Facebook doesn't just screw users with its shifty privacy
practices; it also engages in shifty (if technically legal)
tax-dodging practices. Just before Christmas, Britain's The Guardian newspaper reported that
Facebook uses a byzantine accounting technique called -- no kidding
-- the "Double Irish" to drastically minimize its tax burden.
Basically, "Facebook is structured so that companies buying
advertisements ... anywhere outside of the U.S. have to pay
Facebook Ireland." Through a complicated series of maneuvers
involving royalty payments and transfers to the Cayman Islands,
Facebook Ireland is then able to report a huge loss, "despite it
accounting for 44% of the social network's revenues." Per Business Insider's math, that means
Facebook paid just $4.64 million on its entire non-U.S. profits of
$1.34 billion for 2011 -- an effective tax rate of 0.3%.
You almost had to see this coming: Just a few weeks ago, execs
at the photo-sharing app Instagram, acquired by Facebook last fall,
announced a truly breathtaking revision of its Terms of Service
that granted Instagram blanket rights to sell user photos to third
parties without compensation. In the wake of outrage from users
(including media companies such as National Geographic), Instagram
co-founder Kevin Systrom was, of course, forced to walk back the
changes and insist that "It is not our
intention to sell your photos." (Oh, please. That was
totally your intention; you just thought you'd get away
Startups that have built businesses around the Facebook platform
invariably get jerked around not only because the Facebook platform
is a moving target , but because Facebook is always changing the
rules of the road for partners. Consider, for instance, the sad
story of game-maker Zynga, which pulled the plug on a bunch of games at the
end of the year as it continues to lay off employees. Facebook
has, over time, forced game-makers into its payment system (where
it takes a 30% cut), massively reduced exposure of games, and,
specifically in regard to Zynga, announced a change to the
partnership in November that essentially means Facebook can now
compete with Zynga by making its own games.
Also last month, Facebook introduced the Poke app. The app,
which lets users send self-destructing texts, videos and images,
"was so closely modeled on Snapchat that it led to speculation that
Facebook had tried to buy the smaller company," as Bloomberg Businessweek reported.
"Snapchat users were not impressed. They hated the new app,
deriding it as an obvious rip-off." Facebook CEO Mark Zuckerberg
was reportedly part of the Poke coding team.
Facebook doesn't even play well with the ad industry.
As my colleague Kate Kaye noted last week, Facebook doesn't use
Ad Choices, the industry's standardized ad-privacy program
(Amazon is the other
big tech holdout). For agencies, Kaye wrote, this means that
managing privacy compliance for Facebook campaigns "costs extra
time and money, and perhaps most important, creates additional
Why do we put up with all this? Well, some actually don't (see
the Dec. 31 "Bits" blog guest post by former Engadget
Editor-in-Chief Ryan Block titled "Why
I'm Quitting Instagram," in which he reveals that he also quit
Facebook last month). But the larger answer may be that the media
-- and by extension, we as a culture -- tend to give tech startups
an almost absurd amount of leeway when it comes to the basics of
professionalism. A certain amount of erraticness and even
deviousness is almost seen as part of the charm of tech
But here's something that may surprise you (because time flies;
just check your timeline): Facebook isn't exactly a startup
anymore. It turns 9 next month (it launched Feb. 4, 2004 as
thefacebook.com). And its boy-genius CEO turns 29 in May.
I'd say "They grow up so fast!" -- except that sometimes they
Simon Dumenco is the "Media Guy" media columnist for
Advertising Age. You can follow him on Twitter @simondumenco.