A man dressed as a Russian troll doll attended the recent Facebook Senate hearing, his costume emblematic of the company, its Russian scandal, and worrisome history. Few realize that Facebook goes back a long way with the Russians and, in fact, its spectacular success dates back to 2009 when an audacious $200-million investment was made by Russian investor Yuri Milner. The transaction raised eyebrows in Silicon Valley, not only because Milner was Russian, but because the investment appeared excessive. His price, to acquire less than 2 percent of Facebook, established a value for the start-up of $10 billion.
Eight years later, in 2017, the world found out through the Panama Papers that Milner’s backers were oligarchs and companies linked to the Kremlin and Russian Prime Minister Dmitry Medvedev. But back in 2009, this was a secret, and the burning question then was simply why did Milner pay so much and what did he know that the rest of the world didn’t? “We have a unique perspective on this investment” he said in an interview “because we see something that other people don’t see, because we see the monetization profiles of our other social networks in our part of the world.”
Milner gave the 25-year-old Zuckerberg financial credibility and also a profitable template borrowed from the Russian “Facebooks” that Milner partially owned. He knew that profits were incredible if content was free, users multiplied exponentially, and data was captured from users, secretly compiled into profiles of their lifestyles, friends, and personality traits, then sold as advertising targets to corporations, governments, politicians, or causes. Facebook’s dirty little secret, in other words, became its business model, also adopted by Google, Twitter and others, as a private sector espionage and propaganda service. In geek speak, however, the model was euphemistically referred to as big data mining and advertising.
In the next three years, Milner and Zuckerberg sped toward a lucrative “exit”, or sale to the public of shares, by steadily announcing dramatic leaps in the number of “active users.” They also forged an aggressive business model that brought trouble by November 2011 when the company had to settle with the Federal Trade Commission following allegations of user deception and privacy breaches.
Just six months after its FTC skirmish, Milner convinced Wall Street into selling off his and other Facebook shares for a bundle. The company stated it had a winning strategy and 901 million active users, a number that was preposterous, equivalent to the population of India, and nine times’ more than the 100 million users Facebook had when the Russians bought in. It seemed, frankly speaking, unbelievable. And it probably was.
The 901 million number had not even been audited, or certified by an independent third party. This was inappropriate—like taking as fact a mining company’s estimated ounces of gold in the ground. I wondered if my Facebook page, opened years before and never used, was a so-called “active user.” My page was there, but so were another 33 Facebook pages with my name, an egg in place of a photo, and a link to my email address. Looking back, these were bots.
On May 25, 2012, I wrote a column headlined “Is Facebook for Real?” in The Financial Post and questioned that, if there were 33 fake pages in my name on Facebook’s registry, how many other fake users were there? Dividing 33 into 901 so-called “active” users, did this mean there were really only 27 million real users which would reduce the value of Facebook shares to $1.15 apiece from $38?
My calls to Facebook for responses went unanswered, and the column created a stir in trading circles and at the Securities and Exchange Commission. The stock steadily fell in price in the weeks that followed down to as low as $19.69 from its issued price of $38 a share. Then, on August 2, 2012 Facebook admitted that there were as many as 80 million fake or bogus accounts, in a report filed with the Securities and Exchange Commission. The company said this represented only eight percent of the total, but provided no explanation as to why this had occurred, who had done this, and did not provide a pledge to independently audit “active” users in the future.
This was also unacceptable, so on August 17, 2012, I wrote “Is Your Facebook Lying to You?” and reported that Facebook’s “active” user figures still included the 33 fake Facebook pages in my name. Others had come forward too, including persons who opened a page for a pet or a child that suddenly proliferated into dozens of fake pages. Another friend told me that he counted 100 fake pages of his site. Some advertisers publicly questioned its user metrics, but as the company’s espionage-and-propaganda template and bots steadily rolled out, so did profits, as prophesied by Yuri Milner years ago. The Russians cashed out in 2012 for at least $6 billion, and Facebook continued business as usual.
Bots and trolls became more sophisticated and Facebook becamethe perfect tool for Russian as well as advertiser skullduggery. That led, in February 2018, to U.S. Justice Department charges against 13 Russians and three companies for perpetrating a scheme to subvert the 2016 election and support Trump’s presidential campaign by using stolen identities to pose as Americans, to sow discord among the electorate by creating Facebook groups, distributing divisive ads, and posting inflammatory images. The owners of these companies were secret but, like Milner, believed to be linked to the Kremlin.
By 2018, Facebook was claiming more than two billion members after expanding into corrupt societies and ruthless dictatorships and then doing their bidding. For instance, in 2014 Facebook agreed, at the request of the Kremlin, to censor pages in support of a protest against the jailing of popular Putin critic Alex Navalny; it blocked 29 other pieces of content, and, ominously, agreed to store all data about Russian users inside Russia. In 2016, leaks from Facebook employees exposed that Facebook had created a censorship tool for China. Then in March 2018, the United Nations said Facebook played a role in the Rohingya genocide by spreading hate speech.
Today, Facebook’s Russian influence lingers. My 33 fake pages were finally removed when I last checked in 2015, but goodness knows how many other “users” are bots. And finally in 2018, after the Facebook data misuse and election scandals, the FTC realized compliance had been non-existent and reopened its privacy and deceptive practices case.
Unfortunately, the social media giant became to technology what Russia has been to geopolitics: an intrusive and often unethical player. Over the years, it has played fast and loose with regulators, facts, the press, and deployed a sketchy business model that Google and others have adopted, that should be illegal.
Fortunately, the Europeans are about to crack down on Facebook and others, and not a minute too soon. The United States should follow suit. And, most of all, Facebook’s management should look for another line of work.