Tuesday, 25 February 2014

Facebook Buys Phonebook

The sticker price of $19 billion was the lead item in most reports on Facebook's acquisition of WhatsApp last week, but subsequent commentary has tended to focus on the messaging firm's ad-free model and the assurances of Mark Zuckerberg that he has no intention of changing it: "I don’t personally think ads are the right way to monetize messaging". A lot of the commentary is just MBA boilerplate, so there is the usual stuff about market share, growing user numbers, defensive plays etc. Zuckerberg's official line is an apparently Micawberish belief that something will turn up: "Once we get to being a service with 1 billion, 2 billion, 3 billion people, there are many clear ways that we can monetize". In fact, it's not "clear" at all.

WhatsApp currently claim over 400 million active users, a figure that has doubled over the last year (i.e. it's probably a bit soft). There are 7 billion people on Earth, and around the same number of sim cards (smartphones account for about 1.5 billion). One of the founders, Jan Koum, has talked of reaching 5 billion users, which points to WhatsApp becoming the de facto standard for smartphone messaging (not to mention 3.5 million handset upgrades), even though it lacks any real technological edge. The attraction of the service has been free or low-cost use and the absence of adverts, and it is crucially dependent on network SMS services being relatively expensive.

What it does have is an application architecture that requires the user to upload all their contacts to a central server for cross-checking to establish who they can communicate with. In other words, Facebook is buying phone numbers, and more specifically numbers organised in interconnecting networks, lots of Rolodexes, rather than just a flat directory. The capability of extending the "social graph" to mobile has obvious attractions for Zuckerberg & co. Even more attractive, many of those numbers belong to people who don't currently use either Facebook or WhatsApp. A self-denying ordinance on the harvesting of user's personal information does not preclude text-spamming their contacts.

In the popular tech media, the founders of WhatsApp have become almost heroic figures, lauded for their anti-advertising stance and refusal to gather user data (despite actually doing so, but hey, it's just metadata, right?) while simultaneously envied for their sudden great wealth (their earlier opposition to being bought-out has been quietly forgotten). The decision by Jan Koum to sign the deal on the door of the Federal office where his family collected foodstamps is naturally being held up as evidence that anyone can make it in America, while his childhood in the Ukraine, "a country where phone lines were often tapped, instilled the importance of privacy in him", apparently. The backlash cannot be long in coming. Perhaps we could get Pussy Riot to flashmob their offices in Mountain View.

Some of this geek indulgence can be traced to the desire to be done with advertising altogether, a counter-culture remnant in a highly commodified society that has itself become ironically commodified (think of Steve Jobs's unadorned turtle-necks). This leads to WhatsApp's ad-free model being optimistically elevated to the ethos of a utility, a quasi-public service in contrast to the naked consumerism of Facebook, despite the total absence of the characteristics of a utility, such as large-scale infrastructure investment, public oversight, price controls etc.

Thinkers like Jaron Lanier long ago progressed beyond this naive trust in the altruism of the tech companies, but they have since succumbed to a Utopian belief that we can best defend the individual (and "middle class" jobs) by re-establishing strict intellectual property rights in a "humanistic information economy". This imagines companies making micropayments in order to exploit our data, while still providing "free stuff" subsidised by advertising. In effect, the massive surplus of the tech companies (e.g. the $4 billion in cash used for the WhatsApp purchase) would be distributed as a proportionate dividend to us digital peons. Micropayments would even extend to surveillance: the NSA are welcome to our data, but they must pay a fee. The more they want, the more they pay. The price mechanism thus encourages responsibility and limits abuse. This exchange-based approach is naturally proving popular in the US, where it chimes with the deep ideology of homesteading and is seen as reliably anti-socialist and consistent with neo-classical economics.

Critics like Evgeny Morozov have noted that Lanier's vision is actually one of ubiquitous surveillance, or more exactly permanent self-exposure as a method of personal monetisation. You are incentivised to over-share. The crossover with the lifelogging meme and the idea of the quantified self is obvious. Perhaps less obvious are the roots of this in neoliberal theory. As Michel Foucault said in The Birth of Biopolitics: "In practice, the stake in all neo-liberal analysis is the replacement every time of homo oeconomicus as a partner of exchange with homo oeconomicus as entrepreneur of himself, being for himself his own capital, being for himself his own producer, being for himself the source of [his] earnings".

Lanier's fundamental error is to believe that a market in personal data and authored content could spontaneously arise given the massive structural asymmetries of the Internet. For all the peer-to-peer capabilities, it remains dominated by broadcast, as well as congenial to monopolies and cartels.  His plea, that more crumbs should be brushed off the table for the rest of us, is just trickle-down economics recast as pull rather than push. It is possible that such a market could be imposed through massive state intervention, but this would be unlikely to ever get off the ground, even in China, not least because driving the recalcitrant off-net (or to the darknet) is no longer in the interests of the state (the ironic achievement of the NSA and GCHQ).

Zuckerberg is calculating that governments have no desire to empower users, beyond consumer protection and privacy anodynes, and that the telcos will gradually quit the network application space (bought off by guaranteed rent from network traffic and state subsidies for infrastructure investment). WhatsApp is not currently a disruptive competitor for the phone companies, with which it has an essentially parasitical relationship - i.e. eating into SMS revenues. The post-acquisition announcement that it will provide voice calls is being talked about as game-changing, the telcos "reduced to companies that maintain expensive networks and hand out Sim cards to order", but this ignores the truth that the network carriers have always been rubbish at network applications and have been progressively marginalised since the arrival of 3G. Their core interest remains the pick-n-shovel infrastructure.

The iconic 5 billion figure mentioned by Zoum has previously been bandied about by the Facebook CEO in respect of, the industry lobby intended to extend online access to the two-thirds of the global population that currently lack it, through "new data-compression technologies, network infrastructure, and business models that make it possible to not only get everyone a smartphone, but make the data that powers them affordable". Getting a handle on most of the world's population is clearly not just an inspiring mission statement. The true significance of the $19 billion price tag is probably what it tells us about macroeconomic conditions, namely that we are in the middle of a huge stock bubble inflated by central bank-injected liquidity and low interest rates, but the significance of Zuckerberg's choice of WhatsApp is that he wants to monopolise the de facto directory service of the future Internet. Despite his attempts to distance Facebook from the NSA fallout, the congruence of interests remains: they both want to know who we know.

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