Federal Trade Commission
Auto Added by WPeMatico
Today’s real story: The Facebook monopoly
Facebook is a monopoly. Right?
Mark Zuckerberg appeared on national TV today to make a “special announcement.” The timing could not be more curious: Today is the day Lina Khan’s FTC refiled its case to dismantle Facebook’s monopoly.
To the average person, Facebook’s monopoly seems obvious. “After all,” as James E. Boasberg of the U.S. District Court for the District of Columbia put it in his recent decision, “No one who hears the title of the 2010 film ‘The Social Network’ wonders which company it is about.” But obviousness is not an antitrust standard. Monopoly has a clear legal meaning, and thus far Lina Khan’s FTC has failed to meet it. Today’s refiling is much more substantive than the FTC’s first foray. But it’s still lacking some critical arguments. Here are some ideas from the front lines.
To the average person, Facebook’s monopoly seems obvious. But obviousness is not an antitrust standard.
First, the FTC must define the market correctly: personal social networking, which includes messaging. Second, the FTC must establish that Facebook controls over 60% of the market — the correct metric to establish this is revenue.
Though consumer harm is a well-known test of monopoly determination, our courts do not require the FTC to prove that Facebook harms consumers to win the case. As an alternative pleading, though, the government can present a compelling case that Facebook harms consumers by suppressing wages in the creator economy. If the creator economy is real, then the value of ads on Facebook’s services is generated through the fruits of creators’ labor; no one would watch the ads before videos or in between posts if the user-generated content was not there. Facebook has harmed consumers by suppressing creator wages.
A note: This is the first of a series on the Facebook monopoly. I am inspired by Cloudflare’s recent post explaining the impact of Amazon’s monopoly in their industry. Perhaps it was a competitive tactic, but I genuinely believe it more a patriotic duty: guideposts for legislators and regulators on a complex issue. My generation has watched with a combination of sadness and trepidation as legislators who barely use email question the leading technologists of our time about products that have long pervaded our lives in ways we don’t yet understand. I, personally, and my company both stand to gain little from this — but as a participant in the latest generation of social media upstarts, and as an American concerned for the future of our democracy, I feel a duty to try.
The problem
According to the court, the FTC must meet a two-part test: First, the FTC must define the market in which Facebook has monopoly power, established by the D.C. Circuit in Neumann v. Reinforced Earth Co. (1986). This is the market for personal social networking services, which includes messaging.
Second, the FTC must establish that Facebook controls a dominant share of that market, which courts have defined as 60% or above, established by the 3rd U.S. Circuit Court of Appeals in FTC v. AbbVie (2020). The right metric for this market share analysis is unequivocally revenue — daily active users (DAU) x average revenue per user (ARPU). And Facebook controls over 90%.
The answer to the FTC’s problem is hiding in plain sight: Snapchat’s investor presentations:
Snapchat July 2021 investor presentation: Significant DAU and ARPU Opportunity. Image Credits: Snapchat
This is a chart of Facebook’s monopoly — 91% of the personal social networking market. The gray blob looks awfully like a vast oil deposit, successfully drilled by Facebook’s Standard Oil operations. Snapchat and Twitter are the small wildcatters, nearly irrelevant compared to Facebook’s scale. It should not be lost on any market observers that Facebook once tried to acquire both companies.
The market Includes messaging
The FTC initially claimed that Facebook has a monopoly of the “personal social networking services” market. The complaint excluded “mobile messaging” from Facebook’s market “because [messaging apps] (i) lack a ‘shared social space’ for interaction and (ii) do not employ a social graph to facilitate users’ finding and ‘friending’ other users they may know.”
This is incorrect because messaging is inextricable from Facebook’s power. Facebook demonstrated this with its WhatsApp acquisition, promotion of Messenger and prior attempts to buy Snapchat and Twitter. Any personal social networking service can expand its features — and Facebook’s moat is contingent on its control of messaging.
The more time in an ecosystem the more valuable it becomes. Value in social networks is calculated, depending on whom you ask, algorithmically (Metcalfe’s law) or logarithmically (Zipf’s law). Either way, in social networks, 1+1 is much more than 2.
Social networks become valuable based on the ever-increasing number of nodes, upon which companies can build more features. Zuckerberg coined the “social graph” to describe this relationship. The monopolies of Line, Kakao and WeChat in Japan, Korea and China prove this clearly. They began with messaging and expanded outward to become dominant personal social networking behemoths.
In today’s refiling, the FTC explains that Facebook, Instagram and Snapchat are all personal social networking services built on three key features:
- “First, personal social networking services are built on a social graph that maps the connections between users and their friends, family, and other personal connections.”
- “Second, personal social networking services include features that many users regularly employ to interact with personal connections and share their personal experiences in a shared social space, including in a one-to-many ‘broadcast’ format.”
- “Third, personal social networking services include features that allow users to find and connect with other users, to make it easier for each user to build and expand their set of personal connections.”
Unfortunately, this is only partially right. In social media’s treacherous waters, as the FTC has struggled to articulate, feature sets are routinely copied and cross-promoted. How can we forget Instagram’s copying of Snapchat’s stories? Facebook has ruthlessly copied features from the most successful apps on the market from inception. Its launch of a Clubhouse competitor called Live Audio Rooms is only the most recent example. Twitter and Snapchat are absolutely competitors to Facebook.
Messaging must be included to demonstrate Facebook’s breadth and voracious appetite to copy and destroy. WhatsApp and Messenger have over 2 billion and 1.3 billion users respectively. Given the ease of feature copying, a messaging service of WhatsApp’s scale could become a full-scale social network in a matter of months. This is precisely why Facebook acquired the company. Facebook’s breadth in social media services is remarkable. But the FTC needs to understand that messaging is a part of the market. And this acknowledgement would not hurt their case.
The metric: Revenue shows Facebook’s monopoly
Boasberg believes revenue is not an apt metric to calculate personal networking: “The overall revenues earned by PSN services cannot be the right metric for measuring market share here, as those revenues are all earned in a separate market — viz., the market for advertising.” He is confusing business model with market. Not all advertising is cut from the same cloth. In today’s refiling, the FTC correctly identifies “social advertising” as distinct from the “display advertising.”
But it goes off the deep end trying to avoid naming revenue as the distinguishing market share metric. Instead the FTC cites “time spent, daily active users (DAU), and monthly active users (MAU).” In a world where Facebook Blue and Instagram compete only with Snapchat, these metrics might bring Facebook Blue and Instagram combined over the 60% monopoly hurdle. But the FTC does not make a sufficiently convincing market definition argument to justify the choice of these metrics. Facebook should be compared to other personal social networking services such as Discord and Twitter — and their correct inclusion in the market would undermine the FTC’s choice of time spent or DAU/MAU.
Ultimately, cash is king. Revenue is what counts and what the FTC should emphasize. As Snapchat shows above, revenue in the personal social media industry is calculated by ARPU x DAU. The personal social media market is a different market from the entertainment social media market (where Facebook competes with YouTube, TikTok and Pinterest, among others). And this too is a separate market from the display search advertising market (Google). Not all advertising-based consumer technology is built the same. Again, advertising is a business model, not a market.
In the media world, for example, Netflix’s subscription revenue clearly competes in the same market as CBS’ advertising model. News Corp.’s acquisition of Facebook’s early competitor MySpace spoke volumes on the internet’s potential to disrupt and destroy traditional media advertising markets. Snapchat has chosen to pursue advertising, but incipient competitors like Discord are successfully growing using subscriptions. But their market share remains a pittance compared to Facebook.
An alternative pleading: Facebook’s market power suppresses wages in the creator economy
The FTC has correctly argued for the smallest possible market for their monopoly definition. Personal social networking, of which Facebook controls at least 80%, should not (in their strongest argument) include entertainment. This is the narrowest argument to make with the highest chance of success.
But they could choose to make a broader argument in the alternative, one that takes a bigger swing. As Lina Khan famously noted about Amazon in her 2017 note that began the New Brandeis movement, the traditional economic consumer harm test does not adequately address the harms posed by Big Tech. The harms are too abstract. As White House advisor Tim Wu argues in “The Curse of Bigness,” and Judge Boasberg acknowledges in his opinion, antitrust law does not hinge solely upon price effects. Facebook can be broken up without proving the negative impact of price effects.
However, Facebook has hurt consumers. Consumers are the workers whose labor constitutes Facebook’s value, and they’ve been underpaid. If you define personal networking to include entertainment, then YouTube is an instructive example. On both YouTube and Facebook properties, influencers can capture value by charging brands directly. That’s not what we’re talking about here; what matters is the percent of advertising revenue that is paid out to creators.
YouTube’s traditional percentage is 55%. YouTube announced it has paid $30 billion to creators and rights holders over the last three years. Let’s conservatively say that half of the money goes to rights holders; that means creators on average have earned $15 billion, which would mean $5 billion annually, a meaningful slice of YouTube’s $46 billion in revenue over that time. So in other words, YouTube paid creators a third of its revenue (this admittedly ignores YouTube’s non-advertising revenue).
Facebook, by comparison, announced just weeks ago a paltry $1 billion program over a year and change. Sure, creators may make some money from interstitial ads, but Facebook does not announce the percentage of revenue they hand to creators because it would be insulting. Over the equivalent three-year period of YouTube’s declaration, Facebook has generated $210 billion in revenue. one-third of this revenue paid to creators would represent $70 billion, or $23 billion a year.
Why hasn’t Facebook paid creators before? Because it hasn’t needed to do so. Facebook’s social graph is so large that creators must post there anyway — the scale afforded by success on Facebook Blue and Instagram allows creators to monetize through directly selling to brands. Facebooks ads have value because of creators’ labor; if the users did not generate content, the social graph would not exist. Creators deserve more than the scraps they generate on their own. Facebook suppresses creators’ wages because it can. This is what monopolies do.
Facebook’s Standard Oil ethos
Facebook has long been the Standard Oil of social media, using its core monopoly to begin its march upstream and down. Zuckerberg announced in July and renewed his focus today on the metaverse, a market Roblox has pioneered. After achieving a monopoly in personal social media and competing ably in entertainment social media and virtual reality, Facebook’s drilling continues. Yes, Facebook may be free, but its monopoly harms Americans by stifling creator wages. The antitrust laws dictate that consumer harm is not a necessary condition for proving a monopoly under the Sherman Act; monopolies in and of themselves are illegal. By refiling the correct market definition and marketshare, the FTC stands more than a chance. It should win.
A prior version of this article originally appeared on Substack.
Powered by WPeMatico
Apple goes to war with the gaming industry
Most gamers may not view Apple as a games company to the same degree that they see Sony with PlayStation or Microsoft with Xbox, but the iPhone-maker continues to uniformly drive the industry with decisions made in the Apple App Store.
The company made the news a couple times late this week for App Store approvals. Once for denying a gaming app, and the other for approving one.
The denial was Microsoft’s xCloud gaming app, something the Xbox folks weren’t too psyched about. Microsoft xCloud is one of the Xbox’s most substantial software platform plays in quite some time, allowing gamers to live-stream titles from the cloud and play console-quality games across a number of devices. It’s a huge effort that’s been in preview for a bit, but is likely going to officially launch next month. The app had been in a Testflight preview for iOS, but as Microsoft looked to push it to primetime, Apple said not so fast.
The app that was approved was the Facebook Gaming app which Facebook has been trying to shove through the App Store for months to no avail. It was at last approved Friday after the company stripped one of its two central features, a library of playable mobile games. In a curt statement to The New York Times, Facebook COO Sheryl Sandberg said, “Unfortunately, we had to remove gameplay functionality entirely in order to get Apple’s approval on the stand-alone Facebook Gaming app.”
Microsoft’s Xbox team also took the unusually aggressive step of calling out Apple in a statement that reads, in-part, “Apple stands alone as the only general purpose platform to deny consumers from cloud gaming and game subscription services like Xbox Game Pass. And it consistently treats gaming apps differently, applying more lenient rules to non-gaming apps even when they include interactive content.”
Microsoft is still a $1.61 trillion company so don’t think I’m busting out the violin for them, but iOS is the world’s largest gaming platform, something CEO Tim Cook proudly proclaimed when the company launched its own game subscription platform, Apple Arcade, last year. Apple likes to play at its own pace, and all of these game-streaming platforms popping up at the same time seem poised to overwhelm them.
Image Credits: Microsoft
There are a few things about cloud gaming apps that seem at odds with some of the App Store’s rules, yet these rules are, of course, just guidelines written by Apple. For Apple’s part, they basically said (full statement later) that the App Store had curators for a reason and that approving apps like these means they can’t individually review the apps which compromises the App Store experience.
To say that’s “the reason” seems disingenuous because the company has long approved platforms to operate on the App Store without stamping approval on the individual pieces of content that can be accessed. With “Games” representing the App Store’s most popular category, Apple likely cares much more about keeping their own money straight.
Analysis from CNBC pinned Apple’s 2019 App Store total revenue at $50 billion.
When these cloud gaming platforms like xCloud scale with zero iOS support, millions of Apple customers, myself included, are actually going to be pissed that their iPhone can’t do something that their friend’s phone can. Playing console-class titles on the iPhone would be a substantial feature upgrade for consumers. There are about 90 million Xbox Live users out there, a substantial number of which are iPhone owners I would imagine. The games industry is steadily rallying around game subscription networks and cloud gaming as a move to encourage consumers to sample more titles and discover more indie hits.
I’ve seen enough of these sagas to realize that sometimes parties will kick off these fights purely as a tactic to get their way in negotiations and avoid workarounds, but it’s a tactic that really only works when consumers have a reason to care. Most of the bigger App Store developer spats have played in the background and come to light later, but at this point the Xbox team undoubtedly sees that Apple isn’t positioned all that well to wage an App Store war in the midst of increased antitrust attention over a cause that seems wholly focused on maintaining their edge in monetizing the games consumers play on Apple screens.
CEO Tim Cook spent an awful lot of time in his Congressional Zoom room answering question about perceived anticompetitiveness on the company’s application storefront.
The big point of tension I could see happening behind closed doors is that plenty of these titles offer in-game transactions and just because that in-app purchase framework is being live-streamed from a cloud computer doesn’t mean that a user isn’t still using experiencing that content on an Apple device. I’m not sure whether this is actually the point of contention, but it seems like it would be a major threat to Apple’s ecosystem-wide in-app purchase raking.
The App Store does not currently support cloud gaming on Nvidia’s GeForce platform or Google’s Stadia which are also both available on Android phones. Both of these platforms are more limited in scope than Microsoft’s offering which is expected to launch with wider support and pick up wider adoption.
While I can understand Apple’s desire to not have gaming titles ship that might not function properly on an iPhone because of system constraints, that argument doesn’t apply so well to the cloud gaming world where apps are translating button presses to the cloud and the cloud is sending them back the next engine-rendered frames of their game. Apple is being forced to get pretty particular about what media types of apps fall under the “reader” designation. The inherent interactivity of a cloud gaming platform seems to be the differentiation Apple is pushing here — as well as the interfaces that allows gamers to directly launch titles with an interface that’s far more specialized than some generic remote desktop app.
All of these platforms arrive after the company already launched Apple Arcade, a non-cloud gaming product made in the image of what Apple would like to think are the values it fosters in the gaming world: family friendly indie titles with no intrusive ads, no bothersome micro-transactions and Apple’s watchful review.
Apple’s driver’s seat position in the gaming world has been far from a wholly positive influence for the industry. Apple has acted as a gatekeeper, but the fact is plenty of the “innovations” pushed through as a result of App Store policies have been great for Apple but questionable for the development of a gamer-friendly games industry.
Apple facilitated the advent of free-to-play games by pushing in-app purchases which have been abused recklessly over the years as studios have been irresistibly pushed to structure their titles around principles of addiction. Mobile gaming has been one of the more insane areas of Wild West startup growth over the past decade and Apple’s mechanics for fueling quick transactions inside these titles has moved fast and broken things.
Take a look at the 200 top grossing games in the App Store (data via Sensor Tower) and you’ll see that all 199 of them rely solely on in-app micro-transaction to reach that status — Microsoft’s Minecraft, ranked 50th costs $6.99 to download, though it also offers in-app purchases.
In 2013, the company settled a class-action lawsuit that kicked off after parents sued Apple for making it too easy for kids to make in-app purchases. In 2014, Apple settled a case with the FTC over the same mechanism for $32 million. This year, a lawsuit filed against Apple questioned the legality of “loot box” in-app purchases which gave gamers randomized digital awards.
“Through the games it sells and offers for free to consumers through its AppStore, Apple engages in predatory practices enticing consumers, including children to engage in gambling and similar addictive conduct in violation of this and other laws designed to protect consumers and to prohibit such practices,” read that most recent lawsuit filing.
This is, of course, not how Apple sees its role in the gaming industry. In a statement to Business Insider responding to the company’s denial of Microsoft’s xCloud, Apple laid out its messaging.
The App Store was created to be a safe and trusted place for customers to discover and download apps, and a great business opportunity for all developers. Before they go on our store, all apps are reviewed against the same set of guidelines that are intended to protect customers and provide a fair and level playing field to developers.
Our customers enjoy great apps and games from millions of developers, and gaming services can absolutely launch on the App Store as long as they follow the same set of guidelines applicable to all developers, including submitting games individually for review, and appearing in charts and search. In addition to the App Store, developers can choose to reach all iPhone and iPad users over the web through Safari and other browsers on the App Store.
The impact has — quite obviously — not been uniformly negative, but Apple has played fast and loose with industry changes when they benefit the mothership. I won’t act like plenty of Sony and Microsoft’s actions over the years haven’t offered similar affronts to gamers, but Apple exercises the industry-wide sway it holds, operating the world’s largest gaming platform, too often and gamers should be cautious in trusting the App Store owner to make decisions that have their best interests at heart.
If you’re reading this on the TechCrunch site, you can get more of my weekly opinions and notes on the news by subscribing to Week in Review here, and following my tweets here.
Powered by WPeMatico
Qualcomm faces fresh competition scrutiny in Europe over RFFE chips for 5G
Qualcomm is facing fresh antitrust scrutiny from the European Commission, with the regulator raising questions about radio frequency front-end (RFFE) chips which can be used in 5G devices.
The chipmaker has been expanding into selling RFFE chips for 5G devices, per Reuters, It is encouraging buyers of its 5G modems to also buy its radio frequency front-end chips rather than buying from other vendors and integrating their hardware with its 5G modem chips.
A European Commission spokeswomen confirmed the action, telling us: “We can confirm that the Commission has sent out questionnaires, as part of a preliminary investigation into the market for radio frequency front end.”
We’ve reached out to Qualcomm for comment.
The chipmaker disclosed the activity in its 10Q investor filing. Qualcomm wrote that the regulator requested information in early December, “notifying us that it is investigating whether we engaged in anti-competitive behavior in the European Union (EU)/European Economic Area (EEA) by leveraging our market position in 5G baseband processors in the RFFE space.”
Qualcomm says it’s in the process of responding to the request for information.
It’s not yet clear whether the investigation will move to a formal footing in future. “Our preliminary investigation is ongoing. We cannot comment on or predict its timing or outcome,” the EC spokeswoman told us.
“It is difficult to predict the outcome of this matter or what remedies, if any, may be imposed by the EC,” Qualcomm also wrote in the investor filing, adding: “We believe that our business practices do not violate the EU competition rules.”
If a violation is found it also warns investors that the EC has the power to impose a fine of up to 10 percent of its annual revenues, and it could also issue injunctive relief that prohibits or restricts certain business practices.
The preliminary probe of Qualcomm’s 5G modem business is by no means the first antitrust action the chip giant has faced in Europe.
Last summer, Europe’s competition commission fined Qualcomm close to $270M following a long-running antitrust investigation into whether it used predatory pricing when selling UMTS baseband chips, with the regulator concluding Qualcomm had used predatory pricing to force a competitor out of the market.
Two years ago the Commission also fined the chipmaker a full $1.23 billion in another antitrust case related to its dominance in LTE chipsets for smartphones, specifically related to its relationship with Apple and its iPhone.
In both cases Qualcomm is appealing the decisions.
It is also battling a major competition case on its home turf. In 2017, the U.S. Federal Trade Commission (FTC) filed charges against Qualcomm, accusing it of using anticompetitive tactics in an attempt to maintain a monopoly in its chip business.
Last year, a U.S. court sided with the FTC, agreeing the chip giant had violated antitrust law and it warned that such behavior would likely continue given Qualcomm’s key role in making modems for next-gen 5G cellular tech. But, again, Qualcomm has appealed, with a decision on the appeal possible this year.
In August, the chipmaker won a partial stay against an earlier court decision that had required it to grant patent licenses to rivals and end its practice of requiring its chip customers sign a patent license before purchasing chips.
“We will continue to vigorously defend ourself in the foregoing matters. However, litigation and investigations are inherently uncertain, and we face difficulties in evaluating or estimating likely outcomes or ranges of possible loss in antitrust and trade regulation investigations in particular,” Qualcomm adds.
Powered by WPeMatico
As FTC cracks down, data ethics is now a strategic business weapon
Daniel Wu
Contributor
Contributor
Five billion dollars. That’s the apparent size of Facebook’s latest fine for violating data privacy.
While many believe the sum is simply a slap on the wrist for a behemoth like Facebook, it’s still the largest amount the Federal Trade Commission has ever levied on a technology company.
Facebook is clearly still reeling from Cambridge Analytica, after which trust in the company dropped 51%, searches for “delete Facebook” reached 5-year highs, and Facebook’s stock dropped 20%.
While incumbents like Facebook are struggling with their data, startups in highly-regulated, “Third Wave” industries can take advantage by using a data strategy one would least expect: ethics. Beyond complying with regulations, startups that embrace ethics look out for their customers’ best interests, cultivate long-term trust — and avoid billion dollar fines.
To weave ethics into the very fabric of their business strategies and tech systems, startups should adopt “agile” data governance systems. Often combining law and technology, these systems will become a key weapon of data-centric Third Wave startups to beat incumbents in their field.
Established, highly-regulated incumbents often use slow and unsystematic data compliance workflows, operated manually by armies of lawyers and technology personnel. Agile data governance systems, in contrast, simplify both these workflows and the use of cutting-edge privacy tools, allowing resource-poor startups both to protect their customers better and to improve their services.
In fact, 47% of customers are willing to switch to startups that protect their sensitive data better. Yet 80% of customers highly value more convenience and better service.
By using agile data governance, startups can balance protection and improvement. Ultimately, they gain a strategic advantage by obtaining more data, cultivating more loyalty, and being more resilient to inevitable data mishaps.
Agile data governance helps startups obtain more data — and create more value
With agile data governance, startups can address their critical weakness: data scarcity. Customers share more data with startups that make data collection a feature, not a burdensome part of the user experience. Agile data governance systems simplify compliance with this data practice.
Take Ally Bank, which the Ponemon Institute rated as one of the most privacy-protecting banks. In 2017, Ally’s deposits base grew 16%, while those of incumbents declined 4%.
One key principle to its ethical data strategy: minimizing data collection and use. Ally’s customers obtain services through a personalized website, rarely filling out long surveys. When data is requested, it’s done in small doses on the site — and always results in immediate value, such as viewing transactions.
This is on purpose. Ally’s Chief Marketing Officer publicly calls the industry-mantra of “more data” dangerous to brands and consumers alike.
A critical tool to minimize data use is to use advanced data privacy tools like differential privacy. A favorite of organizations like Apple, differential privacy limits your data analysts’ access to summaries of data, such as averages. And by injecting noise into those summaries, differential privacy creates provable guarantees of privacy and prevents scenarios where malicious parties can reverse-engineer sensitive data. But because differential privacy uses summaries, instead of completely masking the data, companies can still draw meaning from it and improve their services.
With tools like differential privacy, organizations move beyond governance patterns where data analysts either gain unrestricted access to sensitive data (think: Uber’s controversial “god view”) or face multiple barriers to data access. Instead, startups can use differential privacy to share and pool data safely, helping them overcome data scarcity. The most agile data governance systems allow startups to use differential privacy without code and the large engineering teams that only incumbents can afford.
Ultimately, better data means better predictions — and happier customers.
Agile data governance cultivates customer loyalty
According to Deloitte, 80% of consumers are more loyal to companies they believe protect their data. Yet far fewer leaders at established, incumbent companies — the respondents of the same survey — believed this to be true. Customers care more about their data than the leaders at incumbent companies think.
This knowledge gap is an opportunity for startups.
Furthermore, big enterprise companies — themselves customers of many startups — say data compliance risks prevent them from working with startups. And rightly so. Over 80% of data incidents are actually caused by errors from insiders, like third party vendors who mishandle sensitive data by sharing it with inappropriate parties. Yet over 68% of companies do not have good systems to prevent these types of errors. In fact, Facebook’s Cambridge Analytica firestorm — and resulting $5 billion fine — was sparked by third party inappropriately sharing personal data with a political consulting firm without user consent.
As a result, many companies — both startups and incumbents — are holding a ticking time bomb of customer attrition.
Agile data governance defuses these risks by simplifying the ethical data practices of understanding, controlling, and monitoring data at all times. With such practices, startups can prevent and correct the mishandling of sensitive data quickly.
Cognoa is a good example of a Third Wave healthcare startup adopting these three practices at a rapid pace. First, it understands where all of its sensitive health data lies by connecting all of its databases. Second, Cognoa can control all connected data sources at once from one point by using a single access-and-control layer, as opposed to relying on data silos. When this happens, employees and third parties can only access and share the sensitive data sources they’re supposed to. Finally, data queries are always monitored, allowing Cognoa to produce audit reports frequently and catch problems before they escalate out of control.
With tools that simplify these three practices, even low-resourced startups can make sure sensitive data is tightly controlled at all times to prevent data incidents. Because key workflows are simplified, these same startups can maintain the speed of their data analytics by sharing data safely with the right parties. With better and safer data sharing across functions, startups can develop the insight necessary to cultivate a loyal fan base for the long-term.
Agile data governance can help startups survive inevitable data incidents
In 2018, Panera mistakenly shared 37 million customer records on its website and took 8 months to respond. Panera’s data incident is a taste of what’s to come: Gartner predicts that 50% of business ethics violations will stem from data incidents like these. In the era of “Big Data,” billion dollar incumbents without agile data governance will likely continue to violate data ethics.
Given the inevitability of such incidents, startups that adopt agile data governance will likely be the most resilient companies of the future.
Case in point: Harvard Business Review reports that the stock prices of companies without strong data governance practices drop 150% more than companies that do adopt strong practices. Despite this difference, only 10% of Fortune 500 companies actually employ the data transparency principle identified in the report. Practices include clearly disclosing data practices and giving users control over their privacy settings.
Sure, data incidents are becoming more common. But that doesn’t mean startups don’t suffer from them. In fact, up to 60% of startups fold after a cyber attack.
Startups can learn from WebMD, which Deloitte named as one standout in applying data transparency. With a readable privacy policy, customers know how data will be used, helping customers feel comfortable about sharing their data. More informed about the company’s practices, customers are surprised less by incidents. Surprises, BCG found, can reduce consumer spending by one-third. On a self-service platform on WebMD’s site, customers can control their privacy settings and how to share their data, further cultivating trust.
Self-service tools like WebMD’s are part of agile data governance. These tools allow startups to simplify manual processes, like responding to customer requests to control their data. Instead, startups can focus on safely delivering value to their customers.
Get ahead of the curve
For so long, the public seemed to care less about their data.
That’s changing. Senior executives at major companies have been publicly interrogated for not taking data governance seriously. Some, like Facebook and Apple, are even claiming to lead with privacy. Ultimately, data privacy risks significantly rise in Third Wave industries where errors can alter access to key basic needs, such as healthcare, housing, and transportation.
While many incumbents have well-resourced legal and compliance departments, agile data governance goes beyond the “risk mitigation” missions of those functions. Agile governance means that time-consuming and error-prone workflows are streamlined so that companies serve their customers more quickly and safely.
Case in point: even after being advised by an army of lawyers, Zuckerberg’s 30,000-word Senate testimony about Cambridge Analytica included “ethics” only once, and it excluded “data governance” completely.
And even if companies do have legal departments, most don’t make their commitment to governance clear. Less than 15% of consumers say they know which companies protect their data the best. Startups can take advantage of this knowledge gap by adopting agile data governance and educate their customers about how to protect themselves in the risky world of the Third Wave.
Some incumbents may always be safe. But those in highly-regulated Third Wave industries, such as automotive, healthcare, and telecom should be worried; customers trust these incumbents the least. Startups that adopt agile data governance, however, will be trusted the most, and the time to act is now.
Powered by WPeMatico
FTC, Justice Dept. takes coordinated action against robocallers
Federal authorities have announced its latest crackdown on illegal robocallers — taking close to a hundred actions against several companies and individuals blamed for the recent barrage of spam calls.
In the so-called “Operation Call It Quits,” the Federal Trade Commission brought four cases — two filed on its behalf by the Justice Department — and three settlements in cases said to be responsible for making more than a billion illegal robocalls.
Several state and local authorities also brought actions as part of the operation, officials said.
Each year, billions of automatically dialed or spoofed phone calls trick millions into picking up the phone. An annoyance at least, at worse it tricks unsuspecting victims into turning over cash or buying fake or misleading products. So far, the FTC has fined companies more than $200 million but only collected less than 0.01% of the fines because of the agency’s limited enforcement powers.
In this new wave of action, the FTC said it will send a strong signal to the robocalling industry.
Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said Americans are “fed up” with the billions of robocalls received every year. “Today’s joint effort shows that combatting this scourge remains a top priority for law enforcement agencies around the nation,” he said.
It’s the second time the FTC has acted in as many months. In May, the agency also took action against four companies accused of making “billions” of robocalls.
The FTC said its latest action brings the number of robocall violators up to 145.
Several of the cases involved shuttering operations that offer consumers “bogus” credit card interest rate reduction services, which the FTC said specifically targeted seniors. Other cases involved the use of illegal robocalls to promote money-making schemes.
Another cases included actions against Lifewatch, a company pitching medical alert systems, which the FTC contended uses spoofed caller ID information to trick victims into picking up the phone. The company settled for $25.3 million. Meanwhile, Redwood Scientific settled for $18.2 million, suspended due to the inability for defendant Danielle Cadiz to pay, for “deceptively” marketing dentistry products, according to the FTC’s complaint.
The robocalling epidemic has caught the attention of the Federal Communications Commission, which regulates the telecoms and internet industries. Last month, its commissioners proposed a new rule that would make it easier for carriers to block robocalls.
Powered by WPeMatico
SoFi launches gig-focused ETF
SoFi is one of the leading fintech startups to emerge from San Francisco and breach the financial markets. Originally started as a way to better finance student debt, it has since expanded to include products targeted at personal loans and home loans.
Today, the company announced a new exchange-traded fund (ETF) product focused on the gig economy. GIGE, which trades on Nasdaq, is an actively managed fund advised by Toroso Investments that allows investors to capitalize on this hot sector of the economy. Toroso offers a range of services around creating and managing ETFs.
The company also announced the creation of an ETF focused on high-growth stocks. That ETF, which trades as SFYF on the NYSE, is designed to identify and capture the growth of the top 50 of the 1,000 largest publicly traded issues.
It has formerly used that growth focus to create two ETFs, targeting 500 high-growth companies under the trading name SFY and a product it called “SoFi Next 500 ETF,” which trades under SFYX, both of which have no management fees.
SoFi’s SFYF fund is composed specifically of public companies that show the strongest growth on three key metrics: top-line revenue growth, net income growth and forward-looking consensus estimates of net income growth.
For its GIGE fund, SoFi defines the “gig economy” as a group of companies that “embrace and support the workforce in which employment is based around short-term engagements that allow for flexibility and personal freedom and temporary contracts.”
SoFi’s new funds add value to investors primarily through providing 1) access to industry disruptors at 2) an earlier-stage point in their growth cycle.
In recent years, more and more investors have been trying to get a piece of the hottest tech companies earlier with a growing number of traditional institutional investors now dipping their toes into startup and tech investing.
Furthermore, a number of platforms and funds were launched to support the high-demand for access to some of the top public and private companies and major disruptive trends, including funds focused on themes such as artificial intelligence, big data, cybersecurity or the next manufacturing revolution.
SoFi argues that its GIGE fund offers compelling value due to the speed at which it offers investors access to new equity issues, as the fund is structured so that most post-IPO companies can join the GIGE within 31 days of IPO, relative to the 60-90 days traditional passive funds that often have to wait to add a newly IPO’d company.
Additionally, because SoFi’s GIGE fund is actively managed, SoFi is also offering fund investors access to experienced asset managers and an alternative to algorithmic, machine-led passive funds that have increasingly dominated the capital markets.
“Our members are excited by high-growth and gig economy companies because these companies are in many cases part of their lives,” said SoFi CEO Anthony Noto in a press release. “We’re giving our members a way to get started investing by buying what they know and investing in themselves.”
The announcement is the company’s latest step in its attempt to further establish itself under the new guard of CEO Anthony Noto, formerly of Goldman Sachs, who replaced former head Michael Cagney in 2018, as the company looks to move further away from dark clouds in its past established by lawsuits, sexual harassment claims, FTC penalties and chunky rounds of layoffs. In the past week, the company also announced that CMO and former COO, Joanne Bradford, will be leaving the company at the end of May, though the split was reportedly long-planned and amicable.
The launch of SoFi’s new investment products also comes just weeks after the company was reportedly in discussions to raise $500 million from the Qatar Investment Authority.
To date, SoFi has raised roughly $2 billion in venture capital, according to data from Crunchbase, with backing from a number of Silicon Valley and Wall Street heavy hitters, including SoftBank, Silver Lake Partners, Morgan Stanley, Founders Fund and a host of others.
Already at a valuation of nearly $4.5 billion, according to PitchBook, SoFi appears well on its way to an eventual IPO. Noto, however, noted in a recent interview with Yahoo Finance that “an IPO is not a priority at this point” for SoFi as the company remains focused on executing on a high-quality sustainable growth path.
Powered by WPeMatico
FTC tells ISPs to disclose exactly what information they collect on users and what it’s for
The Federal Trade Commission, in what could be considered a prelude to new regulatory action, has issued an order to several major internet service providers requiring them to share every detail of their data collection practices. The information could expose patterns of abuse or otherwise troubling data use against which the FTC — or states — may want to take action.
The letters requesting info (detailed below) went to Comcast, Google, T-Mobile and both the fixed and wireless sub-companies of Verizon and AT&T. These “represent a range of large and small ISPs, as well as fixed and mobile Internet providers,” an FTC spokesperson said. I’m not sure which is meant to be the small one, but welcome any information the agency can extract from any of them.
Since the Federal Communications Commission abdicated its role in enforcing consumer privacy at these ISPs when it and Congress allowed the Broadband Privacy Rule to be overturned, others have taken up the torch, notably California and even individual cities like Seattle. But for enterprises spanning the nation, national-level oversight is preferable to a patchwork approach, and so it may be that the FTC is preparing to take a stronger stance.
To be clear, the FTC already has consumer protection rules in place and could already go after an internet provider if it were found to be abusing the privacy of its users — you know, selling their location to anyone who asks or the like. (Still no action there, by the way.)
But the evolving media and telecom landscape, in which we see enormous companies devouring one another to best provide as many complementary services as possible, requires constant reevaluation. As the agency writes in a press release:
The FTC is initiating this study to better understand Internet service providers’ privacy practices in light of the evolution of telecommunications companies into vertically integrated platforms that also provide advertising-supported content.
Although the FTC is always extremely careful with its words, this statement gives a good idea of what they’re concerned about. If Verizon (our parent company’s parent company) wants to offer not just the connection you get on your phone, but the media you request, the ads you are served and the tracking you never heard of, it needs to show that these businesses are not somehow shirking rules behind the scenes.
For instance, if Verizon Wireless says it doesn’t collect or share information about what sites you visit, but the mysterious VZ Snooping Co (fictitious, I should add) scoops all that up and then sells it for peanuts to its sister company, that could amount to a deceptive practice. Of course it’s rarely that simple (though don’t rule it out), but the only way to be sure is to comprehensively question everyone involved and carefully compare the answers with real-world practices.
How else would we catch shady zero-rating practices, zombie cookies, backdoor deals or lip service to existing privacy laws? It takes a lot of poring over data and complaints by the detail-oriented folks at these regulatory bodies to find things out.
To that end, the letters to ISPs ask for a whole boatload of information on companies’ data practices. Here’s a summary:
- Categories of personal information collected about consumers or devices, including purposes, methods and sources of collection
- how the data has been or is being used
- third parties that provide or are provided this data and what limitations are imposed thereupon
- how such data is combined with other types of information and how long it is retained
- internal policies and practices limiting access to this information by employees or service providers
- any privacy assessments done to evaluate associated risks and policies
- how data is aggregated, anonymized or deidentified (and how those terms are defined)
- how aggregated data is used, shared, etc.
- “any data maps, inventories, or other charts, schematics, or graphic depictions” of information collection and storage
- total number of consumers who have “visited or otherwise viewed or interacted with” the privacy policy
- whether consumers are given any choice in collection and retention of data, and what the default choices are
- total number and percentage of users that have exercised such a choice, and what choices they made
- whether consumers are incentivized to (or threatened into) opt into data collection and how those programs work
- any process for allowing consumers to “access, correct, or delete” their personal information
- data deletion and retention policies for such information
Substantial, right?
Needless to say, some of this information may not be particularly flattering to ISPs. If only 1 percent of consumers have ever chosen to share their information, for instance, that reflects badly on sharing it by default. And if data capable of being combined across categories or services to de-anonymize it, even potentially, that’s another major concern.
The FTC representative declined to comment on whether there would be any collaboration with the FCC on this endeavor, whether it was preliminary to any other action and whether it can or will independently verify the information provided by the ISPs contacted. That’s an important point, considering how poorly these same companies represented their coverage data to the FCC for its yearly broadband deployment report. A reality check would be welcome.
You can read the rest of the letter here (PDF).
Powered by WPeMatico
Apple is selling the iPhone 7 and iPhone 8 in Germany again
Two older iPhone models are back on sale in Apple stores in Germany — but only with Qualcomm chips inside.
The iPhone maker was forced to pull the iPhone 7 and iPhone 8 models from shelves in its online shop and physical stores in the country last month, after chipmaker Qualcomm posted security bonds to enforce a December court injunction it secured via patent litigation.
Apple told Reuters it had “no choice” but to stop using some Intel chips for handsets to be sold in Germany. “Qualcomm is attempting to use injunctions against our products to try to get Apple to succumb to their extortionist demands,” it said in a statement provided to the news agency.
Apple and Qualcomm have been embroiled in an increasingly bitter global legal battle around patents and licensing terms for several years.
The litigation follows Cupertino’s move away from using only Qualcomm’s chips in iPhones after, in 2016, Apple began sourcing modem chips from rival Intel — dropping Qualcomm chips entirely for last year’s iPhone models. Though still using some Qualcomm chips for older iPhone models, as it will now for iPhone 7 and iPhone 8 units headed to Germany.
For these handsets Apple is swapping out Intel modems that contain chips from Qorvo which are subject to the local patent litigation injunction. (The litigation relates to a patented smartphone power management technology.)
Hence Apple’s Germany webstore is once again listing the two older iPhone models for sale…
Newer iPhones containing Intel chips remain on sale in Germany because they do not containing the same components subject to the patent injunction.
“Intel’s modem products are not involved in this lawsuit and are not subject to this or any other injunction,” Intel’s general counsel, Steven Rodgers, said in a statement to Reuters.
While Apple’s decision to restock its shelves with Qualcomm-only iPhone 7s and 8s represents a momentary victory for Qualcomm, a separate German court tossed another of its patent suits against Apple last month — dismissing it as groundless. (Qualcomm said it would appeal.)
The chipmaker has also been pursing patent litigation against Apple in China, and in December Apple appealed a preliminary injunction banning the import and sales of old iPhone models in the country.
At the same time, Qualcomm and Apple are both waiting the result of an antitrust trial brought against Qualcomm’s licensing terms in the U.S.
Two years ago the FTC filed charges against Qualcomm, accusing the chipmaker of operating a monopoly and forcing exclusivity from Apple while charging “excessive” licensing fees for standards-essential patents.
The case was heard last month and is pending a verdict or settlement.
Powered by WPeMatico
German court tosses Qualcomm’s latest iPhone patent suit
Qualcomm has had a patent lawsuit against Apple dismissed by a court in Mannheim, Germany, as groundless (via Reuters).
The chipmaker had argued Intel -powered iPhones infringed a transistor switch patent it holds. But in an initial verbal decision the court disagreed. Qualcomm has said it will appeal.
In a statement, Don Rosenberg, Qualcomm’s executive VP and general counsel, said: “Apple has a history of infringing our patents. Only last month the Munich Regional Court affirmed the value of another of Qualcomm’s cutting-edge patents against Apple’s infringement and ordered a ban on the import and sale of impacted iPhones in Germany. That decision followed a Court-ordered ban on patent-infringing iPhones in China as well as recognition by an ITC judge that Apple is infringing Qualcomm’s IP. The Mannheim court interpreted one aspect of our patent very narrowly, saying that because a voltage inside a part of an iPhone wasn’t constant the patent wasn’t infringed. We strongly disagree and will appeal.”
We’ve reached out to Apple for comment. Update: The company told us: “We are happy with the decision and thank the court for their time and diligence. We regret Qualcomm’s use of the court to divert attention from their illegal behavior that is the subject of multiple lawsuits and proceedings around the world.”
The pair have been embroiled in an increasingly bitter and global legal battle in recent years, as Apple has shifted away from using Qualcomm chips in its devices.
Two years ago the FTC also filed charges against the chipmaker accusing it of anticompetitive tactics in an attempt to maintain a monopoly (Apple is officially cited in the complaint). That trial began early this month.
Cupertino has also filed a billion-dollar royalty lawsuit accusing Qualcomm of charging for patents “they have nothing to do with”.
While the latest court decision in Mannheim has gone in Apple’s favor, a separate ruling in Germany late last year went Qualcomm’s way. And earlier this month Apple was forced to withdraw the iPhone 7 and 8 from its retail stores in Germany, after Qualcomm posted €1.34BN in security bonds to enforce the December court decision — which related to a power management patent.
Although the affected iPhone models remain on sale in Germany via resellers. Apple is also appealing.
Qualcomm also recently secured a preliminary injunction banning the import and sales of some older iPhone models in China. Again, Apple is appealing.
Powered by WPeMatico
FTC files false advertising lawsuit against VW
This morning, the Federal Trade Commission filed a lawsuit against Volkswagen Group of America, charging that it “deceived customers with the advertising campaign it used to promote its supposedly ‘clean diesel’ VWs and Audis,” according to the FTC press release. As I’m sure you recall, these are the vehicles that were caught cheating on emissions tests in… Read More
Powered by WPeMatico