Facebook built a massive advertising business on what it knows about its users. But could the company’s enormous database soon become its biggest problem?
The clearest warning yet came Thursday, when Germany’s antitrust office ruled that Facebook was abusing its market position by combining its data with information from Instagram, WhatsApp and third party websites.
The regulator ordered Facebook to stop the practice in a ruling that experts say could shape the company’s future — and potentially even lead to its breakup.
“In many ways, they are internally breaking up Facebook by limiting how they do business, how the different services interact,” said Anu Bradford, a professor at Columbia Law School. “It’s not a breakup, but it is certainly ramping up the pressure,” she added.
The fact that the data issue was handled by an antitrust regulator, rather than a privacy watchdog, could mark an important shift in the way authorities view social media.
Ioannis Lianos, a competition expert and professor at University College London, said that antitrust law has traditionally focused on whether companies use their size to exclude competition and increase prices.
“This case shows that in the digital economy, harms to consumers may not always take the form of higher prices or lack of innovation, but also lower privacy,” he said.
Harming consumers?
Facebook (FB) doesn’t charge for using its social network. Instead, users “pay” by handing over their data, which Facebook (FB) then turns into real money by selling advertisements targeted at specific users.
It has added to its data holdings in recent years by purchasing Instagram and WhatsApp.
The German regulator argued that Facebook (FB) controls more than 95% of the country’s social media market, which means users have to choose between its data collection and not using social media.
It said that companies such as Snapchat (SNAP), Google’s (GOOGL) YouTube and Twitter (TWTR) don’t offer the same services as Facebook and therefore can’t be included in the market.
“That makes it a competition problem,” said Lianos.
The regulator has ordered Facebook to seek users’ explicit consent to collect and combine their data.
Facebook said in a blog post that it disagreed with the decision and plans to appeal against it.
“The [regulator] underestimates the fierce competition we face in Germany, misinterprets our compliance with [European privacy rules] and undermines the mechanisms European law provides for ensuring consistent data protection standards across the EU,” Facebook said. It also claimed the regulator was “trying to “implement an unconventional standard for a single company.”
Facebook declined to comment for this story.
Will Europe make the next move?
Europe’s top antitrust regulator, the European Commission, said Thursday that it “took note” of the German decision. Experts say the Commission could eventually open a similar investigation of its own.
“The Commission doesn’t have the power itself to go after Facebook on privacy grounds, but it has plenty of powers under competition law,” said Bradford.
“If [the Commission] wants to take the lead itself on Facebook, it has to be [about] competition,” she added.
An EU competition investigation that concluded Facebook was abusing its dominant position would expose the company to potential fines of up to 10% of its annual revenue. In severe cases the Commission has the powers to order companies to be broken up.
Europe last year imposed a record €4.3 billion ($5 billion) antitrust fine on Google.
Calls to limit Facebook’s power are growing in some quarters.
“Many people have been coming to the realization that letting Facebook build its empire through acquisitions, most notably of WhatsApp and Instagram, has not been a good thing, and that something has to be done about it,” said Paul Bernal, a lecturer in media law at the University of East Anglia. “This ruling could be a step on that path.”
