January 11, 2011

The Globe Theater is said to have held, if not seated, up to 3,000 spectators for a few hours at a time. Mark Zuckerberg's Globe is virtually the whole wide earth, just as its name calls for, and the premiere and derniere of Pressure for Pressure, his latest play, is forecast to last a few months.

"In 1964, [US] regulators started requiring companies with more than 499 shareholders to publicly report their financial results", Azam Ahmed reminds us (*). This limit has put a growing pressure on Facebook, as it fuels its rapid expansion with generous stock options and private deals,

Fast paced, the first act had all the marks of a roaring success. "Goldman Sachs [has] invested $450 million in Facebook in a deal that valued the company at $50 billion", Peter Lattman and Miguel Helft report (**). What mattered more to the plot however is that "the firm was also raising about $1.5 billion from its wealthy clients through a special-purpose vehicle".

Since Enron's demise (1), such vehicles have been found to have a singular purpose, i.e. to break the law with impunity. Azam Ahmed explains, "through a special purpose vehicle, the firm could potentially pool money from thousands of wealthy clients and still be considered one investor".

What better for drama than the tension between the spirit and the letter of the law in the clever hands of highly paid counsel doing a rogue's bidding?

In the Bard's manner, Act One begged some comic relief. "There is a delicious irony in the reluctance of Facebook to go public. Mark Zuckerberg may not care for your privacy but it seems he can see some advantages to his own". Robert Shrimsley's facetious riff deserves applause (***).

Isn't sharing for credulous little people? Noble by brand, corporations rightly consider information their most precious asset. Read Jeremy Lemer on how "the online travel agencies [...] have accused American [Airlines] of undermining consumer choice and transparency and by (sic) making it more difficult for travellers to compare prices" (****). American is only practicing the type of obfuscation studied by Glenn and Sarah Fisher Ellison.

And then, a week after the curtain lift, Act One comes to a sudden and anticlimatic end. Buckling under pressure from the SEC or so it seems, "Facebook says that it will begin reporting its financial results by April 2012". Unless "the S.E.C. [which] has contacted Goldman about its private Facebook offering" uncovers some savory emails, many will judge Mark Zuckerberg's production to be a one act failure despite a promising start.

One issue with modern art is how to determine when a performance ends and the next one begins. Mind, Act One is not a play in itself but an introduction. Though a bit static, Act Two further develops the plot. As the Lex column stresses (*****), "as yet, it seems revenues, expected to be $2bn in 2010, are almost all coming from the sort of generic advertising that has not provided much profitability for more conventional media sites".

And so, as the curtain rises on Act Three, we are reminded of the real spring which propells the whole drama. Facebook "will struggle to justify the most recent valuation", a sentence which observers have used as an ominous leitmotiv for more than three years.

The flaw of modern art, however, is not without a corresponding strength. It invites the participation of the public more fully into its own creation. I do not claim access to Mark Zuckerberg's personal folio. No matter, let me unveil my own view of what I suspect to be its gripping, grasping script.

Reader, remember that as we speak, the European Commission (2), the US Federal Trade Commission (3) and the US Department of Commerce (4) are grappling once more the thorny topic of personal data privacy. While such bodies have so far given our data rights but a perfunctory consideration, some hard-nosed civil servants may entertain fancy thoughts about preventing consumers from being shamelessly exploited.

Imagine for instance that European experts woke up from their illusion and realize, together with their American counterparts, companies routinely bundle up their offers with inequitable terms, pleasantly called "clauses léonines" in French (5). What is an opt-in consent if it is required to access a valuable offer which could be delivered without it? What are terms of services which users must accept but a company can change without notice?

As companies aggregate personal data on millions of consumers to boost the rates paid by advertisers for more accurate targeting, what if they were made liable to report each data breach to the consumers concerned and pay them a mandatory compensation? Wouldn't this shift some of the risks data aggregators entice consumers to bear alone today and lessen an obvious conflict of interest?

Were for instance Facebook to pay $100 a user per breach, it would but represent the average value put by its investors on each of its 500 million users. Triple it in case of criminal negligence and its investors will make sure inevitable small leaks do not turn into an uncontrollable BP gusher.

Agencies in charge of consumer protection could even decide to regulate behavioral advertising in view of its harmful potential. Doesn't targeting a car ad to users based on irrelevant, hidden criteria abuse those naive enough to respond and thus disclose say, the nature of their sexual orientation?

In short, what Goldman Sachs offers its Facebook investors is a bet regulators will continue to be complacent on eprivacy related compliancy.

Past this point the plot reveals its mesmerizing logic. Thousands of investors wealthy enough to befriend Goldman Sachs will take a personal interest in winning this bet. Can so many driven, successful, influential people refrain from bringing the full pressure of pronaocracy on whom they see as noxious bureaucrats? Can the latter dare erase $50 billions from those who finance the campaigns of the elected officials who appoint them?

Mirroring the pressure on Facebook of financial regulation in Act One, Act Four will thus display a clever, indirect and unbearable pressure on consumer protection regulators by Facebook rich new friends. Secure in their corrupt but entrenched power, they are not really making bets, they are printing money. Remove the need to "balance between the convenience and the privacy of its users" and Richard Waters correctly predicts "that $50bn price tag will one day look to have been a bargain" (******).

Will the initial, tactical retreat of Act One turn into the final, strategic triumph of Act Five? Will Zuckerberg eclipse Will Shakespeare? You bet!

Philippe Coueignoux

• (*) ........... Goldman-Facebook Deal Raises Debate on Investor Pool, by Azam Ahmed (New York Times) - January 6, 2011
• (**) ......... Facebook To Go Public On Results, by Peter Lattman and Miguel Helft (New York Times) - January 7, 2011
• (***) ....... Mark shares his info only with..., by Robert Shrimsley (Financial Times) - January 6, 2011
• (****) ..... Sabre move escalates American Airlines row, by Jeremy Lemer (Financial Times) - January 6, 2011
• (*****) ... Facebook, by the Lex column (Financial Times) - January 4, 2010
• (******) . Why $50bn may not be that much between friends, by Richard Waters (Financial Times) - January 8, 2010
• (1) see the entry for the Enron scandal in the Wikipedia
• (2) see call for comments by the European Directorate for Justice, link active on January 10, 2011
• (3) see call for comments by the Federal Trade Commission, link active on January 10, 2011
• (4) see call for comments by the Department of Commerce, link active on January 10, 2011, will be archived under year 2010
• (5) for more details on the way of lions, see La Génisse, la chèvre et la brebis en société avec le lion by La Fontaine