EconByte

 By Dr Justin Pyvis

Issue 15/2019

Facebook's privacy epiphany

It seems barely a day goes by without another insight into Facebook's nefarious nature, with critics lining up to take a swing at the embattled company. By this late stage - Facebook is now 15 years old! - there's barely anyone left on the planet who isn't aware of Facebook's numerous misgivings. I have written extensively about Facebook's constant abuse of its users' data and why I have avoided the company and anything it touches like the plague for the better part of this decade.

While in the past Facebook's patient zero, Mark Zuckerberg, has been able to successfully deflect attention and carry on as usual, lately it seems he can't take a trick. The bad news really is starting to add up for the advertising behemoth, with the announcement on Wednesday that the company is being criminally investigated for its dodgy data deals:

"Federal prosecutors are conducting a criminal investigation into data deals Facebook struck with some of the world’s largest technology companies, intensifying scrutiny of the social media giant’s business practices as it seeks to rebound from a year of scandal and setbacks."

That was followed by the apparently unrelated resignation of two top executives on Thursday:

"Two of Facebook’s top executives — one regarded as the company’s No. 3, and the other the head of its WhatsApp messaging service — are leaving after disagreements with Mark Zuckerberg, the chief executive, over the social network’s future direction."

As we have come to expect with Facebook, the statements released by the departing executives and Zuckerberg himself were of the deliberately opaque, corporate-speak variety (curiously Chris Daniels, former head of WhatsApp, didn't provide a statement).

So why the exit?

Did they jump ship because of the Federal investigation, or because of a difference of opinion with Zuckerberg? Or some combination of both? Chris Cox - now former chief product officer - alluded to the latter, singling out the forthcoming integration of Facebook's various messaging platforms (Messenger, WhatsApp, Instagram) in his departure letter:

"As Mark has outlined, we are turning a new page in our product direction, focused on an encrypted, interoperable, messaging network. It's a product vision attuned to the subject matter of today: a modern communications platform that balances expression, safety, security, and privacy. This will be a big project and we will need leaders who are excited to see the new direction through."

Given that one of the executives was head of WhatsApp and the other explicitly mentioned the messaging integration as a reason for his departure, I think it's safe to say that they might have some misgivings about the direction in which Facebook is heading.

What I don't know

What side of the privacy fence did these two individuals stand? For instance, did they clash with Zuckerberg because they were worried about what would happen to the bottom line if they encrypted private messages on all of Facebook's platforms? That's a legitimate concern; if end-to-end encryption were properly implemented, Facebook would no longer be able to scan people's messages to improve its algorithms, which it uses to sell advertisements. Under that scenario Zuckerberg is a saint, which leads me to almost entirely dismiss it out of hand given his track record of, well, doing the opposite.

The second and more likely scenario, especially given the fact that WhatsApp and Instagram's founders quit Facebook due to Zuckerberg's lust for profit at any cost, is that the Zuck is trying to pull the wool over our eyes yet again. Facebook's encryption for all could just be a way for Zuckerberg to unify all of his various messaging applications, win some privacy brownie points, all the while maintaining access to everyone's private data for Facebook's exclusive use whenever it so desires.

Zuckerberg doesn't care about privacy

Encryption is only reliable when you and only you control your private keys, something I'm almost positive Facebook does not and will not tolerate, no matter what Zuckerberg may say publicly. All of Facebook's applications are closed-source, meaning no one outside of those directly involved know whether or not it has kept its own copy of people's private keys. WhatsApp is encrypted - it uses the Signal protocol - but no one outside of Facebook can guarantee that it doesn't have a copy of the keys, and as you would expect WhatsApp's encryption has never been independently audited.

Don't get me wrong, I'm all for Zuckerberg's recent encryption and privacy epiphany; it's about time that big tech began to acknowledge that maybe, just maybe, selling out your users isn't the best long-term business strategy (although I might need to redefine long-term..!). But Facebook is the last company I would expect to lead the privacy charge, given that its core - Zuckerberg himself - is about as rotten as they come.

A third scenario

There is a third scenario that when combined with the recent pressure placed on the company by the likes of Elizabeth Warren and the ongoing federal investigation, might explain Zuckerberg's recent concern for his users' privacy. It's a scenario under which Facebook pivots into the remittance/payment sector, using its forthcoming integrated encrypted messaging platform - most people don't know what a private key is, let alone care that Facebook will keep a copy - to facilitate low-fee financial transactions via blockchain technology.

Facebook has been investing in that sector for some time, with Barclays estimating that a move into the payments industry could be worth around $19 billion in additional annual revenue should Facebook pull it off. Such a pivot would have the dual effect of getting the regulators off its back while also offsetting any loss in advertising revenue resulting from, at least in theory, losing the ability to scan people's private messages.

Personally, I would never send anything over Facebook (or any of its many other companies), let alone money. But I'm clearly in the minority, so it may just work.

Enjoy the rest of this week's issue. Cheers,

— Justin

The bits


New York subsidies for everyone (except Amazon)

If you thought New York's Amazon deal was bad (and really, it was actually pretty good), then surely you'll be appalled at its Hudson Yards deal, an "expansive real estate development that is about to open in Manhattan". The cost to taxpayers? About $6 billion, with nearly $4 billion spent on infrastructure and "interest payments on bonds when revenue from the development, which was supposed to cover the tab, fell short of projections".

Note that Amazon was only due to receive about ~$505 million in direct subsidies, with the rest of the purported $3 billion in the form of tax cuts derived from revenue which New York will no longer receive anyway.

Learn more:


Modern monetary madness

Modern Monetary Theory (MMT) is probably the worst thing to come out of the economics profession since Keynes' General Theory. So as you might expect, Alexandria Ocasio-Cortez is all over it. But fortunately for humanity, not a single economist surveyed by the University of Chicago Booth School of Business supports its central tenets.

Note that as with most surveys there are issues with how the questions were framed, an especially tricky task with MMT and its tendency to constantly shift the goalposts.

Learn more:


The video streaming war is really heating up

Can anyone claim Netflix's spot at the top of the streaming ladder? I don't know, but its competitors are sure going to give it a run for its money. They all want the pot of gold at the end of the rainbow, something even Netflix has yet to achieve (it expects a negative free cash flow of $3 billion this year). Expect a lot of new content and pretty cheap subscription fees until the market sorts itself out.

Learn more:


Is big tech really crowding out entrepreneurs?

I feel like, just to prove Warren wrong, I should post weekly evidence showing that there's plenty of room for small players in the venture capital / entrepreneur space. She only provided a handful of anecdotes to support her case, so why can't I?

"US-based general partners raised more sub-$100 million venture funds in 2018 than in any year prior. This is true for two separate size classes: 'Micro' and 'Nano,' which exhibit similar growth patterns over time."

Learn more:


Need to send files? Skip Dropbox, use Firefox

This probably didn't need its own section but if you care about privacy it's actually pretty important. I've been using Firefox Send for a while as an easy way to securely send attachments. It's not a Dropbox replacement by any means (which you should never use without first encrypting your files anyway), but it is yet another reason to use Firefox over, say, Google's Chrome (Firefox users get a 2.5GB file limit instead of the normal 1GB).

Learn more:



Image of the week

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And oldie but a goodie

It's hard to believe that that this XKCD comic is nearly 10 years old yet is still just as relevant as ever; it's not as though Facebook kept its business practices a secret. People just really, really do not care about what companies do with their data.

That's all for now. If you enjoyed this issue, feel free to share it.

Facebook's privacy epiphany was compiled by Dr Justin Pyvis. Feel free to send feedback, suggestions for future issues, ideas, insults, or pretty much anything that crosses your mind to his Keybase chat.