What If Facebook Were Owned By Its Users
(Bloomberg View) -- Facebook Inc. is trouble. It's in trouble, too, with politicians in multiple countries now sniffing into its lackadaisical approach toward protecting user privacy and investors knocking $95 billion (about 18 percent) off its market capitalization in the past week and a half. But the company also just seems congenitally inclined to push things too far, to treat its users again and again as otherwise useless ore to be mined to mint advertising dollars. Zeke Faux has a remarkable new story in Bloomberg Businessweek about the opportunities the social network has provided for purveyors of bogus diet pills and credit card scams. After talking to a few of these "affiliate marketers" at a conference in Berlin, he summed up:
They told me that Facebook had revolutionized scamming. The company built tools with its trove of user data that made it the go-to platform for big brands. Affiliates hijacked them. Facebook’s targeting algorithm is so powerful, they said, they don’t need to identify suckers themselves—Facebook does it automatically.
The company does make efforts to rein in these scams, but they appear to be under-resourced and more than a little conflicted. Its representatives were so prominent at the affiliate marketers' event that, as Faux put it, "a newcomer could be forgiven for wondering if it was somehow sponsored by Facebook."
Again, Facebook users like you and me are the company's raw material, not its customers, and we are treated accordingly. And while this is to an extent true of lots and lots of other online businesses and some offline ones, at a social network it somehow feels worse. Alphabet Inc. subsidiary Google offers discrete services such as search, maps and email in exchange for its privacy intrusions. What Facebook offers users is simply, along with some incidental photo and video storage, connection to other users. The Axios-SurveyMonkey poll released earlier this week that showed Facebook (and rival social network Twitter Inc.) with far lower favorability ratings than Google, Apple Inc., Amazon.com Inc. and even controversy-plagued Uber Technologies Inc. indicates that those users can sense the difference.
So what is to be done? Proposals to "nationalize Facebook" have been in the air since at least 2012, when sociologist Philip N. Howard floated the idea at Slate. By now they've become so commonplace that Tim Worstall of London's Adam Smith Institute actually felt compelled last week to explain why it's a bad idea. I tend to agree with him, and the Chinese example of de facto government control of social networks certainly doesn't give one confidence that user privacy would be any safer under government control.
Tougher regulation is a more practical response, and while regulation often serves to entrench incumbents, it does seem like stronger rules on data ownership and privacy like the European Union's soon-to-take-effect General Data Protection Regulation or the California Consumer Privacy Act that supporters want to put on the state general election ballot this fall (and that Facebook, Google and other tech companies are trying to thwart) could fix some of what's broken in the current online environment without standing in the way of change and innovation. In fact, they may encourage change and innovation. Other possible regulatory approaches include utility-style oversight and new (or, more accurately, revived) theories of antitrust that consider factors other than, as Lina M. Khan put it in the Yale Law Review last year, "'consumer welfare,' defined as short-term price effects."
If I were a practical-minded person, I would probably spend the rest of this column discussing the pros and cons of these different potential regulatory regimes. But I'm a sucker for unrealistic thought experiments (plus, the regulatory angle is being pretty exhaustively covered by others), so I'm going to propose something else: What if Facebook were owned by its users?
This is, as I have written before, not an uncommon structure for businesses, especially in the financial sector. Insurers Northwestern Mutual, New York Life, State Farm and USAA are all customer-owned mutual associations. Savings and loans (including the Bailey Brothers' Building and Loan in "It's a Wonderful Life") were almost all mutuals until the misbegotten deregulation of the 1980s; credit unions still are. All mutual funds are, as the name indicates, technically customer-owned, and while most are controlled by for-profit investment advisers, the biggest mutual fund company, Vanguard Group Inc., is not. Outdoor-goods retailer Recreational Equipment Inc. is customer-owned, too, as are the food co-ops one finds in such places as Burlington, Vermont; Cambridge, Massachusetts; and, um, Viroqua, Wisconsin. Mutuals and co-ops don't make sense in some businesses, especially those where relationships with customers aren't long-term, but a social network like Facebook seems to offer the ultimate in long-term relationships, continuing even after death in many cases.
Mutuals aren't perfect. They have a hard time raising capital, and their ownership structure makes mergers and acquisitions extremely difficult. At larger mutuals, customer-shareholders tend not to exercise much oversight or control over managers' behavior. Still, many mutual organizations really are suffused with a dedication to customers' well-being, and they seem to offer better value to customers than for-profits in markets such as auto insurance where they compete head-to-head.
A user-owned Facebook Social Network Association probably wouldn't need to raise any capital, and the fact that it couldn't acquire any more Instagrams or WhatsApps might be seen as a positive from a public-policy perspective. The company would presumably be just as bent on signing up new users and goading them to stay active as in its current iteration, because growing the network and keeping it active makes it more valuable to users. If your main complaint with Facebook is that it "makes people lonely and sad," this may not satisfy you -- although a social network less amenable to pitching bogus diet pills would presumably also be less amenable to other algorithmic efforts to exploit users' weaknesses in ways that make them feel terrible. A mutual or co-op Facebook would also be compatible with early Facebook adviser and investor Roger McNamee's suggestion that the company switch to a subscription-based business model -- in fact, it could make it more attractive if the company still sold some advertising and paid its subscriber-owners dividends out of the proceeds.
A mutual or co-op Facebook is also almost certainly not going to happen. The only modern case I know of where a significant for-profit company switched to mutual status was at Vanguard, where the unique rules of the mutual fund industry allowed ousted Wellington Management president Jack Bogle to persuade the directors of a couple of Wellington funds to declare independence from their investment adviser in 1975. Still, the Vanguard-Wellington relationship does offer some hints as to how a mutualized Facebook might sell advertising in a less conflicted fashion. Vanguard continues to contract with Wellington to manage all or part of several mutual funds; the Facebook Social Network Association could conceivably still do business with Zuckerberg Addictive Algorithmic Advertising Services Inc.
Again, I'm not being realistic here. But having speculated years ago that Twitter might be a much bigger, more successful enterprise if it were pretty much anything other than a publicly traded for-profit corporation, I do think there is something about social networks in particular -- and online platforms in general -- that does not fit entirely comfortably with the 20th-century corporate model. Others clearly sense this, too: Would-be Facebook rival Ello is a public benefit corporation, which is committed to serving society alongside shareholders, and crowdfunding site Kickstarter is, too. The similar but less formal B-corporation certification has attracted a fair number of digital enterprises. Wikipedia is part of the nonprofit Wikimedia Foundation. Craigslist has pitched itself as not-much-profit (although it seems to be failing at that). Facebook Inc. is a problem. The Facebook Social Network Association is at least a way of thinking about a solution.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
Which are sometimes one and the same, as with "Elon's Smart Pills" (not actually endorsed by Elon Musk), which are advertised on Facebook as free but require submission of a credit card number, which is then billed a month ad infinitum.
MetLife Inc. did switch to mutual status in after almost years as a shareholder-owned company, but that was a long time ago the company switched back again in
For more columns from Bloomberg View, visit http://www.bloomberg.com/view.
©2018 Bloomberg L.P.