Facebook is projected to boost sales by 46 percent and double net income, but make no mistake: It had a terrible year. Despite its financial performance, the social media giant is facing a reckoning in 2018 as regulators close in on several fronts.
The main issue cuts to the core of the company itself: Rather than “building global community,” as founder Mark Zuckerberg sees Facebook’s mission, it is “ripping apart the social fabric.” Those are the words of Chamath Palihapitiya, the company’s former vice president of user growth. He doesn’t allow his kids to use Facebook because he doesn’t want them to become slaves to “short-term, dopamine-driven feedback loops.”
Palihapitya’s criticism echoes that of Facebook’s first president, Sean Parker: “It literally changes your relationship with society, with each other … God only knows what it’s doing to our children’s brains.”
Facebook has reacted nervously to Palihapitya’s accusations, saying he hadn’t worked at the company for a long time (he left in 2011) and wasn’t aware of Facebook’s recent initiatives. But I can’t see any practical manifestations of these efforts as a user who has drastically cut back on social networking this year for the very reasons cited by Parker and Palihapitya.
To outsiders and regulators, Facebook looks like a dangerous provider of instant gratification in a space suddenly vital to the health of society. It’s also making abuse and aggression too easy — something the U.K. Committee on Standards in Public Life pointed out in a report published on Wednesday. Sounding one of the loudest alarm bells on social media yet, the panel urged the prime minister to back legislation to “shift the balance of liability for illegal content to the social media companies.”
While Facebook remains the biggest platform, Google and Twitter are facing similar pressure from governments in the U.S. and in Europe. Germany enacted a law requiring the social networks to remove hate speech promptly or face fines. In the U.S., the activities of a Russian troll farm during the 2016 election campaign prompted scrutiny of Facebook’s ad selling practices and a (rather ham-handed) legislative attempt to force some transparency.
Taxation is another area that regulators, especially in Europe, are targeting. Facebook, like Google, books almost all its non-U.S. revenue in Ireland with its low corporate tax rate — and pays most of it to a tax haven for the use of intellectual property rights. The practice resulted in a 10.1 percent effective tax rate for Facebook in the third quarter of 2017.