Nov 1, 2019

Axios Login

By Ina Fried
Ina Fried

Hope you had a fulfilling and stomachache-free Halloween. I can report it was quite the candy haul for the littlest member of our Angry Birds-clad family.

Situational awareness: Fitness device maker Fitbit announced that Google was acquiring it in a cash deal for roughly $2 billion.

📺 Coming up on "Axios on HBO": We dig into the GOP's looming Texas-sized problem with Reps. Will Hurd and Dan Crenshaw.

Today's Login is 1,292 words, a 5-minute read.

1 big thing: The sovereign state of Facebook

Illustration: Aïda Amer/Axios

Facebook's scale and power have often made it seem more a kind of quasi-sovereign nation than a traditional company — and right now it's looking more like a failing state than a thriving one, Axios' Scott Rosenberg reports.

The big picture: Digital giants like Facebook, Google, Apple and Amazon are making the kinds of decisions about speech, personal safety, political power and financial relationships that have belonged to governments in the past. But at heart they are profit-making corporations with only limited competence in these domains, so their choices frequently go awry.

The big picture: Facebook's operations as a quasi-state span realms such as...

1. Speech: Facebook's mission of connecting people and giving them a voice, combined with its global reach and billion of users, means that it is constantly making decisions about who can say what.

  • The company has moved forward with plans to invent a "Supreme Court"-like independent content moderation appeals board.
  • But in the meantime its evolving rules, particularly around political speech and advertising, have left a wake of confusion and consternation.

2. Money: Earlier this year, Facebook announced with great fanfare that it was launching its own global cryptocurrency, called Libra.

  • But the plans for Libra have quickly run into a regulatory sawmill, and key financial partners have bailed on the project.

3. Safety: Facebook's global footprint means it is constantly dealing with waves of conflict that expose users to harm, and its leadership has little experience or background to head off or mitigate these disasters.

4. Taxes: Facebook doesn't tax us directly for cash, but stockpiles our data to target ads and fine-tunes our "engagement" to consume our attention.

  • As with any tax, if the rates are too high, people rebel.
  • That hasn't yet happened with Facebook, which reports continued user growth. But there are signs that the platform has lost its cachet among the younger users who set online trends.

Be smart: As a quasi-government, Facebook is also an absolute monarchy.

  • Mark Zuckerberg's special shares give him total personal control over the company's decisions.
  • The company also has gobs of cash and tons of revenue to play around with. That lets it pursue efforts like subsidizing financially-strapped news publishers without much hesitation.

Yes, but: Of course, Facebook isn't a real government and doesn't have true sovereign power. It's subject to laws around the world, and in the U.S. many legislators and regulators are eager to remind the company that antitrust laws apply to it.

Our thought bubble: Internet idealists and tech visionaries have long bemoaned the sluggishness and inefficiency of government processes. Their companies have moved at "internet speed" to revamp our lives while the public sector can barely pass a law or solve a problem.

  • One reason governments are more cumbersome is that they actually have to balance tons of competing interests.
  • Companies mostly worry about their shareholders (in Facebook's case, one controlling shareholder). States and their leaders must manage complex webs of stakeholders wielding constantly shifting amounts of political power.
  • Facebook has a rough road ahead because it has no experience with this dance — yet, suddenly, the company must perform it everywhere.
2. China's for-real 5G network launch

Illustration: Sarah Grillo, Rebecca Zisser/Axios

China is making a major move on 5G, with all three major carriers today launching next-generation cell phone service in a number of major cities, including Beijing, Shanghai, Guangzhou, and Hangzhou.

Why it matters: The U.S. may have had a few pockets of 5G service ahead of China, but China is offering a broader launch, with a goal of reaching 50 cities by the end of the year, as Fortune reports.

Between the lines: The global "race" to 5G is not a single event. There are separate battles over which companies will supply the technology, who deploys it first — and, perhaps most importantly, who deploys the key services and apps that take advantage of the technology.

Go deeper: Axios special report on 5G

3. Google fears states' antitrust probe will leak secrets

Google turned to a Texas court for help Thursday, fearing that a multi-state antitrust probe could allow its rivals to gain access to sensitive information, Axios' Margaret Harding McGill reports.

Driving the news: Google sought a protective order to limit the sharing of its confidential information in the states' antitrust investigation.

Details: The company told the court that Texas Attorney General Ken Paxton, who is leading the states' investigation, has refused to agree to give Google notice before it shares documents with third parties or consultants, and won't prohibit its consultants from working for Google competitors now or in the next year.

  • The consultants in contention are Cristina Caffara, an economist with Charles River Associates, and Eugene Burrus, a former Microsoft lawyer.
  • Google said Caffara has worked for its "adversaries on antitrust and competition matters" including News Corp and Microsoft, and also notes that her contract with the Texas AG's office indicates she's not charging for her advice.
  • Burrus worked as Microsoft's assistant general counsel and has represented clients in cases against Google while in private practice, Google said.

What they're saying: Google spokesperson Jose Castaneda noted the company has provided "millions of pages" of documents in regulatory inquiries and is committed to cooperating with the states' probe.

  • "But this is an extraordinarily irregular arrangement and it's only fair to have assurances that our confidential business information won’t be shared with competitors or vocal complainants," Castaneda said in a statement.
  • Marc Rylander, communications director for the Texas AG, said the office offered several proposals to protect Google's information, but in the midst of the negotiations, Google went to court to challenge "our right to employ many of the most knowledgeable in this complex field."
  • "We are not willing to compromise our ability to discharge our obligation to conduct a thorough investigation of Google's conduct," Rylander said in a statement. "The protective order requested by Google would do just that. Google's petition is nothing more than an effort to hamstring the investigation. But Google is not entitled to choose the states' expert or run the states' investigation."

The big picture: Antitrust investigators rely on information from both the targets and their rivals to build cases, but Google doesn't want its competitors to gain an edge through sensitive material it's forced to hand over.

Go deeper: The full list of antitrust investigations into Big Tech

4. Banning political ads is hard work

Even if it proves to be the right thing to do, implementing a ban on political ads is no easy task, as the major platforms have found out in Washington state. As The Verge reports, Facebook and Google opted to ban ads there rather than comply with the state's strict campaign finance laws, but have found even that to be difficult.

Why it matters: The experiences of Facebook and Google in Washington state could foreshadow the work Twitter will have to do in implementing its promised ban on political advertising, which starts next month.

Meanwhile: One of Facebook's fact-checking partners has proposed a potential solution for the company's debacle. As CNN reports, Lead Stories plans to propose to Facebook next week a set-up in which politicians submit their ads for fact-checking and those fact-checks would be subject to review by a blue-ribbon, nonpartisan panel.

Go deeper: Twitter casts itself as the anti-Facebook

5. Take Note

On Tap

  • Fittingly for the day after Halloween, the American Dental Association has designated Nov. 1 as National Brush Day.

Trading Places

  • Contract chip manufacturer Global Foundries has hired former Intel and Qualcomm executive Amir Faintuch as senior VP and general manager of its computing and wired infrastructure business.

ICYMI

  • Vice uncovered a nationwide scam running on Airbnb. (Vice)
  • Huawei helped offset its global smartphone challenges by dramatically increasing its share of the Chinese domestic market. Huawei shipped 41.5 million smartphones in the third quarter, up 66% year-over-year in a basically flat market. (Canalys)
  • Pinterest shares fell after the company reported quarterly revenue below analysts expectations and issued a disappointing forecast for the current quarter. (CNBC)
  • Apple's original-content service, Apple TV+, goes live. (CNBC)
6. After you Login

Check out the Finnish startup making sneakers out of waste coffee.

Ina Fried