It's already a campaign issue for the next presidential election: should we, or should we not, break up the big tech companies? Elizabeth Warren says yes. Beto O'Rourke wants "stronger regulations." Kamala Harris would rather talk about privacy. Everyone else—even Donald Trump—generally agrees that something needs to be done. But what?
There are plenty of law professors, think tanks and political consultants eager to share their ideas, but none of them are asking the right questions. In the case of Facebook, distractions are understandable when the company arguably has the worst track record of any major technology company in history (and will soon pay a record, if toothless, $5 billion fine). Yet the unspoken issue at the center of it all remains: although Wall Street, Congress and the Federal Trade Commission haven't figured it out, Mark is running a Ponzi scheme.
At this point it should come as no surprise to anyone paying attention that Mark is a bad-faith actor. He has no appreciation for the rule of law, or the role of a free press, and he has a dangerous tendency to view himself as infallible. After discovering a gaping security flaw in his product that revealed bulk information about friends of friends, exactly like Cambridge Analytica, I warned Mark in writing about the way his sloppy code would inevitably lead him to cross paths with the FTC and cause massive privacy and security concerns—in April 2005. His response: problems with the "Mark Zuckerberg production" were actually someone else's responsibility and "not worth arguing about."
Clearly, Mark can no longer argue that his decisions as Facebook's CEO are immaterial (though he has tried). Many have already lost their lives, whether through avoidable suicides or avoidable genocidal acts in Myanmar, due to his string of increasingly tone-deaf and spectacularly dishonest decisions. Now, fifteen years and approximately as many false apologizes after my classmate started a grand social experiment that first captivated the media, then locked it in a profitless box, and then played a major supporting role in bringing fascism to America, the general consensus is that the best way to handle Mark and his tech brethren is through the Sherman Anti-Trust Act. But the consensus is wrong, based on a mountain of misapprehensions.
In a nutshell, the argument in favor of anti-trust action is that in the midst of the longest economic expansion in U.S. history, it's the Progressive Era all over again. A recent New York Times op-ed penned by Mark's former roommate and co-founder, Chris Hughes, made essentially this point, relying heavily on input from the Roosevelt Institute. The Open Markets Institute agrees. In a talk at Harvard Law School, Matt Stoller argued that Facebook, Google and Amazon were "born as monopolists."
It's a compelling story, so long as one is willing to ignore the reality on the ground. For one thing, software products are not railroads, which require significant physical capital and labor to establish. Were he determined to do so, it would take Mark a few weeks to re-build Instagram and WhatsApp, and there really isn't any way the government could stop him. For another, I know that on this particular issue, Stoller is incorrect, because I was there when The Facebook was born on my hard drive on September 19, 2003, in Lowell House. It hardly resembled a monopoly. Monopolies are what happen as the result of prolonged neglect by law enforcement. They're not born; they're nourished by years and years of perverse incentives.
The biggest problem with treating Facebook as a monopoly, as opposed to the byproduct of what Jesse Eisenger calls "The Chickenshit Club," is that it wrongly affirms Mark's infallibility and fails to see through him and his scheme, let alone the reality that he's not even in control anymore because no one is. On October 26, 2012, Mark's friend and lieutenant, Sam Lessin, wrote, "we are running out of humans (and have run-out of valuable humans from an advertiser perspective)." At the time, it was far from clear that Facebook even had a viable business model, and according to Frontline, Sheryl Sandberg was panicking due to the company's poor revenue numbers.
How times have changed; now there's a different source of panic. Facebook now has a market capitalization approaching $600 billion, making it nominally one of the most valuable companies on earth. It's a true business miracle: a company that was out of users in 2012 managed to find a wellspring of nearly infinite and sustained growth that has lasted it, so far, half of the way through 2019. So what is that magical ingredient, that secret sauce, that "genius" trade secret, that turned an over-funded money-losing startup into one of America's greatest business success stories? It's one that Bernie Madoff would recognize instantly: fraud, in the form of fake accounts.
Old money goes out, and new money comes in to replace it. That's how a traditional Ponzi scheme works. Madoff kept his going for decades, managing to attain the rank of Chairman of the NASDAQ while he was at it. Zuckerberg's version is slightly different, but only slightly: old users leave after getting bored, disgusted and distrustful, and new users come in to replace them. Except that as Sam Lessin told us, the "new users" part of the equation was already getting to be a problem in 2012. To balance it out and keep "growth" on the rise, all Facebook had to do was turn a blind eye. And did it ever.
In Singer v. Facebook, Inc.—a lawsuit filed in the Northern District of California alleging that Facebook has been telling advertisers that it can "reach" more people than actually exist in basically every major metropolitan area—the plaintiffs quote former Facebook employees, understandably identified only as Confidential Witnesses, as stating that Facebook's "Potential Reach" statistic was a "made-up PR number" and "fluff." Also, that "those who were responsible for ensuring the accuracy ‘did not give a shit.'" Another individual, "a former Operations Contractor with Facebook, stated that Facebook was not concerned with stopping duplicate or fake accounts."
That's probably because according to its last investor slide deck and basic subtraction, Facebook is not growing anymore in the United States, with zero million new accounts in Q1 2019, and only four million new accounts since Q1 2017. That leaves the rest of the world, where Facebook is growing fastest "in India, Indonesia, and the Philippines," according to Facebook CFO David Wehner. Wehner didn't mention the fine print on page 18 of the slide deck, which highlights the Philippines, Indonesia and Vietnam as countries where there are "meaningfully higher" percentages of, and "episodic spikes" in, fake accounts. In other words, Facebook is growing the fastest in the locations worldwide where one finds the most fraud. In other other words, Facebook isn't growing anymore at all—it's shrinking. Even India, Indonesia and the Philippines don't register as many searches for Facebook as they used to. Many of the "new" users on Instagram are actually old users from the core platform looking to escape the deluge of fakery.
The last time Mark suggested that Facebook's growth heyday might be behind it, in July 2018, the stock took a nosedive that ended up being the single largest one-day fall of any company's stock in the history of the United States. In about an hour, it plunged 20% from around $220 per share to about $165. Needless to day, the loss of about $120 billion in market capitalization in an hour provided a sufficient disincentive for Mark to avoid a repeat performance.
Having narrowly escaped the ire of Wall Street, Mark knows he cannot get off the growth treadmill he set in motion years ago. The only solution: lying to investors about growth in an attempt to convince them that everything is fine. Yet signs that Mark's fake account problem is no different than Madoff's fake account statement problem are everywhere. Google Trends shows worldwide "Facebook" queries down 80% from their November 2012 peak. (Instagram doesn't even come close to making up for the loss.) Mobile metrics measuring use of the Facebook mobile app are down. And the company's own disclosures about fake accounts stand out mostly for their internal inconsistency—one set of numbers, measured in percentages, is disclosed to the SEC, while another, with absolute figures, appears on its "transparency portal." While they reveal a problem escalating at an alarming rate and are constantly being revised upward—Facebook claims that false accounts are at 5% and duplicate accounts at 11%, up from 1% and 6% respectively in Q2 2017—they don't measure quite the same things, and are impossible to reconcile. At the end of 2017, Facebook decided to stop releasing those percentages on a quarterly basis, opting for an annual basis instead. Out of sight, out of mind.
One could argue that SEC disclosures are subject to strict regulations under the Securities Exchange Act and that Facebook would never be so bold as to lie to investors in black and white. That's true: it qualifies its fake account disclosures with the quizzical legal phrase "significant judgment" and it chose the color orange instead of black (insert Netflix joke here) for its transparency portal graph disclaimers that read, "These metrics are in development." And one could further argue that the transparency portal metrics are reviewed by a team of academics, known as the Data Transparency Advisory Group (DTAG), who are supposed to vouch for their validity. But the DTAG academics—not one of whom is a statistician, despite Facebook's direct claim to the contrary, now erased—fully admit that they are paid by Facebook, and even after months of hard work, their final report released in April mentioned fake accounts only three times, and all three were in passing. On the accuracy or validity of Facebook's fake account numbers, the DTAG oddly had absolutely nothing to say.
What Facebook does say is this: its measurements, the ones subject to "significant judgment," are taken from an undisclosed "limited sample of accounts." How limited? That doesn't matter, because "[w]e believe fake accounts are measured correctly within the limitations to our measurement systems" and "reporting fake accounts…may be a bad way to look at things." And how many fake accounts did Facebook report being created in Q2 2019? Only 2.2 billion, with a "B," which is approximately the same as the number of active users Facebook would like us to believe that it has. A comprehensive look back at Facebook's disclosures suggests that of the company's 12 billion total accounts ever created, about 10 billion are fake. And as many as 1 billion are probably active, if not more. (Facebook says that this estimate is "not based on any facts," but much like the false statistics it provided to advertisers on video viewership, that too is a lie.)
So, fake accounts may be a bad way to look at things, as Facebook suggests—or they may be the key to the largest corporate fraud in history. Advertisers pay Facebook on the assumption that the people viewing and clicking their ads are real. But that's often not the case, Facebook has absolutely no incentive to solve the problem, it's already in court over it, and its former employees are talking. From Mark's vantage point, it's raining free money. All he has to do to get advertisers to spend is convince the world that Facebook is huge and it's only getting huger. No one in the media, let alone Congress, dares to ask potentially embarrassing questions, and few understand the minutiae of real-time pricing auctions, cookies and user disambiguation anyway. Everyone would rather talk about the company's dedication to "innovation" and the laughably remote chance that Libra, a needlessly complex pseudo-cryptocurrency system will disrupt central banking. In fact, Libra is best described as Facebook's Business Model Plan C (Plan A having been "no privacy at all" and Plan B being "encrypt everything"), which may actually be necessary as the scheme is starting to unravel.
Mark is smart, but he's never been smart enough to listen to those with experience. Instead, he has prioritized growth at any cost, pulling all of the control rods out of the reactor to achieve it, and now that those costs have caught up with him—namely, genocide, a role in putting a fascist, white supremacist in the White House, and severe reputational damage—he literally has no idea what to do. His usual go-to acronyms—VR? AI?—aren't quite cutting it, and much like Chernobyl, the resulting fallout is everywhere, impossible to clean up, and there are dead bodies on the ground. Even his co-founder can't fully support him anymore, though Chris did still obsequiously refer to Mark as a "good, kind person" engaged in "nothing more nefarious than the virtuous hustle of a talented entrepreneur."
That's obviously false. Mark is not a good, kind person, as I have written for years. The only hustle he is engaged in is the usual kind: the fraudulent kind. And if I'm wrong about any or all of this, and Facebook releases the data and methodology it is using to reach the conclusions that it has about the strength of its platform, then I will gladly admit that I'm wrong.
But I'm not wrong. Facebook is a real product, but like Enron, it's also a scam, now the largest corporate scandal ever. It won't release its data about the 2016 election, about fake accounts, or about anything material—and because he knows it's a scam, Mark won't agree to testify before the British parliament in a way that could require him to actually answer any substantive questions, as I did in June. And because Facebook is also a component of the S&P 500, countless people have an incentive to maintain the status quo.
So should we break up the tech companies and Facebook in particular? Would it have helped to separate Madoff Securities LLC into one company per floor, or split up Enron by division? Probably not, but talking about it is Facebook's dream come true. Because the question we should really be discussing is "how many years should Mark Zuckerberg and Sheryl Sandberg ultimately serve in prison?"