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Schizophrenia On SocMedia

No, the title is not meant to imply a post about the privacy implications of mobile medical apps for psychotherapy. Instead, we’re taking a look at how the government acts at cross-purposes to itself when it comes to the oh-so-slow development of rules for new technologies and markets. The last few weeks have seen a couple of remarkable announcements, one from the FTC about digital advertising disclaimers and one from the SEC about corporate financial disclosures. Both were presented by the agencies as ways to enable use of social media by corporations — but instead just make things much harder, if not totally impracticable.

Two weeks ago, the Federal Trade Commission basically said “to heck” with form factor and responsive Web design by concluding that disclaimers, caveats and related mandatory advertising disclosures cannot be put into a popup window and must be in the same “conspicuous” format — font size and all — regardless of the device or medium. FTC .Com DisclosuresThe FDA had already cracked down on trailblazing pharma firms that tried Facebook advertisements on the same grounds. Both enforcement decisions demonstrate a complete lack of familiarity with new media and an inability to flexibly apply the principles of regulatory schemes to changing circumstances.

Even if, unlike advertiser contentions, potential “Do Not Track” mandates for Web browsing would not kill the Internet content industry, the FTC has signaled it is prepared unilaterally to dictate the size of social media ads in the guise of consumer protection. The old guidance allowed for “proximity” of disclosures — that is, disclosures that were “near, and when possible, on the same screen.” The new guidance places heightened emphasis on disclosures being clear and conspicuous to consumers across all platforms. The newly announced principle is that disclosures should be “as close as possible,” with short form disclosures such as hyperlinks or hashtags permitted only when their meaning is understood by consumers.

Check out this remarkable assertion, for instance:

If a disclosure is necessary to prevent an advertisement from being deceptive, unfair or otherwise violative of a Commission rule, and if it is not possible to make the disclosure clear and conspicuous, then either the claim should be modified so the disclosure is not necessary or the ad should not be disseminated. Moreover, if a particular platform does not provide an opportunity to make clear and conspicuous disclosures, it should not be used to disseminate advertisements that require such disclosures.

A second and related announcement came on Tuesday from the Securities & Exchange Commission. The SEC is the federal agency which pioneered use of Facebook and other social media services in the corporate realm by providing 2008 guidance that release of corporate earnings and other “material” financial information can permissibly utilize social media. Yet now the same agency — after a fruitless investigation of Netflix CEO Reed Hastings for an innocuous Facebook post — says that companies may treat social media as legitimate outlets for communication, much like corporate Web sites or the agency’s own public filing system called Edgar, but first have to make clear which Twitter feeds or Facebook pages will serve as potential outlets for announcements.

It is difficult to reconcile these new regulatory positions with the objectives the agencies articulate. The SEC says it believes that “company disclosures should be more readily available to investors in a variety of locations and formats to facilitate investor access to that information,” but its actions only serve to make the choice of location and format more rigid, and with fines a potential consequence for those pursuing flexibility.  Almost any lawyer counseling public company clients today will advise that financial information that in the future could be considered material by the SEC must be constrained to an official, designated Web page. So much for tweets, Facebook and other real-time forums, they’re just too risky — even though Hastings survived unscathed. The correct approach for the vast majority of the 13,000+ public companies in the U.S. is to steer clear of social media, at least for now, because the downside is simply too great.

Coming from a government that professes to want to encourage broader use of these new media, that’s classic bi-polarism, obviously not in a happy phase.

Note: Originally written for and reposted with permission of my law firm’s Information Intersection blog.


Can’t Buy Me Love, But Friends for Sale

The Australian company uSocial is selling Facebook friends to corporate customers for marketing and advertising purposes. Not enough Facebook friends? Buy them [Reuters]. Now I agree that it can be difficult for brick-and-mortar businesses to generate a loyal online social media following. But that really is no excuse for transforming the truly social act of “friending” someone into a purely monetized, commercial relationship. To the contrary, Facebook’s advertising platform allows sponsors to target the audience they are looking for whether or not the individuals have “friended” the company.

Cant Buy Me Love

Can't Buy Me Love

So the purpose of buying friends — which, to be fair, is really buying leads, because uSocial cannot guaranty that the members contacted will accept friend requests for its clients — is rather to inflate the perception of the company’s brand as socially popular. Want 5,000 More Facebook Friends? That’ll Be $654.30. Advertising audience is really secondary. That makes it not that much different from what goes on with grocery store shelf space, movie reviews and the like. It just is an order of magnitude more unseemly to do it in the context of a consensual social media setting.

Years ago (and soon again thanks to Beatles Rock Band), The Beatles sang that “money can’t buy me love.” Well, it is a sad reflection on where we’ve come as a society that, in the 21st century, money can buy you friends.

Small Isn’t Beautiful Anymore

SJM logo

I’ll let my op-ed in Sunday’s San Jose Mercury News speak for itself. Opinion: In the Tech Industry, Small Isn’t Beautiful Anymore. Might be a little narcissistic to blog about one’s own article, no?

Wrangling over the proposed Google-Yahoo advertising deal makes one wonder whether scale, a virtue in Silicon Valley, can also be a vice. Some have insisted that Google is too big. But with apologies to economist E.F. Schumacher — author in 1973 of the generational anthem “Small Is Beautiful” — big isn’t bad anymore, it’s good.

A mere 10 years old, Google so dominates Internet search that the company’s name has become a verb. Google has grown large because it is good and its engineers continue to design innovative new products. That is something Web aficionados and antitrust regulators should applaud.

Google has already changed the way businesses advertise. The advertising issue is one its critics point to as evidence that Google is so large, the antitrust laws should kill the Google-Yahoo advertising venture before it launches later this month. The idea, as some ad agents have said, is that a combined Google-Yahoo share of “Internet search advertising inventory” would be competitively harmful. This is mushy reasoning being peddled to spread economic paranoia.

Everyone agrees that the principal objective of antitrust law is economic efficiency. To assess Google-Yahoo, therefore, one must first define what market we’re talking about. References to Internet search “inventory” are analytically dishonest, disguising the fact that search advertising — of which Google holds a 63 percent share — competes directly with Internet display advertising. Online display advertising is commanded by MySpace, AOL and Microsoft, and Google’s presence is tiny. As the data on rapidly declining advertising revenues for newspapers, network television and other “legacy” media reveal, Internet advertising is also becoming a substitute for advertiser dollars that used to flow elsewhere.

The consequence is that the relevant market cannot exclude Internet display advertising or even be limited to Internet advertising. And once the market covers something more than search ads, all serious competitive arguments against the Google-Yahoo transaction fade away. Take just a few.

Microsoft insists the alliance is unlawful price fixing because it will increase search advertising prices. To the contrary, neither Google nor Yahoo will be able to dictate minimum bids or prices to the other and, since advertisers will have a greater supply of more valuable search ads to buy — the demographically targeted ads produced with Google’s famously secret algorithms — the relative price for Internet search advertising will go down. That’s simple supply-and-demand, and it’s a good thing.

Others argue that Yahoo needs to remain independent and cannot be allowed into Google’s orbit. But this is not a merger or acquisition. If Yahoo’s board of directors, having just finished a bruising battle with Microsoft, violated its duty to maximize shareholder value, that is hardly the same as eliminating a competitor from the market.

Some suggest the government must act quickly to nip the growing power of Google in the bud. But in our market system we do not punish a successful company because it might do something bad in the future. Microsoft should be especially ashamed for endorsing this suggestion, since its decade-long antitrust fights here and in the EU arose from its bad acts, not its bigness. And unlike a merger, there can be no problem here of “unscrambling the egg” if things go south.

That leaves the only real objection to the Google-Yahoo! alliance as consumer privacy. There may be valid privacy objections to Google’s activities; indeed, Google might someday become so big that its possession of huge troves of personal data alone creates a threat to privacy. But as the FTC decided in approving the Google-DoubleClick merger in 2007, antitrust laws are not a substitute for privacy regulations.

So even here, privacy and bigness are not enemies. Unless Google starts acting badly in the competitive marketplace, the government should just leave it alone.

Glenn B. Manishin is an antitrust partner with Duane Morris in Washington, D.C. He was counsel for ProComp, CCIA and other software competitors challenging the Bush administration”s antitrust settlement with Microsoft. He wrote this article for the Mercury News.