The Bright Side of Facebook’s Social Experiments

State of the Art By FARHAD MANJOO July 2, 2014

Facebook's disclosure last week that it had tinkered with about 700,000 users' news feeds as part of a psychology experiment conducted in 2012 inadvertently laid bare what too few tech firms acknowledge: that they possess vast powers to closely monitor, test and even shape our behavior, often while we're in the dark about their capabilities.

The publication of the study, which found that showing people slightly happier messages in their feeds caused them to post happier updates, and sadder messages prompted sadder updates, ignited a torrent of outrage from people who found it creepy that Facebook would play with unsuspecting users' emotions. Because the study was conducted in partnership with academic researchers, it also appeared to violate long-held rules protecting people from becoming test subjects without providing informed consent. Several European privacy agencies have begun examining whether the study violated local privacy laws.

But there may be other ways to look at the Facebook study and its publication. For one thing, studying how we use social media may provide important insights into some of the deepest mysteries of human behavior.

Facebook and much of the rest of the web are thriving petri dishes of social contact, and many social science researchers believe that by analyzing our behavior online, they may be able to figure out why and how ideas spread through groups, how we form our political views and what persuades us to act on them, and even why and how people fall in love.

Farhad Manjoo

Most web companies perform extensive experiments on users for product testing and other business purposes, but Facebook has been unusually forward in teaming with academics interested in researching questions that aren't immediately pertinent to Facebook's own business. Already, those efforts have yielded several important social science findings.

But there's another benefit in encouraging research on Facebook: It is only by understanding the power of social media that we can begin to defend against its worst potential abuses. Facebook's latest study proved it can influence people's emotional states; aren't you glad you know that? Critics who have long argued that Facebook is too powerful and that it needs to be regulated or monitored can now point to Facebook's own study as evidence.

It is problematic that Facebook roped users into the study without their express consent. The company has apologized, and now says it will look at ways to improve its guidelines for conducting research. "After the feedback from this study, we are taking a very hard look at this process," said Jonathan Thaw, a Facebook spokesman.

If Facebook figured out a way to be more transparent about its research, wouldn't you rather know what Facebook can do with the mountains of information it has on all of us?

Wouldn't you also be interested in what other tech companies know about us? How does Google's personalized search algorithm reinforce people's biases? How does Netflix's design shape the kinds of TV shows we watch? How does race affect how people navigate dating sites?

After the outcry against the Facebook research, we may see fewer of these studies from the company and the rest of the tech industry. That would be a shame.

"It would be kind of devastating," said Tal Yarkoni, a psychology researcher at the University of Texas at Austin who works on methods for studying large sets of data. "Until now, if you knew the right person at Facebook and asked an interesting question, a researcher could actually get collaborators at Facebook to work on these interesting problems. But Facebook doesn't have to do that. They have a lot to lose and almost nothing to gain from publishing."

If you've been cast in a Google or Facebook experiment, you'll usually never find out. Users who are put into experimental groups are selected at random, generally without their knowledge or express permission. While Facebook says people agree to such tests when they sign up for the site, users aren't given any extra notice when they're included in a study.

One problem is that obtaining consent may complicate experimental results.

"Facebook could throw up a bubble asking people to opt-in to each test, but it would totally mess up the results, because people would be selecting themselves into the test," Mr. Yarkoni said. (Offline social-science and medical researchers face a similar problem.) Another option would be for users to be periodically asked whether they wanted to take part in research, but some research ethicists have balked at the prospect of not giving users individual notice of each study.

Ryan Calo, an assistant professor at the University of Washington School of Law who studies technology policy, has called for companies that conduct experiments on their users to create "consumer subject review boards," a kind of internal ombudsman who would assess each proposed experiment and balance the potential risks to users against the potential rewards. The board would also be able to offer a set of explanations when there is a question about why certain experiments were approved.

"There's enough pressure and understanding of this issue that these firms are going to have to come up with a way to make the public and regulators comfortable with experimenting with consumers," Mr. Calo said.

Much of the research that Facebook and Google conduct to improve their own products is secret. Some is not. Google has acknowledged running about 20,000 experiments on its search results every year. It once tested 41 different shades of blue on its site, each color served to a different group, just to see which hue garnered the most engagement from users.

Over the last few years, Facebook has expanded what it calls its Data Science team to conduct a larger number of public studies. The company says the team's mission is to alter our understanding of human psychology and communication by studying the world's largest meeting place. So far, it has produced several worthy insights.

In 2012, the Data Science team published a study that analyzed more than 250 million users; the results shot down the theory of "the filter bubble," the long-held fear that online networks show us news that reinforces our beliefs, locking us into our own echo chambers. Like the new study on people's emotions, that experiment also removed certain posts from people's feeds.

In another experiment, Facebook randomly divided 61 million American users into three camps on Election Day in 2010, and showed each group a different, nonpartisan get-out-the-vote message (or no message at all). The results showed that certain messages significantly increased the tendency of people to vote — not just of people who used Facebook, but even their friends who didn't.

Zeynep Tufekci, an assistant professor at the School of Information and Library Science at the University of North Carolina, points out that many of these studies serve to highlight Facebook's awesome power over our lives.

"I read that and I said, 'Wait, Facebook controls elections,'" she said. "If they can nudge all of us to vote, they could nudge some of us individually, and we know they can model whether you're a Republican or a Democrat — and elections are decided by a couple of hundred thousand voters in a handful of states. So the kind of nudging power they have is real power."

Ms. Tufekci has offered a stirring call to arms against Facebook, Google and other giant web concerns because of their power to shape what we do in the world. She makes a worthy argument.

But if every study showing Facebook's power is greeted with an outcry over its power, Facebook and other sites won't disclose any research into how they work. And isn't it better to know their strength, and try to defend against it, than to never find out at all?

Email: farhad.manjoo@nytimes.com Twitter: @fmanjoo

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DealBook: Tyson Foods Reaches Formal Deal for Hillshire Brands

Photo Tyson Foods will pay $63 a share for Hillshire Brands.Credit Paul Sakuma/Associated Press

Tyson Foods formally struck a deal on Wednesday to buy Hillshire Brands for $7.7 billion, weeks after winning a quick bidding war for the company, which makes Jimmy Dean sausage.

The legal agreement was reached only days after Hillshire officially canceled its own $4.3 billion deal to buy Pinnacle Foods. That left Hillshire free to formally accept Tyson's takeover bid.

Under the terms of their agreement, Tyson will pay $63 a share for Hillshire. The deal is expected to close by Sept. 27.

Tyson will also pay the $163 million breakup fee owed to Pinnacle for the termination of its deal.

Tyson's offer emerged after a heated competition with another big meat producer, Pilgrim's Pride, culminating in an auction held over a weekend last month.

Both companies have sought to grow by buying well-known brands, which command fatter profit margins than commodity meats, amid a big round of consolidation in the food industry.

"By investing in Hillshire Brands and its collection of leading brands, we have a unique opportunity to transform an important segment of our business, and position Tyson Foods to meet American consumers' growing demand for protein at breakfast and throughout the day," Donnie Smith, Tyson's chief executive, said in a statement. "We operate in a competitive and complex marketplace that demands bold steps to remain an industry leader."

Tyson was advised by Morgan Stanley, JPMorgan Chase and the law firm Davis Polk & Wardwell.

Hillshire was advised by Centerview Partners, Goldman Sachs and the law firm Skadden, Arps, Slate, Meagher & Flom.

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Cybercrime Scheme Aims at Payments in Brazil

By NICOLE PERLROTH July 2, 2014

SAN FRANCISCO — Security researchers have uncovered what they believe is a significant cybercrime operation in Brazil that took aim at $3.75 billion in transactions by Brazilians.

It is unclear what percentage of the $3.75 billion worth of compromised transactions was actually stolen. But if even half of that value was redirected to criminals, the scope of the swindle would eclipse any other previous electronic theft.

The thieves preyed on Boleto Bancário, or Boletos, a popular Brazilian payment method that can be issued online and paid out through various channels like banks and supermarkets, said the researchers at the RSA Security division of EMC Corp.

Researchers said the ring had been using what they called bolware — a play on Boletos and malware, a term for software intended for illegitimate purposes — to intercept legitimate Boletos payments and redirect them to the accounts of criminals or mules, who are people paid to be stand-ins for the criminals.

Boletos can be used for every kind of transaction, from telephone bills and health insurance to mortgages and school tuition. Over six billion were issued last year, according to Brazil's central bank. In a country where many lack bank accounts and do not trust the postal service enough to send checks by mail, it is common to see long lines at banks as Brazilians carry their Boletos to pay their bills.

Bolware was first detected in 2012, but this is the first time that security researchers have been able to trace bolware back to a single criminal ring and determine the scope of compromised transactions.

For three months, RSA researchers in Brazil, Israel and the United States studied 19 variants of bolware. Using digital logs, they were able to trace them to what they believe is one group in Brazil. Based on the logs, researchers determined that 192,227 victims have been affected and 495,793 Boletos transactions worth $3.75 billion were hit.

"Cybercrime is a lot more rampant in Brazil than it is in the United States, and in many ways Brazil has been the trendsetter in cybercrime," said Avivah Litan, a cybersecurity analyst at Gartner.

Cybercrime now accounts for 95 percent of losses incurred by Brazilian banks, according to the Brazilian Federation of Banks, or Febraban. Brazil also has a large online population —about 107 million people, or over 50 percent of the country's population — and in 2012 an estimated $1.4 billion was lost to electronic fraud, according to Febraban.

Now, researchers say Boletos fraud has become a serious threat to banks in Brazil. After briefing Febraban on RSA's findings, Uri Fleyder, an RSA researcher based in Israel, said in an interview Monday that while Boletos fraud was a known issue, "No one realized it was on this scope."

Febraban officials said they could not comment on a continuing police investigation but noted that Brazilian banks last year spent $910 million on digital security and that they were encouraging consumers to migrate from Boletos to a more secure, fully electronic payment system called Direct Debit Authorization, or D.D.A.

That Boletos are so common and not very secure has made them an enticing target.

The criminals infected PCs by sending emails with malicious links and attachments that, once clicked, downloaded the bolware onto a computer.

The bolware burrowed into the Windows operating system of a computer and worked through Internet browsers — including Google's Chrome, Mozilla's Firefox and Microsoft's Internet Explorer — where it modifed Boletos transactions and redirected payments directly to the criminals' own accounts. The bolware also collected users' email credentials, most likely so more malicious emails could be sent to infect more computers.

RSA researchers said they had also briefed the Federal Bureau of Investigation and United States Secret Service and were working with local and international law enforcement officials to help prosecute the individuals behind the ring. The current assumption is that the group has ties to organized crime in Brazil, but Mr. Fleyder cautioned that for now, that was just an assumption.

Because the bolware only affects Windows PC users, researchers are advising PC users to take extra precautions before clicking on suspicious links or email attachments and to make Boletos payments only using the digital wallets on their mobile devices.

But the best advice, Mr. Fleyder offered, was simply to "be vigilant."

Dan Horch contributed reporting from São Paulo, Brazil.

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DealBook: Roche to Pay up to $1.7 Billion for Seragon Pharmaceuticals

Photo The deal is the latest in an string of smaller acquisitions by Roche Group, based in Basel, Switzerland.Credit Reuters

LONDON – The Swiss drug maker Roche Group said on Wednesday that it will pay up to $1.7 billion to acquire Seragon Pharmaceuticals, a privately held biotechnology firm focused on developing treatments for breast cancer.

Under the deal, Genentech, a unit of Roche based in San Francisco, will pay $725 million in cash, plus up to an additional $1 billion if Seragon's products reach certain milestones.

The transaction is expected to bolster Roche's portfolio of cancer treatments and comes amid a wave of consolidation in the pharmaceutical industry.

With rising costs in research and development, established pharmaceutical companies in search of the next blockbuster treatment are gobbling up smaller companies with promising products shortly before they are ready for wider distribution.

Seragon's most advanced drug in its pipeline, ARN-810, is currently in phase-one clinical trials.

Richard H. Scheller, an executive vice president and the head of Genentech's research and early development division, said Seragon's products could "one day redefine the standard of care" for certain types of breast cancers.

Seragon, based in San Diego, was spun off from Aragon Pharmaceuticals last year after Johnson & Johnson acquired Aragon for up to $1 billion.

The transaction is subject to regulatory approval and is expected to close in the third quarter. Seragon's portfolio of experimental drugs would be incorporated into Genentech following the acquisition.

The deal is the latest in an string of smaller acquisitions by Roche.

In June, Roche agreed to pay $350 million for Genia Technologies, a privately held DNA sequencing company. In May, the company agreed to pay up to $450 million for IQuum, a maker of medical testing equipment based in Massachusetts.

Founded in 1896, Roche, based in Basel, is one of the world's largest pharmaceutical companies. In 2013, the company posted sales of 46.8 billion Swiss francs, or about $52.8 billion, and employs more than 85,000 people worldwide.

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Dov Charney Fights to Regain Control of American Apparel

Dov Charney, the ousted chief of American Apparel, has raised his stake to 43 percent, a level approaching control of the company. By ELIZABETH A. HARRIS July 1, 2014

Dov Charney, the ousted chief of American Apparel, is forcing a stunning showdown with the company's board, full of twists and turns that few could have predicted when he was fired just two weeks ago.

Experts now say that Mr. Charney may have a real shot at regaining control of the company he founded.

"The board, on its own, suspends its chief executive, who then turns around and manages to acquire or control enough of the vote such that they might be able to come back and throw out the mutineers," said David E. Rosewater, a partner at Schulte Roth and Zabel who specializes in mergers and acquisitions. "That is very, very unusual."

Last week, in partnership with an investment firm, Mr. Charney managed to raise his stake in the company to 43 percent, a substantial increase from the 27 percent he held before. From here, he needs the support of only about 7 percent of the company's shareholders to start regaining control.

Timeline | American Apparel Milestones With Dov Charney at the Helm

According to regulatory filings posted on Tuesday, Mr. Charney hopes to expand the size of the board of directors to 15 people, which would give directors in favor of Mr. Charney a majority. There are six people on the board, not including Mr. Charney. That expansion could be accomplished two ways: a shareholders' meeting that Mr. Charney wants to convene in September — though so far, the board has rebuffed those efforts; or what is essentially a write-in vote that would skip the need for a meeting as long Mr. Charney can cobble together more than the 50 percent threshold of shareholder support.

Seven percent is not a very big hurdle. And despite the nasty public feud, and Mr. Charney's long reputation as a magnet for controversy, he has backers. Lion Capital, for example, one of American Apparel's longtime lenders, has long been supportive of Mr. Charney, according to a person familiar with that relationship. Lion Capital has the right to fill two board seats and has holdings in the company that can be converted to voting shares.

That said, there is considerable uncertainty surrounding this corporate battle, including an open investigation initiated by the board into Mr. Charney's personal and professional behavior that is being conducted by FTI Consulting. And several experts expect that the parties will wind up in court, especially concerning the precise timing of several recent events.

Mr. Charney's partnership with the investment firm, Standard General, became public on Friday evening. Based in New York, Standard General is a privately owned hedge fund that manages just over $1 billion in client money. Unlike some investors who have played a role in changes in management at the top of some America's best-known companies, capturing the attention of the media along the way, Standard General has managed to largely stay out of the public eye.

On Saturday, the board responded to the partnership by issuing a shareholders rights plan, often called a poison pill, which is intended to deter any takeover by preventing groups from building major stakes in a company. In this case, the plan said that if a person or group holding at least 15 percent of shares — like Mr. Charney — increased their stake by even 1 percent, the poison pill would be triggered. That would flood the market with cheap shares, and dilute existing shares, and everybody's stake along with it.

Regulatory documents indicate that Mr. Charney acquired 27 million shares from Standard General on Friday, but the precise details of the transactions — as well as the timing of when and what he disclosed — are likely fodder for a legal challenge. The way in which Mr. Charney arranges to acquire that last 7 percent of support or more could also end up in court because of certain restrictions in the poison pill.

Charles Elson, the director of John L. Weinberg Center for Corporate Governance at the University of Delaware, said he expected a flood of lawsuits.

"I'd be surprised if the whole thing didn't end up in litigation," Mr. Elson said. "At this point, everything becomes debatable."

Mr. Elson said that in addition to the board and founder wrangling over control, shareholders are likely to sue, as well.

"This would be a great law-school exam because there's so much in this thing," he added.

Another complicating factor for Mr. Charney, Mr. Elson said, is the company's share price. Once worth $15 a share, American Apparel's stock was worth about 50 cents for much of the spring, and according to regulatory filings, Mr. Charney was able to acquire the 27 million shares from Standard General last week for $19.5 million. That low stock price was plumbed under Mr. Charney's watch.

In a situation rife with question marks, perhaps only one thing seems certain, experts say: that all this public wrangling cannot be good for business.

"Hard to see how this is a good thing for this company," Mr. Rosewater said. "No matter what happens, no matter who wins."

Alexandra Stevenson contributed reporting.

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A Service for Sharing European Road Trips Looks to Expand 1ts Map

By MARK SCOTT July 2, 2014

LONDON — In France, Charlotte Jurdieu has become part of the millions in the sharing economy.

Twice a month, Ms. Jurdieu, 26, drives her Vauxhall Astra from Paris to her hometown in the Alsace region of eastern France to visit her family and boyfriend. And in the passenger seats of her small car come fellow customers of a French start-up company, BlaBlaCar, which has created an online ride-sharing service to match drivers like her with passengers in need of a ride.

Founded in Paris in 2006, the company aims to connect people who want to share long-distance journeys. It is also active in Russia, Germany, Poland and eight other European countries.

BlaBlaCar plans to announce on Wednesday that it has raised $100 million in new investment from a group of European and American venture firms, including Accel Partners and Index Ventures.

BlaBlaCar takes 12 percent for rides it arranges. The drivers share the costs, but cannot profit.

While sharing start-ups like Uber and Airbnb have met regulatory resistance with their business plans, BlaBlaCar operates differently, forbidding participants to profit from the ride-sharing service. Instead, drivers share the costs of their trips and riders often pay less than they would have using public transportation.

"I'm a lot cheaper than the train," said Ms. Jurdieu, one of more than eight million Europeans who now use BlaBlaCar. One-way train tickets from Paris to Alsace can cost more than a third more than what she charges for the same route. "As it's a long time to spend in a car, traveling with people also makes the time go faster."

The company's English name, which it uses regardless of the country where it operates, comes from how chatty people are when sharing journeys. If passengers do not want to talk during the trip, they can mark in their profiles that they are only "Bla," to denote that they are not looking for much conversation. Or they can go a full "BlaBlaBla" when they are happy to chatter throughout the trip.

Users like Ms. Jurdieu complete online profiles that tell others whether they have a vehicle or are looking for a ride. People can post when and where they are going, and others can then sign up to share rides.

The driver posts a price per seat, people pay up front — online, in some cases — and BlaBlaCar takes a 12 percent cut of each trip.

The typical journey — mostly between large European cities like Munich and Hamburg, Germany — is less than 200 miles, and the company says that more than a million people use the service each month. The largest markets, each with more than a million users, are France, Germany and Spain.

"The need we're trying to address is universal, and the market is massive," said Nicolas Brusson, a founder of BlaBlaCar. He said the company planned to use the new investment to expand across Europe and into emerging markets like Brazil and India where transport infrastructure is poor. "Countries like Turkey have many similar features to where we operate in Europe and Russia."

The rise of BlaBlaCar, which does not yet have plans to offer its service in the United States, is part of a growing trend of companies that are tapping into the so-called sharing economy.

American companies like the apartment-sharing service Airbnb and the ride-sharing company Lyft have quickly spread across the United States and overseas, as more people look for alternatives to traditional services from the likes of hotels and taxis.

Many of these companies, however, have run into resistance from existing companies, which complain the start-ups either do not comply with local laws or do not pay enough tax in the cities where they operate.

That is particularly true for the driving service Uber, which faced protests across Europe last month from thousands of taxi drivers who complained that the American start-up was not playing by the same rules that govern the region's taxi industry.

In response, Uber says it is offering greater choice for consumers in a heavily regulated industry that has seen little technological innovation for decades.

As BlaBlaCar does not allow drivers to profit from the ride-sharing service, the company says it does not face the same regulatory and tax problems that companies like Uber are facing in the United States and Europe.

The company caps how much drivers can charge passengers per route to ensure they cannot overcharge to make a profit from each journey. Instead, the company says, users can break even only on journeys by splitting the cost with other travelers, after BlaBlaCar takes its percentage.

Passengers are covered under the driver's existing insurance policy, which the company says does not need to be changed to take part in the ride-sharing service.

"It's a model where people aren't participating to make money, but to save money," said Dominique Vidal, a partner at Index Ventures. "That's fundamentally different to other sharing-economy companies."

BlaBlaCar, however, has had a few troubles. This year, for example, it expanded into Russia and Ukraine, only weeks before tension between the two countries eventually led to Russia's annexation of Crimea.

The company also had to try to address customer concerns about safety, particularly among female passengers worried about getting into a car with a stranger.

"We take safety extremely seriously," said Mr. Brusson, who added that women can choose to share vehicles only with other women. "People rely a lot on peer reviews. It's the first thing people check when they want to find a car."

As it looks to expand into new markets, BlaBlaCar says it is drawing lessons from Russia, where despite the geopolitical tensions, it has attracted about 250,000 users since its debut in February and expects to hit one million subscribers by the end of the year. To aid that growth, the company acquired a local Russian rival — an approach it is likely to follow in other countries it enters, according to Mr. Brusson.

When one customer, Dzmitry Bazhko, signed up with BlaBlaCar, he was looking for a cheap way to travel from Moscow to his hometown, Minsk, the capital of Belarus.

After previously spending 12 hours on that train journey, Mr. Bazhko said he was surprised that the shared car trip took less than half the time — and was almost a third of what the train ticket would have cost.

"I don't have a driver's license, and the train can be really expensive," said Mr. Bazhko, 27, who works for Airbnb in Moscow. "So far, it's the cheapest way I've found to get back home."

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DealBook: Jamie Dimon of JPMorgan 1s Told He Has Throat Cancer

Photo Jamie Dimon, the chairman and chief executive of JPMorgan Chase, in Detroit in May.Credit Charley Tines/Detroit News, via Associated Press

Jamie Dimon, the chief executive of JPMorgan Chase, was diagnosed with throat cancer and will begin treatment shortly at Memorial Sloan Kettering Cancer Center, he said in an email to the bank's employees and shareholders late Tuesday.

Doctors discovered the cancer at an early stage, Mr. Dimon said, noting that his condition is "curable." After a series of tests, the 58-year-old executive said, the doctors confirmed that the cancer had not spread beyond the right side of his neck and adjacent lymph nodes. Mr. Dimon assured employees at the nation's largest bank that the prognosis from the doctors was "excellent."

Mr. Dimon, who has held the dual roles of chief executive and chairman at the bank since 2006, has been atop JPMorgan longer than any other bank chief. His tenure, which began when JPMorgan acquired Bank One, has been marked by triumphs — the bank emerged from the financial crisis in better shape than its rivals — and by tumult.

The bank has worked to mend its frayed relationships with regulators — a painful reconciliation that cost the bank roughly $20 billion. In November, JPMorgan reached a record $13 billion settlement with a range of government authorities over its sale of questionable mortgage-backed securities in the lead-up to the financial crisis. The bank also reached a $2 billion settlement of accusations that JPMorgan failed to sound alarms about the fraud surrounding Bernard L. Madoff's Ponzi scheme.

JPMorgan has also been buffeted by the departure of several top executives. In the last two years alone, at least 10 senior executives have left JPMorgan. Most recently, Michael J. Cavanagh, once considered an heir to Mr. Dimon, announced that he would leave the bank in March to join the private equity firm the Carlyle Group.

In his annual letter to shareholders in April, Mr. Dimon stressed that despite the "constant and intense pressure," he was proud of the bank's resiliency and its resolve. Last year, JPMorgan earned $17.9 billion in profit despite the legal costs.

Mr. Dimon reiterated his faith in the leadership of the bank on Tuesday. He did not outline any plans to cede the reins of the bank while he undergoes treatment — a process that he said should last about eight weeks. In his note, Mr. Dimon emphasized that the company "will continue to deliver first-class results for our customers."

The illness of any chief executive naturally prompts questions about who is prepared to take over, at least for a little while. Mr. Dimon emphasized, throughout his note, though, that his treatment was "curable" and that he will remain immersed in the day-to-day operations of the bank.

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