How Fast Is Facebook?

We’re all generally aware that the web servers of social networking platforms like Facebook are capable of processing data very quickly. But do we really comprehend how quickly?

Until recently, I didn’t really comprehend data processing speeds at all. But then I signed up for a new Facebook account. Although I originally opened a personal account many years ago, I deleted it after becoming frustrated at the platform’s constant modifications to its privacy controls. Frankly, I didn’t see why I couldn’t simply instruct the service that “only I should be able to post items to my account pages” once and once only.

But after a colleague convinced me that the platform’s social networking capabilities might warrant a second look, I ventured onto Facebook’s home page and reviewed the sign-up instructions.

I was asked for my name, an email address, and two or three other brief items of identification. That seemed reasonable to me! I was then asked whether I wished to give Facebook access to the electronic address book that is associated with my email account, so that the social network could help me locate my friends. Thanks, but no thanks! I declined that offer.

After a brief moment’s delay, I logged into my new account. And to my astonishment, I was immediately presented with a list of people whom (according to Facebook) I might know, and whom I might wish to “friend.”

Why was I astonished? Well, most of the names on that list were recognizable to me. They ranged from good friends whom I contact often, to total strangers whom I briefly contacted for business reasons on a single occasion many years ago.

For a while, I was flummoxed. How could Facebook know so many of my past and present contacts, across such a broad range of personal and business relationships, if I declined to open my electronic address book to the service? And then the answer struck me.

Although Facebook didn’t have access to my address book, it did know my email address. And if many of Facebook’s existing users had opened their address books to Facebook when they first signed up for the social network, the algorithms could have searched through many (or perhaps even all) of those address books for my email address.

So quickly, though? During that single brief moment while I signed up for the service? Apparently, Facebook is fast. Really fast.

Of course, it might be worth pondering a couple of follow-up questions. Do most of the individuals who open their address books to Facebook when they sign up for accounts really understand how the social network plans to utilize that access? And is it really fair for Facebook to ask for access only once, and then to utilize it forever without ever asking again?

Reasonable minds may certainly differ over the answers to those questions. And yet there is one impressive fact that is not debatable at all; namely, once we permit Facebook to access our personal information, it can make very fast use of our data.

The Worst Password Ever

Are you feeling a bit insecure about the strength of your online passwords? If so, then you’re certainly not alone. Most of us don’t use the random strings of capital letters, small letters, numbers, and punctuation marks that security experts always recommend. Likewise, most of us don’t bother to change our passwords on a regular basis.

But if you’re worried that one of your choices might have earned the title of Worst Password Ever, please banish that concern from your mind. That particular title appears to have been earned by — of all people — Mark Zuckerberg, the Chief Executive Officer of Facebook.

Why? A few years ago, Zuckerberg established the password dadada for his LinkedIn account. Then he used the same password for at least three other major social media accounts. And he never updated that choice, even though LinkedIn subsequently announced that the passwords of more than six million users were accessed by cyber-hackers.

How do we know this? Because someone recently used his LinkedIn password to take over his accounts. The hackers did no damage, other than embarrassing the founder of the world’s largest social media network.

Even if his LinkedIn password had not been stolen, a password like dadada would have been easy to guess. After all, Zuckerberg and his wife have been eager to post photographs of their new children on Facebook. A hacker could easily surmise that these children might call their father dada.

So what insights can be gleaned from this news story? The obvious one, of course, is that we should all take password security very seriously. Especially those of us who haven’t changed our LinkedIn passwords for several years!

But a more subtle insight involves the inherent insufficiency of our internet security system. If it is so burdensome that one of the world’s most successful internet entrepreneurs cannot compel himself to take it seriously, what chance do any of us have to manage it well?

Nevertheless, for most of us, a password based security system is our only option. So perhaps, every once in a while, we might choose to take a moment to update a password or two.

When should we start? Well … why not right now?

Facebook: Where’s The Gratitude?

Imagine finding yourself in this frustrating situation. You wish to give to a worthy cause, but you’re unable to find any one who is happy to accept your contribution!

Facebook founder Mark Zuckerberg must be feeling that frustration today. The Indian government recently ruled that the firm’s Free Basics service, which provides complimentary internet access to Facebook and a few other web based services, is illegal in that nation.

Why? Apparently, the Indians classify Facebook as an internet service provider because it provides web access as well as a web-based service. Thus, the firm is required by Indian law to allow users to access any online site and service, and not just a chosen few.

That principle is known as net neutrality in the United States. Although it has been debated throughout the government from time to time, it is generally the law of the land in America as well.

This isn’t the first time that Zuckerberg or his firm has been rebuffed for giving away funds or services. Several months ago, he and his wife were criticized for the legal structure of a charitable organization that received 99% of his Facebook stock.

And a few years ago, the citizens of Newark, New Jersey severely criticized him for failing to establish appropriate goals for a $100 million gift to the public education system of their city. Instead of generating gratitude, the gift precipitated immense rancor in the local community.

Of course, Mr. Zuckerberg isn’t yet ready to resign from his firm and manage his charitable investments on a full-time basis, as Bill and Melinda Gates did when they left Microsoft to found their global charitable foundation. He’s still fully immersed in the business of managing the world’s most successful social network.

Nevertheless, if he does intend to give away more money or resources, he might wish to pay more attention to managing those charitable activities. Otherwise, he’s likely to continue wondering why he isn’t receiving the slightest amount of gratitude from the beneficiaries of his largesse.

Facebook’s Legal Loopholes

Facebook recently published an analysis about its own users’ tendencies. Based on its internal data, the firm announced that individuals who received sad news in their news feeds tended to respond with sad comments. Conversely, individuals who received happier news tended to demonstrate happier responsive behavior. They referred to this phenomenon as “emotional contagion.”

Surprising? Not really. But a furor arose when the scientific community noticed a rather disconcerting fact about the Facebook analysis. Namely, Facebook had secretly manipulated the news feeds of its users, and had then studied their reactions.

In other words, the firm did not simply observe patterns of emotions that already existed in their users. It explicitly manipulated those emotions without informing their users.

Was this wrong? Facebook supporters might argue that its users don’t really care why certain postings are more prominently displayed in their news feeds than other postings. And by opening Facebook accounts, users agree (by clicking a check box) to permit the firm to modify its news feed display algorithms at any time.

But is it legal to secretly manipulate news feeds in order to study whether the emotions and behavioral reactions of users can be manipulated? Apparently, due to a pair of loopholes in federal law, Facebook committed no crime.

You see, if senior professors at a research university had proposed such a project, they would have been legally obligated to seek the approval of their university’s Institutional Review Board (IRB) before proceeding with the study. Under federal law, any academic research projects involving humans must undergo such reviews in order to protect the rights of participants.

What concerns are scrutinized by IRBs? Failing, for instance, to obtain the “informed consent” of participants prior to the start of research activities. Failing to notify participants that they can withdraw from the study at any time without penalty. Engaging in any type of deception.

Although these are not necessarily fatal flaws in research studies, they most certainly represent “red flags” that draw the attention of any university IRB. They also represent prominent features of Facebook’s research study. But because Facebook is a “private company” and is not a university, its researchers are not required to adhere to federal IRB regulations, and the study proceeded without such oversight.

Interestingly, Facebook did reach out to academic researchers at Cornell University to help it analyze the results and write the published study. But because those academicians joined the project after the “field work” had been concluded, the Cornell University IRB did not maintain jurisdiction over the research activity.

In other words, Facebook benefitted from a pair of loopholes in the federal IRB law. Because Facebook is not a university, and because the firm did not engage academic researchers until it concluded all data collection activities, it avoided any IRB oversight activities.

Nevertheless, from a risk management perspective, the social media giant may indeed be well advised to voluntarily adopt IRB style policies and procedures in the future. By failing to do so, the firm arguably places the well being of its own users in potential jeopardy, and the ethical strength of its corporate reputation as well.

Disclosure: Mike Kraten, the author of this posting and co-publisher of this AQPQ blog, is the Chair of the Institutional Review Board (IRB) of Providence College in Providence, Rhode Island. All opinions expressed in this posting represent his personal opinions; none represent the policies or positions of Providence College.

Goldman Sachs and Facebook: No Americans Allowed!

Goldman Sachs and Facebook are veritable American icons that bestride their respective industries. Goldman, for instance, has survived its searing caricature as a great, greedy vampire squid; it continues to dominate the financial industry from its world headquarters in lower Manhattan. And Facebook, likewise, has survived a film portrayal of its founder, President and CEO as a ruthless social climber; it now dominates the social media sector of the internet from its Silicon Valley base.

This pair of quintessential American firms joined forces last week, with Goldman selling $1 billion of Facebook shares. Given each firm’s powerful position in the American economy, it would have been reasonable to assume that the stock sale would have focused on American investors. Surprisingly, though, Goldman actually arranged to restrict its sale to buyers who were located outside of the United States.

In other words, Americans were the only investors in the world who were denied the opportunity to purchase Facebook stock! But why would Goldman, with Facebook’s approval, refuse to sell stock to American investors? And why would American regulators sit by and allow these firms to cater exclusively to foreigners?

Avoiding Prosecution

Oddly enough, Goldman reportedly feared being charged with legal violations by the United States Securities and Exchange Commission (SEC) if it sold Facebook stock to Americans, and thus refused to do so in order to reduce the risk of prosecution. In other words, Goldman believed that the SEC actually preferred that it cater exclusively to foreign investors.

To be specific, Goldman believed that it might have been accused of violating two distinct regulations if it sold Facebook shares to investors in the United States. One involved the rather arbitrary number 500; under SEC regulations, any American company that is owned by 500 or more investors must disclose its financial statements to the general public.

Because Facebook did not wish to make such disclosures until some time next year, Goldman created a single Special Investment Vehicle (SIV) that invested in Facebook; it then sold shares in the SIV to outside investors, thereby avoiding the restriction. Nevertheless, Goldman was concerned that the SEC might not count this SIV as a single investor because it actually represents the ownership interests of many client investors.

The second law involved a prohibition against private companies engaging in “general solicitation and general advertising” activities to attract investors; apparently, such activities are only permissible when conducted by publicly traded firms and not by privately owned firms. Although Goldman assiduously avoided any such formal activities, word of the transaction leaked out and set the public financial press on fire. The news leaks stoked immense public interest and reporting about the sale, and thus Goldman feared that the SEC would treat its private activities as public solicitations.

So Goldman, with Facebook’s approval, decided to eliminate any chance of prosecution involving a breach of one or both of these regulations by simply refusing to sell any stock to American investors. In fact, Americans who responded enthusiastically to a preliminary Goldman sales pitch were later contacted and told “thanks but no thanks; we are no longer willing to sell shares to you!”

Future Transactions and Public Policy

How will Goldman’s and Facebook’s “foreigners only” policy affect future equity sales transactions? One ramification, clearly, is that the continuation of this policy would drive ownership shares of successful American organizations into the hands of foreign investors. Last week’s sale, for instance, involved the placement of $1 billion of stock for a firm (i.e. Facebook) that was valued at $50 billion, thereby banishing 2% of the iconic American firm’s equity from the portfolios of American investors. As a result, 2% of all of Facebook’s future profits, dividends, and gains from increases in market capitalization will be claimed by foreigners.

In addition, this policy might help drive future stock sales transactions into the hands of foreign banking institutions and away from Goldman and other American firms. Facebook’s executive team was reportedly displeased about Goldman’s difficulties in managing this equity sale; in the future, they and other firms might simply opt to hire foreign banks to manage such transactions, particularly those that continue to exclude American investors.

Furthermore, the SEC’s professional judgment may be called into question as well. After all, why bother with a 500 investor threshold for public reporting purposes if this regulation can be easily skirted through the creation of a single SIV that purchases stock on behalf of multiple parties? And why ban American firms from engaging in general solicitation and advertising activities when such information might help address rumors that are circulating in the press about their private placements?

From a public policy perspective, the biggest question of all might involve whether American regulators are appropriately positioned to protect American investors in an increasingly global environment. Ultimately, an entirely new regulatory system might be preferable to one that denies American citizens the right to invest in their own home-grown firms.