By Mark Jamison

Washington, DC, Attorney General (AG) Karl Racine is the most recent elected official to demonstrate that politicians don’t understand tech markets. On May 23, 2022, Racine’s office sued Meta founder Mark Zuckerberg, alleging that the company violated the DC’s Consumer Protection Procedures Act and that Zuckerberg had a direct role in the violation. The filing is largely a rehash of the Cambridge Analytica debacle, which the AG is trying to blame on Zuckerberg. But what the AG really demonstrates is a lack of understanding of the nature of the Cambridge Analytica fiasco and of how Big Tech companies provide value.

During the 2016 US presidential election, Cambridge Analytica provided consulting on voter microtargeting for the presidential campaigns of Donald Trump and Sen. Ted Cruz (R-TX). The firm’s microtargeting allowed candidates to understand voters and target them with tailored messages. The AG paints this as election manipulation, but as an elected official, Racine probably knows that microtargeting is common in elections. Indeed, in 2012, Facebook allowed the Obama presidential campaign to “suck out the whole social graph”(i.e., everything that connected people on Meta’s Facebook platform, including their friends, photos, events, and internet pages visited; what prominent figures they listened to; what music they listened to; their likes; and places they had been). Facebook then blocked others from accessing such extensive data.

The problem with Cambridge Analytica wasn’t that it provided microtargeting, which is common in politics, but that it used data that Facebook did not intend for the company to have and that Facebook users didn’t think could be accessed by third parties. Facebook’s failings to protect data and inform customers were serious breaches of trust, as the AG recognizes, but this is an old story and hardly a reason for a new lawsuit. Facebook users have already provided a market response: They have increased their reliance on other social media and ranked Facebook down on trust.

Other aspects of the lawsuit focus on Meta’s business practices. Here, the AG demonstrates a lack of understanding of how social media platforms create value for users. The lawsuit’s filing complains that Zuckerberg deliberately:

• Opened “up the Facebook Platform to third parties”;
• Created an application programming interface (API) “called ‘Open Graph’ that . . . allowed consumers to personalize their user experience and ‘have instantly social experiences wherever they go’”;
• Developed a “data-sharing business model—which included giving apps and developers who spent money on Facebook or shared data back to Facebook—[which provided] access to even more consumer data”; and
• Placed more restrictions on rivals than on other developers.

The AG wrongly characterizes these practices as harming Facebook
users. In reality, they each increase the value of the Facebook platform for
users, developers, and advertisers. A platform is valuable because of the
number and types of people using it, the ways they use it, and the
functionality that enables these uses. Opening the Facebook platform enables
developers to create services on Facebook that users like, creating benefits for
both users and developers. APIs make it easier for developers to create this
utility, and the data sharing makes this more profitable for both Meta and the
developers, which drives even more activity. And by discriminating against
rivals, Meta keeps the value it and its developers create from leaking to other
platforms.

This isn’t to say that openness of a platform is always a good thing. Whether a business strategy is good or bad depends on context and implementation—which highlights the cognitive dissonance that exists in Washington regarding Big Tech businesses. The AG’s lawsuit treats Facebook’s openness as a bad thing. Some bills before Congress, such as the Open App Markets Act and the American Innovation and Choice Online Act, meanwhile, assume that openness is a good thing. Both ideas are wrong because they are based on the faulty premise that lawyers, economists, and politicians know how to properly design an industry. They don’t. In fact, even most businesses get this wrong, which is why so many fail. Only free markets are able to test ideas and allow the best ones to succeed.

The post DC Attorney General Gets It Wrong in His Lawsuit Against Mark Zuckerberg appeared first on American Enterprise Institute – AEI.