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Technology

Silicon Valley played by a different set of rules. Facebook’s crisis could put an end to that

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After years of runaway success and lax regulation, Facebook discovered this week that the world may have changed its mind about the social network — and possibly the tech industry at large, too. Above, the entrance to Facebook’s headquarters in Menlo Park, Calif.
(Josh Edelson / AFP/Getty Images)

Facebook was 2 years old when it introduced its most transformative feature: a news feed that offered users a running list of updates about their friends’ love lives, favorite new bands and latest vacation photos.

For the hundreds of thousands of people on the social network, the idea of broadcasting personal details without consent came as a shock. There was backlash on the platform and demands that Facebook provide a way to opt out.

Facebook held fast and kept its news feed, which remains the platform’s nerve center. Its then 21-year-old founder, Mark Zuckerberg, responded with a blog post titled “Calm Down. Breathe. We Hear You,” in which he wrote “stalking isn’t cool; but being able to know what’s going on in your friends’ lives is.”

The future billionaire had made a gamble about the boundaries of privacy and won. It proved how much easier it was to release something new and deal with the consequences later — an ethos enshrined in the company’s original mantra, “Move fast and break things.”

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It was a strategy that worked for years to come. Facebook pushed its users to share more personal information, providing the lifeblood for the company’s dramatic growth and riches. There was occasional pushback, such as lawsuits against Facebook for tracking users on other sites and spoiling one man’s engagement surprise by revealing to his fiancee he had bought a ring. But even a consent decree with the Federal Trade Commission in 2011 couldn’t stop the company from encroaching further into people’s private lives.

Then last week, Facebook discovered that the world it was irrevocably changing may have changed its mind about the social network — and possibly the tech industry at large, too.

For the first time, public officials, lawmakers and even late-night talk show hosts applied sustained pressure on Facebook to explain how data about millions of unsuspecting users allegedly wound up in the hands of a political consulting firm with ties to the Trump campaign.

The crisis compelled Zuckerberg to emerge from five days of silence to embark on an unprecedented media blitz Wednesday to apologize and promise changes. On Thursday, Zuckerberg was asked by the leaders of the powerful House Energy and Commerce Committee to testify.

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The controversy has forced Facebook to demonstrate it can be trusted with its users’ most personal details at a particularly sensitive time. The European Union is introducing strict new privacy laws that could threaten Facebook’s business model. And Americans are still coming to grips with how the platform was weaponized to sow discord during the 2016 presidential election.

The social media giant, which has thus far averted any major regulation, is now the subject of investigations by the FTC and the attorneys general of New York and Massachusetts. Senators are calling for hearings, setting up the possibility that Facebook and the tech industry could face tough new laws — especially if the midterm elections result in the Republicans losing their majorities in Congress.

That any of this is happening is remarkable for an industry whose culture was widely celebrated in many corners for its cavalier attitude toward rules and traditions. Regulating start-ups has long been considered tantamount to stifling innovation. Brash tech executives could sidestep ethics as long as they kept building apps and gadgets that delivered convenience, entertainment and returns for investors.

But Silicon Valley’s social capital appears to be waning. After more than a year of headlines about Russian interference, stolen data and sexual harassment, the tech industry appears headed closer to a reckoning. No longer are the stakes confined to banalities on your news feed. At risk is access to the truth and the ability for a society to rise above the rancor.

“If we wanted to mark an inflection point, it was this week,” said Jonathan Taplin, director emeritus of the Annenberg Innovation Lab at USC and author of “Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy.”

“This is an ‘aha’ moment for a lot of people, most importantly, for a lot of regulators and legislators,” Taplin continued. “There’s a growing understanding that these companies, in some sense, are not doing anything that has an ethical core.”

Few, if any, industries have risen faster and influenced lives more dramatically than tech. The cliche that internet companies are in the business of changing the world is demonstratively true. But the implication that they’re doing so for the better is now the subject of rigorous debate.

When lawmakers passed the Digital Millennium Copyright Act in 1998 to address piracy on the fledgling internet, they had no way of knowing they had laid the foundation for the spread of misinformation and propaganda nearly two decades later.

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They did this by carving out immunity, or “safe harbor,” for the internet providers and platforms that would deliver content. That meant Google, YouTube and Facebook would never have to live by the same standards of television broadcasters or newspapers. Because they were not accountable for content published on their sites by users, if a pirated song or movie was uploaded, it was the rights holder’s problem. If there was an outcry over an offensive video, the companies would claim free speech. All the while, the advertising dollars kept piling up, resulting in a duopoly for Facebook and Google.

“These companies have a phenomenal talent for playing legal arbitrage,” said Lina Khan, director of legal policy at the Open Markets Institute. “They shape shift. They say ‘we’re not the publishers, we’re just the pipes.’ They claim 1st Amendment protections when it helps them.”

It’s a common theme throughout the industry. Some of the biggest names in tech today learned to thrive by playing by a different set of rules.

By setting up its headquarters in Seattle in 1995, Amazon took advantage of a loophole to evade charging sales taxes because it didn’t have a national bricks-and-mortar presence. That gave the company years of cover to undercut retailers and win market share. Amazon is now so dominant and alluring that cities are trying to outdo one another with handouts to entice the company to build its second headquarters.

In the transportation industry, Uber and Lyft launched their ride-hailing services in 2012 without first obtaining transportation licenses. Regulators scrambled to block them in many cities, but by the time they did, the services were so popular that officials caved to pressure and relented.

Vacation home rental company Airbnb for years avoided paying occupancy taxes because it argued that it wasn’t a hotel business but a technology company that connected travelers with people with extra rooms for rent. Some cities such as Santa Monica launched crackdowns, but others such as Los Angeles are still wrestling with how to regulate the service, which is now available in nearly 200 countries and has a valuation of around $30 billion.

Regulators did little to rein in start-ups that tested local ordinances and privacy rules. But now that they’ve become industry titans that underpin how we communicate, travel and shop, lawmakers are under growing pressure to weigh in.

“There’s been an enormous shift in attitude about how to approach public policy with these companies,” Khan said. “I’ve seen it the last couple of years and it’s being catalyzed by Facebook now. There’s more skepticism, partly because of the growing recognition of how much power these companies have.”

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There are calls to eliminate “safe harbor” for platforms such as YouTube, Twitter and Facebook so that they can be regulated like media companies. Other ideas include turning Google into a public utility like its counterparts in the telecommunications sector. And Amazon is forcing new ways of thinking about monopolistic powers beyond just consumer prices.

One recent sign that Washington is willing to take on the industry occurred Wednesday when the Senate overwhelmingly passed the Fight Online Sex Trafficking Act, which penalizes sites that facilitate prostitution. Silicon Valley opposed the law, fearing it was a slippery slope that would make tech companies liable for content. Already, Craigslist has removed its personals section, and Reddit said it would ban certain transactions.

Still, it may be unreasonable to expect wholesale change without public opinion turning irrefutably against Silicon Valley. Consumers remain captive to technology and investors aren’t exactly ready to dump internet stocks.

That said, Facebook shares fell nearly 6% this week amid calls from some users to quit the social network. Similar public pressure led to the ouster of Uber’s controversial CEO last year. Perhaps to quell such speculation, Facebook’s board took the unusual step of releasing a statement in support of the company’s executives Wednesday.

The harsh backlash belies the general sense of fatalism about privacy in the digital era. A Pew Research poll from 2014 showed an overwhelming majority of Americans lacked confidence in internet companies to keep their information private and secure.

Despite that, a Pew survey from this year showed how beholden Americans are to some of these companies after finding 73% of U.S. adults use YouTube and 68% use Facebook.

It’s why advertisers won’t abandon the platforms anytime soon, even if they have to weather scandals such as Facebook’s and cry foul once in a while for placing their ads next to objectionable material.

“The reality is, right now, [Facebook’s] profits are still rising,” said David Kirkpatrick, author of “The Facebook Effect” and founder of the tech conference Techonomy. “Advertisers for the most part are still going to be there. This is not a fundamental break with their commercial success. Not yet. It depends entirely on what they do now.”

Facebook says it has matured from its “move fast and break things” days (its motto was amended in 2014 to “move fast with stable infra,” shorthand for infrastructure). And Zuckerberg’s response to the current crisis, however late, shows how much more seriously he’s acknowledging privacy concerns.

Among the steps being taken are pledges to alert users whose data was obtained by Cambridge Analytica, the political consulting firm at the center of the scandal. Zuckerberg also promised an audit of all outside firms that had access to personal information.

In another major sign that the controversy is resonating inside the company, Zuckerberg told CNN on Wednesday that Facebook may need more government oversight.

“I actually am not sure we shouldn’t be regulated,” he said. “I think in general technology is an increasingly important trend in the world. I think the question is more, what is the right regulation rather than yes or no, should we be regulated?”

Optimism may need to be tempered. Though Zuckerberg told CNN the company supports the premise of the Honest Ads Act, a bipartisan proposal that would require online political ads to adhere to the same disclosure and disclaimer rules for political ads in print and on TV, the bill is stalled in committee because of Facebook lobbying, according to Quartz.

Although Zuckerberg assumed more responsibility for mistakes in his Wednesday press tour, there were signs of a bunker mentality forming among Facebook’s rank-and-file. Some employees expressed frustration that the issue of data sharing was being re-litigated in the media and conflated with recent allegations of the Kremlin using the social network to spread propaganda.

Others acknowledged that Facebook could do a better job making app permissions transparent, but believed the onus was ultimately on consumers to understand the privacy policies they sign, Facebook posts from employees show.

Facebook, one employee wrote, could not be blamed for the efforts of bad actors, nor could it be blamed for its users not taking the time to learn about the platform’s privacy settings.

Several employees threw their support behind Zuckerberg, saying that they were unwavering in their belief in his ability to lead the company.

For Zuckerberg and Facebook, that task has become infinitely more complicated.

“The thing that seems different to me is it has now sunken in that democracy is at stake,” Kirkpatrick said. “This isn’t just a company inconveniencing or putting its customers at risk. The company is now putting society itself at risk, and it’s a function of Facebook’s scale, which is unprecedented.”

david.pierson@latimes.com

tracey.lien@latimes.com


UPDATES:

8:55 a.m.: This article was updated to include news of the Senate’s passage of a bill that could penalize technology companies for hosting ads promoting prostitution on their platforms.

This article was originally published at 3 a.m.


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