Law in the Internet Society


-- By DavidKorvin - 15 Oct 2012


I am currently taking a class at Columbia Law School titled “Investment Banking.” For our first major group assignment we had the task of attempting to value what Facebook would be worth in an initial public offering (IPO). While researching the company we learned that Facebook generates revenue from two sources: [1] advertisements, and [2] payments (fees associated with the purchase of virtual goods on a developer’s application).

One of my primary obligations during this assignment was to describe Facebook’s business model in detail, which required me to spend a lot of time reading Facebook’s prospectus and registration statement (S-1), while also closely examining its financial statements. Furthermore, Facebook constantly claims that its mission statement is “to make the world a more open and connected.”

While writing this report, neither I nor any of my group members ever mentioned Facebook’s relation with the United States government; however, in “Law in the Internet Society” we have spent a lot of time discussing how Facebook acts a surveillance mechanism for the American government. My question is the following: if Facebook plays a surveillance role for the government, how come this revenue stream is not accounted for or acknowledged for in any of Facebook’s public registration statements or financial exhibits? Additionally, if Facebook is not receiving money from the government, what is Facebook’s incentive in establishing and maintaining this relationship?

First, Facebook is merely one of a large number of industry "partners" of whom the national security state has been asking help since its creation in the mid-twentieth century, and in wholly new areas over the last twelve years. That help can be officially voluntary, or officially in compliance with many different forms of compulsory information-gathering. Second, Facebook, like other companies holding vast amounts of personal information and "social graph" data is asked for favors or presented with supposed orders to enforce cooperation by governments all over the world. The United States government would like to know who is asking for what, what is given, and to whom. Third, the intangible benefits of ongoing relationships are called "goodwill," in accounting parlance, and they show up as assets, without having any P&L associated with them. What is the difficulty in recognizing the presence of that goodwill?

Relationship with the Government

After looking at Facebook’s public registration statements, I have been unable to find a source or document that states that the government directly pays Facebook. Further, in all the IPO research we did for Investment Banking project, the research analyst reports never mentioned this relationship between Facebook and the government. Thus, Facebook must be getting some other kind of tangible benefit from the government in order for it to continue providing the government with this type of surveillance information. More specifically, we have discussed how the United States has become the center of the global data mining industry, which has the goal of “knowing everything about everybody everywhere.” However, in order for this type of data mining to be successful, Mark Zuckerberg and Facebook need to be properly incentivized.

Facebook could decide to do surveillance for the government if it needed the government’s help in order to become the dominant player in the social networking market. But this does not seem to be the case as Facebook currently has over one billion users. Another incentive would be if the government made laws that enabled Facebook to be the only social networking platform, but there are other social networks that compete with Facebook, such as Google+. Therefore, though we know that the government uses Facebook, as well as other websites, to data mine, I have trouble seeing what Facebook’s monetary benefit from this arrangement is. Further, if Facebook does receive value from its relationship with the government, than maybe this helps to explain why the market (e.g. investment banks) speculated that Facebook’s shares would be worth much more than their current, actual value.

Why Do I Continue to Have a Facebook Account?

I am somewhat embarrassed to admit that even after taking this class, and knowing what the government does with my information, that I continue to have a Facebook account. I have not posted any new information on it in over a year, yet I go on the website nearly every day, mostly just to see what other people are up to.

Do you not understand that your access to everything there is also monitored and data-mined? Of the four streams (what you publish, what you access, what others publish that relates to you, what others access that relates to you) what you publish is by far the least important. What you publish is mostly just a point on a graph, where the other streams always contain lines of connection, links between people, which are the raw material of intelligence.

Also, going on Facebook is one of the main ways that I am able to plan seeing a group of friends because most of the parties I get invited to are through the Facebook platform. Thus, though I do not really want to be on Facebook, I feel obligated to do so in order to maintain- and perhaps even expand- my current social status. I feel that I would quit Facebook if all of my friends did, but because I know they will not quit Facebook, I know I will continue to have a profile.

This is a conclusion jumped to without technical justification. Replacement social networking software, that provided a way for you to share only with your actual friends, without putting all your information in centralized databases where access to it can be monitored by the central pseudo-friend, needs a migration architecture. You have to be able to move to secure sharing without central monitoring or storage without losing touch with your friends as all of you migrate on different schedules, to different extents, picking up other federated and centralized friends and acquaintances as you go.

Facebook's primary lie to its investors has been the one you are now parroting about yourself: "We're a roach motel; people can come in but then they can't leave because they'd be leaving their friends." Smart people who want to solve this problem aren't likely to have overlooked that part of the story, right? Before you come to the conclusion you reach here, and buy all the political disempowerment involved, you might want to learn a little bit about what other people think who are thinking ahead of you. To begin with, you might want to join somewhat under 37,000 other people at my [[][Freedom in the Cloud]] talk, and then look a little into Diaspora.

Does this mean that I value my ability to maintain friendships more than my privacy? To be honest, I am not sure if I know the answer to this question. However, I do know that because I have never felt the effect of Facebook limiting my privacy, I have never felt the need to quit cold turkey. Additionally, I have trouble seeing how the government could use the content that I choose to put on Facebook to restrict my privacy and freedom in a harmful way in the future. I am aware that the government “knowing everything about everyone everywhere” creates a problem for society as a whole, but I am unclear (perhaps naively) of how it affects me individually.


The last thing I wonder is what would happen if the United States government publicly announced that it used Facebook as a surveillance mechanism? Even if this were the case, I think I would still use Facebook, but I would put even less material on it; for example I would take down all my pictures and be much more selective in deciding who I friend on Facebook. Because I do not egregious things, I do not feel there would be any consequence from this announcement.

However, I do know, if Facebook started charging money, I would stop using it almost immediately.

First, that tells us that Facebook's services can't really be all that valuable to you, because apparently you can adequately replace them without spending any money at all. That's pretty fatal right there. Second, this shows that Facebook must have service neutrality in the mobile networks, which is not what mobile network operators want anywhere in the world. If a non-neutral intermediary starts charging people for touching through their networks (as the big Indian carriers for example plan to do), Facebook is vulnerable to collapse from charges levied through intermediaries. Facebook knows this, but you've overlooked its immense significance.


Webs Webs

r4 - 28 Oct 2012 - 15:39:34 - EbenMoglen
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