Meta’s European party is hanging by a thread

There are two ways of looking at Meta Platforms Inc.'s release of a Twitter competitor called Threads on Thursday. It's beautifully timed to capitalize on growing unease over the way Elon Musk has run Twitter. And it's also horribly timed, coinciding with the imminent launch of a new European Union law that strikes at the heart of the way Meta makes money. That undermines its plans to turn Threads into another outlet for data harvesting. For now Chief Executive Officer Mark Zuckerberg is taking what he can get. He has rolled out Threads in dozens of countries, racking up more than 10 million users in the first seven hours -- just not in the EU. 

As of Thursday, the new app — which combines a cornucopia of personal information for advertisers about people's health, shopping habits, location and other unspecified "sensitive" data — wasn't available in France, Germany, Italy or Belgium. Down the line,  Zuckerberg may be forced to give the residents of those countries a choice on whether they want their data processed for the purposes of advertising. If they say no, that could hurt Meta financially.  

Threads is being held back from Europe because Meta knows EU regulators won't like the way the app plays mixologist with  personal information. But the reason isn't the General Data Protection Regulation, the EU's weakly enforced privacy law that has let Meta engage in a free-for-all on private data until now. It's because of another upcoming antitrust law called the Digital Markets Act (DMA). Meta delayed Threads because it needed more guidance from EU officials on how to follow that law, which could have a much broader impact on the company than just a belated launch.  

You may be wondering what a European antitrust law has to do with privacy. These days, the answer is, "Quite a lot." In fact, Meta's business model faces a greater threat from new competition rules than it ever did from its data-protection policies. That is in part because of a shift in mindset among EU regulators over treating privacy infringements as a form of consumer harm — an approach the US doesn't take. One result: The DMA says the biggest online companies, designated as gatekeepers, must not "combine personal data" from their platforms with personal data from any other platform or third-party service unless consumers give their permission.

That single rule threatens to be a major blow to Meta. About 98% of its revenue is derived from advertising, and that business is based on compiling personal data from an array of sources outside of Facebook. Those sources — from apps and browsers to ad networks — use Meta's free business tools and plugins to then take part in targeted ads on platforms like Instagram and, eventually, Threads.

The DMA rule means Meta will spend the next six months or so negotiating with EU officials about how to comply. It will somehow need to give consumers a choice about combining their data for advertising.

How Meta provides that choice will make a huge difference to its bottom line. Consider that Apple Inc.'s decision to ping iPhone users with a pop-up window asking whether advertisers could track them cost Facebook an estimated $14.5 billion in lost sales last year.

For obvious reasons, Meta won't want to design the same kind of pop-up for its apps, but it may be forced to do something similar.

German antitrust regulators have been pushing Meta to redesign its apps so that it's forced to give users a choice on combining their data for ad targeting. The regulator, whose case against the company has been going on for years and formed the basis for the critical DMA rule, announced last month that Meta was taking steps in the right direction. It had put the option into its apps, but the way it "informed" users was still inadequate.

Meta had also designed a new "accounts center" where Facebook and Instagram users could consent to what data gets harvested and combined, the regulator said. The new feature isn't public since it still needs regulatory approval. The Germans said Meta was still trying to nudge users to merge their accounts, referring to their data as "information" instead of "personal data" for instance. 

The big question is a small detail: Will the choice be a pop-up on people's phones? If so, then it could be as consequential as Apple's privacy update. Meta will push back hard against that, but now it has both the Germans and the EU's looming law to fight, and it doesn't have much opportunity left for appeal. On Wednesday, the European Court of Justice upheld the German regulator's case. A Meta spokesman said the company was considering its next moves, but if it appeals, the company will probably lose.

"The ruling from the European Court of Justice sends the signal to them that the age of unlimited data harvesting and profiling are over," says Anne Witt, an antitrust scholar with EDHEC Business School in Paris. "Meta needs to give users a meaningful choice." 

Doing business in the EU is already becoming harder for Meta. Spoiling the buzzy entrance of Threads is a sign of what's to come.

Parmy Olson is a Bloomberg Opinion columnist covering technology. A former reporter for the Wall Street Journal and Forbes, she is author of "We Are Anonymous."

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.