Jon Van Housen & Mariella Radaelli
Surprising headlines last week asserted that Facebook’s parent company Meta Platforms said it might have to pull out of Europe due to data transfer regulations. If true, that would be enormous news. But it’s not happening. At least not now.
By the weekend, Meta had gone into overdrive to stress the information was taken out of context. The warning was part of a 134-page annual report filed with the US Securities and Exchange Commission (SEC) in which the social media giant said it is concerned that it won’t be able to continue to provide services if European data-sharing regulations aren’t made clear “between countries or regions in which we operate”. For months, EU regulators have been mired in complex negotiations with the US to replace the Privacy Shield transatlantic data transfer pact that was struck down by the EU Court of Justice in 2020. The court said it is not convinced that EU citizens’ data is safe once shipped to the US.
With the Privacy Shield no longer a valid mechanism to comply with EU data protection requirements, Meta and more than 1,000 other Internet-based companies currently rely on so-called Standard Contractual Clauses (SCCs) to legally transfer user data out of the EU. But the Irish Data Protection Commission says those could violate the EU’s landmark general data protection regulation (GDPR) now so familiar to users worldwide — it’s the one that requires a notice and consent button on all websites.
“If a new transatlantic data transfer framework is not adopted and we are unable to continue to rely on SCCs or rely upon other alternative means of data transfers from Europe to the United States, we will likely be unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe, which would materially and adversely affect our business, financial condition, and results of operations,” said the Mata warning in its SEC filing.
Following years of alarms about fake news, perplexing political ideologies and privacy concerns related to social media, some European politicians said they would welcome Facebook’s withdrawal. “After I was hacked, I have lived without Facebook and Twitter for four years and life has been fantastic,” Germany’s new Economy Minister Robert Habeck told reporters. French Finance Minister Bruno Le Maire agreed, saying he “can confirm that life would be very good without Facebook and that we would live very well without Facebook”.
And some wonder if Facebook founder Mark Zuckerberg has seen a reality that is not virtual, but all too real. Does he foresee a possible endgame when increasing privacy legislation finally hobbles his once-innovative business model? Is that why he is trying to move the company in an entirely different direction – into the “metaverse”? Even changing its name to Meta, the company has perplexed some in the industry and many in the investment world by a sharp change of course into virtual reality.
Those investors just sent Zuckerberg a strong message about the current state of his company – a historic plunge in its stock price that erased more than $230 billion in Meta’s market value, easily the biggest one-day loss in history for a US company. The 26.4 per cent plummet also comes after the company reported its first ever drop in daily user numbers. The company’s advertising model has also been hit hard by privacy changes at Apple that allows iPhone users to opt out of data monitoring. Only about one-quarter of those phone owners have reportedly agreed to continued collection of their personal data, a change Facebook admits will cost it billions.
The biggest hit to profits in the last quarter, which declined 8 per cent and fell short of analyst estimates, was funding of the Reality Labs division. Meta said it spent $10 billion last year on technologies developed by the unit that could eventually allow it to host users in a virtual world. Even for Facebook $10 billion is a significant chunk of cash. The now-defunct Privacy Shield agreement was implemented during the Obama administration in response to revelations by Edward Snowden that the US government has access to personal data from the private sector. With the EU Court of Justice ruling that the agreement was invalid in 2020, not only Facebook but a range of companies including those involved in cloud computing could be at risk of breaking EU law.
No doubt negotiations can bring a legislative fix for transatlantic data transfers, but that might be much easier if Facebook wasn’t involved. The more Facebook symbolises cross-border data flows, the more politically difficult the issue will be. The social media giant simply does not have the political capital needed to generate widespread legislative support. As a powerful tech and social innovation, it has proven to be difficult to administer, perhaps a victim of its own success, growing so massive it became almost impossible to control. Europe has put the writing on the wall that surveillance capitalism is going the way of unfettered energy use and polluting industries – another no-longer tolerated excess of the naive past.