Apr 25, 2019

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1 big thing: For Facebook, $3B fine would be small potatoes

Facebook CEO Mark Zuckerberg. Photo: Christophe Morin/IP3/Getty Images

Facebook, its investors and its critics wrestled Wednesday with how to assess the prospect of a $3 billion to $5 billion government fine for the social media giant.

On the one hand, that would be a record fine for the Federal Trade Commission, and it's certainly nothing to sneeze at.

On the other hand, it's likely just a flesh wound to a company that brings in roughly that much revenue every month — and a monetary fine alone provides no guarantee that the company's behavior will change.

Driving the news: In its quarterly earnings filing, the company announced that it has set aside $3 billion to cover its liability before the FTC for a variety of issues, most prominently the Cambridge Analytica privacy scandal.

  • Earlier this year the Washington Post reported that the FTC and Facebook were negotiating a “multibillion dollar settlement” to these matters.
  • Facebook’s announcement confirms that reporting and suggests a settlement is near.

Why it matters: A settlement with a fine this size would represent a giant win for an agency that had never imposed a penalty on a tech firm more than roughly $20 million.

  • But critics say that unless a ruling or deal also includes meaningful changes to Facebook’s practices, it won’t make much difference for a corporation that’s bringing in $55 billion in annual revenue and sitting on a $45 billion cash pile.

Between the lines: The amount is a kind of Goldilocks median for the two parties — big enough for the FTC to claim a record victory, small enough for Facebook to take a brief earnings hit and then keep on minting money.

  • Investors didn't seem rattled — cheering Facebook's revenue and user growth numbers with a 7% gain in after-hours trading.

Our thought bubble: The Axios tech team has some quick takes...

  • David McCabe: Companies sometimes announce accounting reserves like this for lawsuits, but it’s very rare to publicly preview a federal enforcement penalty. Facebook may have chosen this course to show it's willing to pay a serious price for its infractions.
  • Sara Fischer: Its advertising business remains healthy. Big brands might be concerned about reputational risk if Facebook's image tanks, but Facebook's bread and butter is small- and medium-sized advertisers who rely on Facebook. Facebook COO Sheryl Sandberg said on the earnings call that their top 100 advertisers make up less than 20% of revenue.
  • Ina: Google and Microsoft both absorbed large fines from European authorities with little difficulty. The real impact is when regulators slow a tech company, either through forcing business changes or causing a company to be more cautious with its future bets.

The bottom line: Thanks to Facebook's unusual disclosure (we can't ever remember a company accounting for a regulatory fine that hadn't even been proposed), the size of the fine the company could face is now known.

But the real question — and potentially the bigger cost to Facebook — is whether regulators impose any new conditions on the company.

2. Microsoft is making lots of money

Microsoft isn't just winning the techlash, as we reported yesterday. It's also making a ton of money.

What's new: The company reported $30.6 billion in revenue and $8.8 billion in profits yesterday, exceeding expectations amid strength in both its growing cloud efforts as well as its legacy PC business.

The bottom line: The corporate computing business may not be as sexy as consumer markets, but it's steady and profitable.

3. What to watch from Intel's earnings report

There are a bunch of items to watch for in Intel's earnings report today, beyond the usual financial metrics.

Here are 3 things I'll be listening for....

  1. What Intel plans to do with the modem business. Just after Apple settled with Qualcomm, Intel said it was cancelling a 5G modem chip planned for next year and re-evaluating the future of its overall modem effort. Intel could announce more details or simply say that process continues.
  2. The health of its autonomous vehicle efforts. Intel confirmed that it made some layoffs in its AV unit, as first reported by The Information, but also said in a statement to Axios that "AV development is one of our strategic priorities."
  3. How the PC business is faring. The data center has been the key to Intel's overall health in recent quarters and is likely to remain so for the future. But this quarter could see a boost from the oft-beleaguered computer business. Microsoft reported that Windows revenue from computer makers was up 9% year-over-year.
4. In memoriam: AI pioneer Nils Nilsson

Nils Nilsson in 1987. Photo: Ed Souza / Stanford News Service

Nils Nilsson, a pioneer in artificial intelligence whose groundbreaking work helped lead to today's online maps, died Tuesday at the age of 86.

Nilsson's work was foundational to several modern technologies, Axios' Kaveh Waddell writes. Anyone who's gotten directions online, played a video game, or marveled at moving robots has experienced the legacy of his research.

  • Nilsson developed a famous algorithm called A* for finding the shortest path from one point to another, while working at the Stanford Research Institute, now SRI International.
  • He helped build Shakey, the first robot that could plan a complex route on its own. Starting in 1966, Shakey wobbled through the halls of SRI by relying on a map and various sensors — much like today's autonomous cars do.
  • He wrote a textbook in 1980 that helped shape a generation's understanding of his field.

Nilsson's navigation work "motivated everything that's in Waze and Google Maps," says Frank Chen, a partner at Andreessen Horowitz who studied under Nilsson at Stanford. "That's pretty lasting influence."

Go deeper: Kaveh has more here.

5. Take Note

On Tap

Trading Places

  • Snap hired its first CMO: Kenny Mitchell, a marketing executive most recently at McDonald's. (Variety)


  • After two quarters of profitability, Tesla swung to a loss after price cuts to two models. (Axios)
  • Venmo now has more than 40 million users, parent PayPal revealed as part of quarterly earnings on Wednesday. (CNBC)
  • A teardown of the now-delayed Galaxy Fold shows it to be fragile and prone to debris getting under its screen. (iFixit)
  • Memo to IT managers still forcing workers to change their passwords every couple of months: Microsoft now admits it's not really an effective strategy. (CNET)
6. After you Login

Speaking of small potatoes ... Thanks to Airbnb, you can stay in one.