Texas is suing Meta over its use of facial recognition. Attorney General Ken Paxton filed a lawsuit against the social media giant, alleging it illegally collected data on users without their consent, violating the state's privacy laws. Daniel Newman, Futurum Research founding partner & principal analyst, breaks down Texas' allegations and what it means for Meta moving forward.


Opening Bell

Texas Sues Meta Over Facial Recognition

here to discuss this is Daniel Newman future um research founding partner and principal analyst Daniel. Can you just further break down texas allegation here against meta? Yeah. So what's going on here is is essentially the biometric data that facebook or meta collects from users over the past several years is effectively being looked at for whether or not it was collected in a way that was without, you know, permission from the users. And of course whether or not the permission was given And whether or not Facebook Meta had the right to use it to enhance its business, whether that's for purposes of better knowing it's users for advertising. And the state of Texas believes there's a significant penalty which follows a suit that actually took place in Illinois where there was an award of about 650 million for violating a similar biometric data act. So, um effectively what's happening here is is we are looking at whether or not companies like meta and our opt in use of their, you know, more or less free services are breaking rules and what rights do we have as citizens to our privacy of our biometric data. It's certainly an interesting argument that we'll get to, I just want to go to Illinois case because that's something you obviously pulled up. Right Facebook settle that for to your 0.650 million does that then mean essentially Facebook is likely to settle here in that case becomes sort of precedent, although it's not an illegal ruling um in this case? Well, you're, you know, you're hearing hundreds of billions. was the number that was thrown out, there is what texas is looking for. I don't see any way that we're gonna arrive at such a mega gigantic number. But what I do see is uh, facebook meta does understand precedent here. And if the company allows this to continue to, to expand and go from state to state, like what we've seen with google and the multiple states now going up against them for for their play store, you could see this start to spiral. So I think meta needs to act swiftly. Of course they're saying there's no basis to this. But again, you know, we have this big conflict right now going on between big tech states, federal government, there's been tons of antitrust bills introduced over the past year. And I think companies like meta are gonna really have to think about, you know, do we want to fight this because you do have a situation here where a lot of people didn't understand how their data was being used and you don't necessarily have a sentiment going particularly well for meta and of course after the past few weeks and what's gone on in the market, the last thing they want us to have their name dragged through the mud once again. Yeah. To your point that facebook stock has been under pressure over the last couple of weeks. You know, facebook, especially since the Illinois case, not necessarily since his texas one, um, you know, has has discontinued the facial recognition technology, it has rebranded and kind of restructured as a company under the umbrella now of meta. Do you think though that's enough or is there lingering damage even beyond this kind of like monetary settlement? Potentially. I think the challenge is to better understand the company's practices and the company's intent, you know, you're kind of hearing that, you know, they're denying all the allegations against them. And of course that's a pretty typical reaction to to this kind of suit. But we all know that facebook has done a lot of things with data that the public doesn't necessarily trust and regulators and lawmakers are looking at this as an opportunity for these types of suits. It's could bring um, you know, political attention in a positive way to certain lawmakers, but it also is about holding these companies accountable for how they are collecting data. You know, the difference between even an Apple and a meta slash facebook is that effectively are we choosing to participate. So we've all seen what's happened with that idea for Apple or I. D. F. A. That's hurt metas business facebook advertising business in a big way. And the question is should users have the right to basically choose when their data is being collected. This could include biometric identify there's many of us might be okay with it in the event that it's going to somehow improve our experience, but that's the big thing we're weighing right now is the experience of all these apps and platforms that we enjoy using in many cases for free versus these companies rights to leverage that data to make a profit. And so, you know, we're really in this conflict of state right now for for antitrust and for this type of of regular regulation, having said that most consumers really don't understand their rights to privacy. So I think states attorneys general are trying to stand up and use this as a moment to to call out big tech for when they feel that they're being abusive. How do you think this all comes into play, you know, as facebook builds out kind of this metaverse and and other augmented or virtual reality kind of platforms. And I asked that in light of recent survey that that we reported on, I think it was last week that really show that a lot of people, I think majority of people who didn't trust facebook, you know, in building out the metaverse and really was leaning towards other platforms. And I just thought it was ironic given that facebook is really the one that ushered the metaverse into, you know what we see it as now and what we could see it in the future meta slash facebook. And I got to get in the habit of just saying meta certainly brought it to the attention of many people companies like NVIDIA have been doing this for a long time building technology for, you know, virtual and similar simulation. Uh, it's, it's being done by Microsoft and of course roadblocks. So there are many others out there. Facebook's in a very precarious situation right now. I mean, Tiktok is absolutely eating their lunch. You definitely have people that are lacking trust in the company, they're going to spend a fortune to develop this metaverse. And the question is, can they keep people on the platform? They've got a big demographic issue to that younger user, that younger audience that I believe instagram is probably more attractive to you than facebook. But are they gonna be able to carry those users over and and get them to materially by into their vision of the metaverse because the editors isn't gonna be one thing. You can be absolutely certain that there's going to be a number of different companies that are going to be participating. And if meta doesn't figure out a way to regain and recapture the trust and imagination of of its users. Its business model is going to be at risk and that's exactly how the market is reacting and continues to react since it's really pretty terrible last quarter and guidance. Yeah, it's reacting essential to the struggle to your point there, The struggle to rebuild trust, which often times, no matter what the situation is often is often times harder to do. Um, do you think lawmakers, both at the state and federal level, you know, given kind of the continued kind of regulatory oversight, but but but concerns around facebook and then kind of these concerns and then the newer concerns pulling up, you know, with the metaverse and what the implications could be there. Do you think they're going to pay more attention to kind of early regulation, you know, on on meta and and and the metaverse, just given everything in totality from, you know, privacy issues. Pre meta meta verse talks to the ones we're we're kind of seeing now. Well, I think over the last year we've seen a number of Congress uh introduced bills to better regulate big tech and meta of course, fits the profile, that large size and scope of their business. And this isn't only meta, this is going to be looking at amazon, that's gonna be looking at Apple, of course, alphabet and many of the other big tech platforms. We've got the Activision Microsoft deal and that's of course gonna see scrutiny. And while that isn't exactly metaverse based on the size of its gaming business contribution to its gaming business and how it makes Microsoft the largest gaming provider in the United States, you're gonna see that being looked at because that of course will evolve to metaverse applications. So it's not just about the metaverse, it's really about data, it's really about how users are going to be tracked, how they're going to be exposed to information? You know, we've got lawmakers, of course concerned about people's access to good quality information, how these platforms manage misinformation, and then of course how protected is our data, our money, our well with our finances, all the things that are at risk right now. Even just today, hearing about some of the scams going on with crypto, there's so much going on right now that needs, we need more regulation, we need help, but it needs to be focused and targeted and it doesn't necessarily need to take out any one big tech company, but it needs to look at the whole space very closely. Thank you. Great insight, really appreciate it. We're coming up against the wall so we have to leave it there, Daniel Newman, future Research, founding partner and principal analyst.