Mar 29, 2019

Axios Login

Shockingly, it's Friday already. How did that happen?

1 big thing: Big Tech profits far outweigh fines
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Data: Axios research; Chart: Naema Ahmed/Axios

Last week's news of the European Union's latest antitrust fine levied against Google fattened the already multibillion-dollar tally against the search giant. But like the previous penalties, there aren't many signs the new fine will cause Google to make major changes.

The bottom line: As long as Google's annual profits are in the tens of billions of dollars, fines that are smaller by a factor of ten may look more like a cost of doing business to the company than a prod to change course.

Details: Google has been fined a total of $9.3 billion by the EU for antitrust violations since 2017. These include...

  • $1.7 billion last week for violations in Google's dominance of the digital ad market.
  • $4.9 billion in 2018 for violations relating to Google's Android operating system and App Store.
  • $2.7 billion in 2017 for violations in its operation of its online shopping service.
  • Google has also faced a series of fines from individual EU nations for amounts that are orders of magnitude smaller than those listed above.

Meanwhile, total net income for Alphabet, Google's corporate parent (which derives nearly all of its income from Google), was $63 billion for the 3-year period from 2016–2018.

Google hasn't actually paid any of these big fines yet. It appealed the first two and is still deciding what to do about the most recent one.

Google says it takes the fines seriously and has already made important changes.

  • After last week's fine, Google SVP for global affairs Kent Walker said, "We’ve always agreed that healthy, thriving markets are in everyone’s interest. We've already made a wide range of changes to our products to address the Commission's concerns. Over the next few months, we’ll be making further updates to give more visibility to rivals in Europe."

Facebook hasn't yet faced fines on the same scale, though it faces possible penalties in the billions from both U.S. and European authorities relating to privacy violations. Its total net income in 2016–2018 was $48 billion.

Yes, but: Even though fines don't put much of a dent in these companies' balance sheets, the resulting public relations hit is substantial for brands' reputation, said Jay Cline, privacy leader at PriceWaterhouseCoopers.

  • "The nature of fining gets at the heart of consumer trust in what the company does and can start to affect the narrative," Cline said.
  • The vast majority of fines related to violating GDPR, the EU's relatively new privacy law, have been under $1 million, Cline added. "Most multinationals can absorb a fine like that."

Reality check: "There's a huge backlog of investigations that are expected in spring and summer," Cline said. "There are larger fines on the horizon."

2. HUD charges Facebook with housing ad discrimination

Photo: Jaap Arriens/NurPhoto via Getty Images

The Department of Housing and Urban Development filed charges against Facebook Thursday for violating the Fair Housing Act by encouraging, enabling and causing housing discrimination through the company’s advertising platform, Axios' Sara Fischer reports.

Why it matters: Facebook just reached a settlement with the ACLU and other advocacy groups around this same issue, so it's surprising that the tech giant did not also reach an agreement with HUD.

Be smart: According to sources familiar with talks between Facebook and HUD, the two were close to settling.

  • They believe HUD’s move could be driven by the agency’s desire to show it’s going on the offense before HUD Secretary Ben Carson heads to Capitol Hill next week for routine meetings with the House and Senate Appropriations Committees.

Details: HUD alleges that Facebook unlawfully discriminates against users by restricting who can view housing-related ads on Facebook’s platforms and across the internet.

  • It also alleges that Facebook mines extensive data about its users "and then uses those data to determine which of its users view housing-related ads based, in part, on these protected characteristics."
  • The charge also claims that Facebook groups users who have similar attributes and behaviors — unrelated to housing — via machine learning and presumes a shared interest or lack of interest in housing-related advertisements.
  • HUD says this process functions "just like an advertiser who intentionally targets or excludes users based on their protected class."

Between the lines: According to a Facebook spokesperson, talks broke down when HUD "insisted on access to sensitive information — like user data — without adequate safeguards."

Go deeper: Read Sara's full story here.

3. Google pulls "conversion therapy" app

Google is pulling a controversial app that LGBTQ rights groups say engages in a form of conversion therapy, joining Apple, Amazon and Microsoft, all of which banned the app months ago, Axios' Ina Fried reports.

Why it matters: Google had refused to ban the app from Living Hope Ministries, saying it didn't clearly violate its Play Store terms of service.

Context: The change comes less than a day after Human Rights Campaign suspended Google's rating in its influential Corporate Equality Index. Axios first reported last week that HRC was considering such a move. Google's score in the index, released earlier Thursday, will now be restored.

  • The app, which had been downloaded at least 1,000 times, offered testimonials and articles and includes sections for men, women, young people and parents.
  • More than 140,000 people had signed a petition calling on Google to ban the app. A separate petition, calling on Apple to reinstate the app, has 24 signatures.
4. Lyft IPO takes off

Today is IPO day for Lyft. The ride-hail company priced its shares late yesterday at $72.

By the numbers: That pricing means Lyft will raise $2.34 billion in its initial public offering, after offering more shares than expected and pricing them at the top of their upwardly-revised range, Axios' Dan Primack reports.

  • This gives Lyft an initial market cap of around $20.5 billion and a fully-diluted value of nearly $30 billion, which is approximately double Lyft's last valuation in the private markets.

Why it matters: Lyft is expected to be the first in a series of IPOs from highly-valued tech startups, and could help set multiples for where Uber is valued next month.

Go deeper: Axios' Dion Rabouin explains how investor FOMO drove Lyft's valuation sky high.

5. U.K. overseers slam Huawei

A U.K. body set up to evaluate the security of Huawei telecommunications equipment has "not yet seen anything to give it confidence in Huawei’s capacity to successfully" address cybersecurity flaws, according to a blistering report released Thursday, Axios' Joe Uchill writes.

Why it matters: The U.S. is currently pushing foreign allies to avoid the use of Huawei 5G products due to security concerns. While the U.K. report did not find any intentional security flaws intended for use in espionage — which the U.S. has been warning against — it did find systemic unintentional security flaws.

Our thought bubble: The U.K. has been on the fence about formally banning Huawei products, saying it might be able to mitigate espionage attempts using technology, but this report would be a reasonable excuse for Her Majesty's Government to take up the U.S. line.

Background: The Huawei Cyber Security Evaluation Centre was set up by Britain in 2010 to evaluate the firm's wares as U.K. telecom companies purchased its equipment.

  • The body had been attempting to work with Huawei to close security gaps in all of its products — not just 5G. But this report found Huawei was making insufficient progress.
  • It "reveals serious and systematic defects in Huawei’s software engineering and cybersecurity competence," claims the report.

Go deeper: Why Huawei is the United States' 5G boogeyman

6. Take Note

Trading places


  • Facebook expands its ad transparency library. (TechCrunch)
  • Verizon offers customers a free version of its spam/robocall filter. (The Verge)
  • IDC forecasts that worldwide shipments of augmented reality and virtual reality headsets will reach 8.9 million units in 2019, up 54.1% from the previous year. (IDC)
7. After you Login

Here is a water-slide for ducklings, and yes, you should make way for them.