Facebook shrugs off feeble fine from Europe

The European Commission has hit Facebook with a €110 million fine for providing incorrect or misleading information during the WhatsApp acquisition, but Facebook doesn’t seem bothered.

When Facebook initiated the $19 billion acquisition of WhatsApp in 2014, it informed the Commission that it would be unable to establish reliable automated matching between Facebook users’ accounts and WhatsApp users’ accounts. The investigation has found this information to be incorrect, as it engineers knew it was possible to pair the accounts at the time of the merger.

The whole saga came to light during August last year, when WhatsApp announced updates to its terms of service and privacy policy, including the possibility of linking WhatsApp users’ phone numbers with their Facebook accounts. It would serve to bolster the advertising platform, and received a huge amount of backlash from the privacy community. That is another story however, the fine is where we are focusing on for the moment.

For the vast majority of companies around the world, €110 million would be something to worry about. It could be the difference between existing and not. But for the social media giant, it is hardly going to bother the team that much when you think about the mammoth amounts of cash it is rolling in every quarter.

If a fine is supposed to act as a deterrent, a means to force executives to see the error of their ways and change the way the business operates, the European Commission (hereafter known as the Gaggle of Red-tapers) need to have a rethink about how it slaps wrists. €110 million will make a national chain of coffee shops sh*t itself, but will it actually bother Facebook? A straight up fine does not seem to be the best course of action here, but how about a percentage of total revenues or profits? It might actually provide some contextual punishment.

If €110 roughly converts to $120 million, this would mean the Gaggle is fining Facebook approximately 3.9% of the net income which it reported for the first quarter of 2017. Across 2016, Facebook brought in total revenues of $26.885 billion and net incomes of $10.217. The fine now becomes 0.44% of annual revenues and 1.1% of annual net income.

These are percentages which Facebook executives can brush off, they probably spend on Christmas parties around the world, but when you consider Facebook has been growing 50% year-on-year for the last couple of quarters, the fine becomes even smaller and more irrelevant.

Another company which receives the sharp-end of the stick occasionally is Qualcomm. Whether the FTC wins its anti-competition case against the chipmaker remains to be seen, though it was hit with an $815 million fine towards the end of 2016 from the Korean Fair Trade Commission for violating antitrust laws. During the same quarter, Qualcomm reported net income of $700 million. This is a fine which will have an impact on the business.

Now we’re not suggesting the Gaggle of Red-tapers starts removing all profits from an organization on fines, but perhaps a fine based on the percentage of the last quarterly results? The current system of flat fines ensures the majority obey the rules, but the big boys can do what they want and absorb the fine without any material impact on the business. We’re not saying they do, but when put in this context, will Facebook change its ways for a fine which accounts for 1.1% of annual profits? Probably not.

We don’t expect the Gaggle to change the system, after all, the above argument is logical and the boresome bureaucrat is anything but sensible. But wouldn’t it be nice to have a system where everyone was held accountable, not just the ones who can’t afford it?

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