Meta, formerly Facebook, made headlines last week for “threatening” to pull its services from Europe. The threat, listed in the company’s annual 10-K filing with US authorities, said it would “likely” pull Facebook and Instagram from the Old Continent if a new transatlantic data transfer framework between the EU and United States could not be set up. Meta’s threats do not come out of nowhere: they follow the cancellation of the Safe Harbor and Privacy Shield agreements between the United States and the European Union.
European justice has overturned these agreements in recent years, finding that US laws did not offer sufficient data protection guarantees to meet European standards, which made it illegal for companies to collect data on citizens. European countries and transfer them to American shores to analyze them and sell them to advertisers.
This is not the first time that Meta has threatened to exit a particular market. Meta last year temporarily blocked news sharing by people and publishers in Australia, as part of a scare tactic to get the Australian government to change its media trading code. Mark Zuckerberg’s group isn’t the only one pulling out all the stops to defend its interests: Google has also considered withdrawing Search from Australia for similar reasons, while Apple threatened last year to leave the Kingdom. United due to patent issues.
An admission of helplessness?
What’s different this time, however, is that Meta quickly backtracked. In a blog post, the social media giant says it is “absolutely not threatening to leave Europe”. “Meta does not want to leave Europe and does not threaten to do so, and any report that suggests we are doing so is simply not true. Like 70 other European and American companies, we identify a commercial risk resulting from the uncertainty surrounding international data transfers”, argues Markus Reinisch, vice president of public policy at Meta Europe.
So the question arises: what has changed? Investment blackmail by large corporations is nothing new; Whether it’s oil or chemical companies threatening to exit a market, large foreign direct investors have long lobbied against tougher regulations that curb their market power.
But over the past two years, many governments, including through their competition regulators, have exchanged information on how to deal with big tech issues. What followed was a flood of regulatory hurdles against Meta, ranging from the aforementioned ban on transatlantic data streams, to tougher privacy laws, to expanded requirements. when it comes to monitoring hateful content.
Race results? States are showing much more solidarity today than 10 years ago, when a host of tech giants made Ireland their European headquarters to benefit from lower taxes. The weakness of digital giants like Meta lies in their reliance on network effects, says researcher Rob Nicholls. “Google, Apple, Facebook, Amazon and Microsoft all rely on network effects and removing parts of the network to make a regulatory point is likely to be more damaging than if you were just a manufacturer who moves its production to a country where the costs are lower and the regulatory burden is lower. It’s different,” he said.
A network more vulnerable than it seems
“The very nature of the activity [de Meta] means that the threat is a little hollower than it would be for a manufacturing company. And coordination between governments means making those threats and carrying them out is much, much harder. For example, if Meta’s platforms were to be removed from Europe, people who live in Australia and communicate with family and friends in Europe using Instagram or WhatsApp could switch to another platform to retain those communications, even if they still have access to Instagram or WhatsApp. If Meta were to cut a significant part of its network, this decision would not only negatively impact its revenue, but also the stability of its network.
With governments growing confident that they won’t cave to the demands of big tech companies, Meta is in a bind, especially as 98% of its revenue still comes from digital advertising. This is a growing concern for Meta’s top management, which already had to admit in a recent conference call earlier this month that its daily active user base has lost 500,000 users. in one year. If this drop is the start of a trend, it is significant … and has something to think about on the side of the social media giant.
Facebook seems to be aware of the problem, as the group rebranded to Meta last year in an attempt to branch out to Web3. But his pivot attempt has been unconvincing so far. Meta’s cryptocurrency platform, Diem, was shut down 15 days ago after it became clear that regulators would never let the project go ahead…another failure for the US group, faced to increasingly tough competition in its core business, in particular from the TikTok platform.
Meta is no longer scary
Historically, Meta’s platforms have based their business model and reach on placing advertisements on products or applications that users are unaware of. Although TikTok is not a social network, the short video platform has managed to compete with Meta platforms in this area. “This discovery mechanism, however, is not just about data; it also depends on attention. This is where TikTok’s challenge really comes into its own…TikTok and the loss of attention is an existential risk,” says tech analyst Ben Thompson.
Going back to Meta’s threat to leave Europe last week, if the European Union and the United States fail to find a mutually acceptable solution for a data transfer framework, Facebook has, realistically, only two options, both brutal. The first is to withdraw some of its services from the EU. This is not an attractive option, given that the EU has a population comparable to that of the United States, and nearly 25% of the company’s advertising revenue came from Europe in 2021.
The other solution would be for Meta to modify its business processes to comply with the decisions of the European authorities and the GDPR, namely not to share the data of European citizens with a US entity. This option would be expensive, however, as it would mean that Meta would effectively have to have separate large data centers somewhere in Europe. What seems clear, however, is that regardless of whether the threat of Meta holds up, European governments no longer feel the pressure of Meta as they used to.
Last Wednesday, the Minister of Economy Bruno Le Maire argued that he would have nothing to complain about if Meta withdrew its platforms from Europe. “I can confirm that life is very good without Facebook and we would live very well without it,” he said.
Source: ZDNet.com