP. Then look what happened.

But do we see this as having a long-term effect on Facebook?

Well, with 2 billion users on its native platform—not to mention 1.5 billion on WhatsApp, 1.2 billion on Messenger, and 800 million on Instagram—we won’t be expecting bankruptcy any time soon.

 

Keep up to date with the topics that matter most to investors with the Focus newsfeed, available exclusively within the Invest app now. 

The Five on Friday | the biggest stories, straight to your inbox