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TikTok hit with consumer, child safety and privacy complaints in Europe

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TikTok is facing a fresh round of regulatory complaints in Europe where consumer protection groups have filed a series of coordinated complaints alleging multiple breaches of EU law.

The European Consumer Organisation (BEUC) has lodged a complaint against the video sharing site with the European Commission and the bloc’s network of consumer protection authorities, while consumer organisations in 15 countries have alerted their national authorities and urged them to investigate the social media giant’s conduct, BEUC said today.

The complaints include claims of unfair terms, including in relation to copyright and TikTok’s virtual currency; concerns around the type of content children are being exposed to on the platform; and accusations of misleading data processing and privacy practices.

Details of the alleged breaches are set out in two reports associated with the complaints: One covering issues with TikTok’s approach to consumer protection, and another focused on data protection and privacy.

Child safety

On child safety, the report accuses TikTok of failing to protect children and teenagers from hidden advertising and “potentially harmful” content on its platform.

“TikTok’s marketing offers to companies who want to advertise on the app contributes to the proliferation of hidden marketing. Users are for instance triggered to participate in branded hashtag challenges where they are encouraged to create content of specific products. As popular influencers are often the starting point of such challenges the commercial intent is usually masked for users. TikTok is also potentially failing to conduct due diligence when it comes to protecting children from inappropriate content such as videos showing suggestive content which are just a few scrolls away,” the BEUC writes in a press release.

TikTok has already faced a regulatory intervention in Italy this year in response to child safety concerns — in that instance after the death of a ten year old girl in the country. Local media had reported that the child died of asphyxiation after participating in a ‘black out’ challenge on TikTok — triggering the emergency intervention by the DPA.

Soon afterwards TikTok agreed to reissue an age gate to verify the age of every user in Italy, although the check merely asks the user to input a date to confirm their age so seems trivially easy to circumvent.

In the BEUC’s report, the consumer rights group draws attention to TikTok’s flimsy age gate, writing that: “In practice, it is very easy for underage users to register on the platform as the age verification process is very loose and only self-declaratory.”

And while it notes TikTok’s privacy policy claims the service is “not directed at children under the age of 13” the report cites a number of studies that found heavy use of TikTok by children under 13 — with BEUC suggesting that children in fact make up “a very big part” of TikTok’s user base.

From the report:

In France, 45% of children below 13 have indicated using the app. In the United Kingdom, a 2020 study from the Office for Telecommunications (OFCOM) revealed that 50% of children between eight and 15 upload videos on TikTok at least weekly. In Czech Republic, a 2019 study found out that TikTok is very popular among children aged 11-12. In Norway, a news article reported that 32% of children aged 10-11 used TikTok in 2019. In the United States, The New York Times revealed that more than one-third of daily TikTok users are 14 or younger, and many videos seem to come from children who are below 13. The fact that many underage users are active on the platform does not come as a surprise as recent studies have shown that, on average, a majority of children owns mobile phones earlier and earlier (for example, by the age of seven in the UK).

A recent EU-backed study also found that age checks on popular social media platforms are “basically ineffective” as they can be circumvented by children of all ages simply by lying about their age.

Terms of use

Another issue raised by the complaints centers on a claim of unfair terms of use — including in relation to copyright, with BEUC noting that TikTok’s T&Cs give it an “irrevocable right to use, distribute and reproduce the videos published by users, without remuneration”.

A virtual currency feature it offers is also highlighted as problematic in consumer rights terms.

TikTok lets users purchase digital coins which they can use to buy virtual gifts for other users (which can in turn be converted by the user back to fiat). But BEUC says its ‘Virtual Item Policy’ contains “unfair terms and misleading practices” — pointing to how it claims an “absolute right” to modify the exchange rate between the coins and the gifts, thereby “potentially skewing the financial transaction in its own favour”.

While TikTok displays the price to buy packs of its virtual coins there is no clarity over the process it applies for the conversion of these gifts into in-app diamonds (which the gift-receiving user can choose to redeem for actual money, remitted to them via PayPal or another third party payment processing tool).

“The amount of the final monetary compensation that is ultimately earned by the content provider remains obscure,” BEUC writes in the report, adding: “According to TikTok, the compensation is calculated ‘based on various factors including the number of diamonds that the user has accrued’… TikTok does not indicate how much the app retains when content providers decide to convert their diamonds into cash.”

“Playful at a first glance, TikTok’s Virtual Item Policy is highly problematic from the point of view of consumer rights,” it adds.

Privacy

On data protection and privacy, the social media platform is also accused of a whole litany of “misleading” practices — including (again) in relation to children. Here the complaint accuses TikTok of failing to clearly inform users about what personal data is collected, for what purpose, and for what legal reason — as is required under Europe’s General Data Protection Regulation (GDPR).

Other issues flagged in the report include the lack of any opt-out from personal data being processed for advertising (aka ‘forced consent’ — something tech giants like Facebook and Google have also been accused); the lack of explicit consent for processing sensitive personal data (which has special protections under GDPR); and an absence of security and data protection by design, among other issues.

We’ve reached out to the Irish Data Protection Commission (DPC), which is TikTok’s lead supervisor for data protection issues in the EU, about the complaint and will update this report with any response.

France’s data watchdog, the CNIL, already opened an investigation into TikTok last year — prior to the company shifting its regional legal base to Ireland (meaning data protection complaints must now be funnelled through the Irish DPC as a result of via the GDPR’s one-stop-shop mechanism — adding to the regulatory backlog).

Jef Ausloos, a postdoc researcher who worked on the legal analysis of TikTok’s privacy policy for the data protection complaints, told TechCrunch researchers had been ready to file data protection complaints a year ago — at a time when the platform had no age check at all — but it suddenly made major changes to how it operates.

Ausloos suggests such sudden massive shifts are a deliberate tactic to evade regulatory scrutiny of data-exploiting practices — as “constant flux” can have the effect of derailing and/or resetting research work being undertaken to build a case for enforcement — also pointing out that resource-strapped regulators may be reluctant to bring cases against companies ‘after the fact’ (i.e. if they’ve since changed a practice).

The upshot of breaches that iterate is that repeat violations of the law may never be enforced.

It’s also true that a frequent refrain of platforms at the point of being called out (or called up) on specific business practices is to claim they’ve since changed how they operate — seeking to use that a defence to limit the impact of regulatory enforcement or indeed a legal ruling. (Aka: ‘Move fast and break regulatory accountability’.)

Nonetheless, Ausloos says the complainants’ hope now is that the two years of documentation undertaken on the TikTok case will help DPAs build cases.

Commenting on the complaints in a statement, Monique Goyens, DG of BEUC, said: “In just a few years, TikTok has become one of the most popular social media apps with millions of users across Europe. But TikTok is letting its users down by breaching their rights on a massive scale. We have discovered a whole series of consumer rights infringements and therefore filed a complaint against TikTok.

“Children love TikTok but the company fails to keep them protected. We do not want our youngest ones to be exposed to pervasive hidden advertising and unknowingly turned into billboards when they are just trying to have fun.

“Together with our members — consumer groups from across Europe — we urge authorities to take swift action. They must act now to make sure TikTok is a place where consumers, especially children, can enjoy themselves without being deprived of their rights.”

Reached for comment on the complaints, a TikTok spokesperson told us:

Keeping our community safe, especially our younger users, and complying with the laws where we operate are responsibilities we take incredibly seriously. Every day we work hard to protect our community which is why we have taken a range of major steps, including making all accounts belonging to users under 16 private by default. We’ve also developed an in-app summary of our Privacy Policy with vocabulary and a tone of voice that makes it easier for teens to understand our approach to privacy. We’re always open to hearing how we can improve, and we have contacted BEUC as we would welcome a meeting to listen to their concerns.

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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Yelp puts trust and safety in the spotlight

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Yelp released its very first trust and safety report this week, with the goal of explaining the work that it does to crack down on fraudulent and otherwise inaccurate or unhelpful content.

With focus on local business reviews and information, you might think Yelp would be relatively free of the types of misinformation that other social media platforms struggle with. But of course, Yelp reviews are high stakes in their own way, since they can have a big impact on a business’ bottom line.

Like other online platforms, Yelp relies on a mix of software and human curation. On the software side, one of the main tasks is sorting reviews into recommended and not recommended. Group Product Manager for Trust and Safety Sudheer Someshwara told me that a review might not be recommended because it appears to be written by someone with a conflict of interest, or it might be solicited by the business, or it might come from a user who hasn’t posted many reviews before and “we just don’t know enough information about the user to recommend those reviews to our community.”

“We take fairness and integrity very seriously,” Someshwara said. “No employee at Yelp has the ability to override decisions the software has made. That even includes the engineers.”

He added, “We treat every business the same, whether they’re advertising with us or not.”

Yelp trust and safety report

Image Credits: Yelp

So the company says that last year, users posted more than 18.1 million reviews, of which 4.6 million (about 25%) were not recommended by the software. Someshwara noted that even when a review is not recommended, it’s not removed entirely — users just have to seek it out in a separate section.

Removals do happen, but that’s one of the places where the user operations team comes in. As Vice President of Legal, Trust & Safety Aaron Schur explained, “We do make it easy for businesses as well as consumers to flag reviews. Every piece of content that’s flagged in that way does get reviewed by a live human to decide whether it should should be removed violating our guidelines.”

Yelp says that last year, about 710,000 reviews (4%) were removed entirely for violating the company’s policies. Of those, more than 5,200 were removed for violating the platform’s COVID-19 guidelines (among other things, they prohibit reviewers from claiming they contracted COVID from a business, or from complaining about mask requirements or that a business had to close due to safety regulations). Another 13,300 were removed between May 25 and the end of the year for threats, lewdness, hate speech or other harmful content.

“Any current event that takes place will find its way onto Yelp,” acknowledged Vice President of User Operations Noorie Malik. “People turn to Yelp and other social media platforms to have a voice.”

But expressing political beliefs can conflict with what Malik said is Yelp’s “guiding principle,” namely “genuine, first-hand experience.” So Yelp has built software to detect unusual activity on a page and will also add a Consumer Alert when it believes there are “egregious attempts to manipulate ratings and reviews.” For example, it says there was a 206% increase in media-fueled incidents year-over-year.

It’s not that you can’t express political opinions in your reviews, but the review has to come from first-hand experience, rather than being prompted by reading a negative article or an angry tweet about the business. Sometimes, she added, that means the team is “removing content with a point of view that we agree with.”

One example that illustrates this distinction: Yelp will take down reviews that seem driven by media coverage suggesting that a business owner or employee behaved in a racist manner, but at the same time, it also labeled two businesses in December 2020 with a “Business Accused of Racism” alert reflecting “resounding evidence of egregious, racist actions from a business owner or employee.”

Beyond looking at individual reviews and spikes in activity, Someshwara said Yelp will also perform “sting operations” to find groups that are posting fraudulent reviews.

In fact, his team apparently shut down 1,200 user accounts associated with review rings and reported nearly 200 groups to other platforms. And it just rolled out an updated algorithm designed to better detect and un-recommend reviews coming from those groups.

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Broaden your view of ‘best’ to make smarter, more inclusive investments

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What can we learn from the best 40 venture capital investments of all time? Well, we learn to invest exclusively in men, preferably white or Asian.

We reviewed CB Insights’ global list of “40 of the Best VC Bets of all Time.” All of the 40 companies’ 92 founders were male.

  • Of the 43 U.S.-based founders, 35 were white American; four were white immigrant/first generation, from France, Ukraine, Russia and Iran; and four were Indian immigrant/first generation.
  • Of the 19 Western Europe/Israel-based founders, all were white.
  • Of the 30 Asia-based founders, all were natives of the country in which they built their businesses: 23 Chinese, three Japanese, two Korean and two Indian.

Of course, this dataset is incomplete. There are numerous examples of founders from underrepresented backgrounds who have generated extremely impressive returns. For example, Amazon’s Jeff Bezos is Cuban American; Calendly’s Tope Awotona is Nigerian American; Sendgrid’s Isaac Saldana is Latinx; and Bumble’s Whitney Wolfe Herd is the second-youngest woman to take a company public.

That said, the pattern in the dataset is striking. So, why invest in anyone who’s not a white or Asian male? 

The conventional answer is that diversity pays. Research from BCG, Harvard Business Review, First Round Capital, the Kauffman Foundation and Illuminate Ventures shows that investors in diverse teams get better returns:

  • Paul Graham, cofounder of Y Combinator (2015): “Many suspect that venture capital firms are biased against female founders. This would be easy to detect: among their portfolio companies, do startups with female founders outperform those without? A couple months ago, one VC firm (almost certainly unintentionally) published a study showing bias of this type. First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%.”
  • Kauffman Fellows Report (2020): “Diverse Founding Teams generate higher median realized multiples (RMs) on Acquisitions and IPOs. Diverse Founding Teams returned 3.3x, while White Founding Teams returned 2.5x. The results are even more pronounced when looking at the perceived ethnicity of the executive team. Diverse Executive Teams returned 3.3x, while White Executive Teams only returned 2.0x. As mentioned above, we report realized multiples (RMs) only for successful startups that were acquired or went through the IPO process.”
  • BCG (June 2018): “Startups founded and cofounded by women actually performed better over time, generating 10% more in cumulative revenue over a five-year period: $730,000 compared with $662,000.”
  • BCG (January 2018): “Companies that reported above-average diversity on their management teams also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity — 45% of total revenue versus just 26%.”
  • Peterson Institute for International Economics (2016): “The correlation between women at the C-suite level and firm profitability is demonstrated repeatedly, and the magnitude of the estimated effects is not small. For example, a profitable firm at which 30 percent of leaders are women could expect to add more than 1 percentage point to its net margin compared with an otherwise similar firm with no female leaders. By way of comparison, the typical profitable firm in our sample had a net profit margin of 6.4 percent, so a 1 percentage point increase represents a 15 percent boost to profitability.”

How do we reconcile these two sets of data? Research going back a decade shows that diverse teams, companies and founders pay, so why are all of the VC home runs from white men, or Asian men in Asia, plus a few Asian men in the U.S.?

First Round did not include their investment in Uber in their analysis we reference above on the grounds that it was an outlier. Of course, one could rebut that by saying traditional VC is all about investing in outliers.

  • Seth Levine analyzed data from Correlation Ventures (21,000 financings from 2004-2013) and writes that “a full 65% of financings fail to return 1x capital. And perhaps more interestingly, only 4% produce a return of 10x or more, and only 10% produce a return of 5x or more.” In Levine’s extrapolated model, he found that in a “hypothetical $100M fund with 20 investments, the total number of financings producing a return above 5x was 0.8 – producing almost $100M of proceeds. My theoretical fund actually didn’t find their purple unicorn, they found 4/5ths of that company. If they had missed it, they would have failed to return capital after fees.”
  • Benedict Evans observes that the best investors don’t seem to be better at avoiding startups that fail. “For funds with an overall return of 3-5x, which is what VC funds aim for, the overall return was 4.6x but the return of the deals that did better than 10x was actually 26.7x. For >5x funds, it was 64.3x. The best VC funds don’t just have more failures and more big wins —  they have bigger big wins.”

The first problem with the outlier model of investing in VC is that it results in, on average, poor returns and is a risker proposition compared to alternative models. The Kauffman Foundation analyzed their own investments in venture capital (100 funds) over a 20-year period and found “only 20 of the hundred venture funds generated returns that beat a public-market equivalent by more than 3% annually,” while 62 “failed to exceed returns available from the public markets, after fees and carry were paid.”

The outlier model of investing in VC also typically results in a bias toward investing in homogeneous teams. We suggest that the extremely homogeneous profiles of the big wealth creators above reflect the fact that these are people who took the biggest risks: financial, reputational and career risk. The people who can afford to take the biggest risks are also the people with the most privilege; they’re not as concerned about providing for food, shelter and healthcare as economically stressed people are. According to the Kauffman Foundation, a study of “549 company founders of successful businesses in high-growth industries, including aerospace, defense, computing, electronics and healthcare” showed that “more than 90 percent of the entrepreneurs came from middle-class or upper-lower-class backgrounds and were well-educated: 95.1 percent of those surveyed had earned bachelor’s degrees, and 47 percent had more advanced degrees.” But when you analyze the next tier down of VC success, the companies that don’t make Top 40 lists but land on Top 500 lists, you see a lot more diversity.

In VC, 100x investment opportunities only come along once every few years. If you bet your VC fund on opportunities like that, you’re relying on luck. Hope is not a strategy. There are many 3x-20x return opportunities, and if you’re incredibly lucky (or Chris Sacca), you might get one 100x in your career.

We prefer to invest based on statistics, not luck. That’s why Versatile VC provides companies with the option of an “alternative-VC” model, using a non-traditional term sheet designed to better align incentives between investors and founders. We also proactively seek to invest in diverse teams. Given the choice of running a fund with one 100x investment, or a fund with two 10x investments, we’ll take the latter. The former implies that we came perilously close to missing our one home run, and therefore we’re not doing such a great job investing.

“While we all want to have invested in those exciting home-runs/unicorns, most investors are seeking the data points to construct reliable portfolios,” Shelly Porges, co-founder and managing partner of Beyond the Billion, observed. “That’s not about aiming for the bleachers but leveraging experience to reliably deliver on the singles and doubles it takes to get to home base. A number of the institutional investors we’ve spoken to have gone so far as to say that they can no longer meet their targets without alternatives, including venture investments. “

Lastly, the data above reflects companies that typically took a decade to build. As the culture changes, we anticipate that the 2030 “Top 40” wealth creators list will include many more people with diverse backgrounds. Just in 2018, 15 unicorns were born with at least one woman founder; in 2019, 21 startups founded or co-founded by a woman became unicorns. Why?

  • “All else being equal, a larger pool of female-founded companies to select from for VC investing should increase the odds of a higher number of female-founded VC home runs,” said Michael Chow, research director for the National Venture Capital Association and Venture Forward. According to PitchBook, investments in women-led companies grew approximately 54 percent from 2015 to 2019, from 459 to 709. In the first three quarters of 2020, there have been 468 fundings of women-led companies; this figure beats 2015, 2016 and nearly 2017 total annual fundings. ProjectDiane highlights that from 2018 to 2020, the number of Black women who have raised $1 million in venture funding nearly tripled, and the number of Latinx women doubled. Their average two-year fail rate is also 13 percentage points lower than the overall average.
  • “Millennials value a diverse workforce,” Chow added, according to Gallup and Deloitte Millennial surveys. “In the battle for talent, diverse founders may have the edge in attracting the best and brightest, and talent is what is required for going from zero to one.”
  • The rise in popularity of alternative VC models, which are disproportionately attractive to women and underrepresented founders. We are in the very early days of this wave; according to research by Bootstrapp, 32 U.S. firms have launched an inaugural Revenue-Based Finance fund. Clearbanc notes on their site they have “invested in thousands of companies using data science to identify high-growth funding opportunities. This data-driven approach takes the bias out of decision making. Clearbanc has funded 8x more female founders than traditional VCs and has invested in 43 states in the U.S. in 2019.”
  • More VCs are working proactively to market to underrepresented founders. Implicit biases are robust and pervasive; it takes a proactive and intentional approach to shift the current status quo of funding,” Dreamers & Doers Founder Gesche Haas said. Holly Jacobus, an investment partner at Joyance Partners and Social Starts, noted that “we’re proud to boast a portfolio featuring ~30% female founders in core roles —  well above the industry average —  without specific targeting of any sort. However, there is still work to be done. That’s why we lean heavily on our software and CEOs to find the best tech and teams in the best segments, and we are always actively working on improving the process with new systems that remove bias from the dealflow and diligence process.”

Thanks to Janet Bannister, managing partner, Real Ventures, and Erika Cramer, co-managing member, How Women Invest, for thoughtful comments. David Teten is a past Advisor to Real Ventures.

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Facebook launches BARS, a TikTok-like app for creating and sharing raps

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Facebook’s internal R&D group, NPE Team, is today launching its next experimental app, called BARS. The app makes it possible for rappers to create and share their raps using professionally created beats, and is the NPE Team’s second launch in the music space following its recent public debut of music video app Collab.

While Collab focuses on making music with others online, BARS is instead aimed at would-be rappers looking to create and share their own videos. In the app, users will select from any of the hundreds of professionally created beats, then write their own lyrics and record a video. BARS can also automatically suggest rhymes as you’re writing out lyrics, and offers different audio and visual filters to accompany videos as well as an autotune feature.

There’s also a “Challenge mode” available, where you can freestyle with auto-suggested word cues, which has more of a game-like element to it. The experience is designed to be accommodating to people who just want to have fun with rap, similar to something like Smule’s AutoRap, perhaps, which also offers beats for users’ own recordings.

Image Credits: Facebook

The videos themselves can be up to 60 seconds in length and can then be saved to your Camera Roll or shared out on other social media platforms.

Like NPE’s Collab, the pandemic played a role in BARS’ creation. The pandemic shut down access to live music and places where rappers could experiment, explains NPE Team member DJ Iyler, who also ghostwrites hip-hop songs under the alias “D-Lucks.”

“I know access to high-priced recording studios and production equipment can be limited for aspiring rappers. On top of that, the global pandemic shut down live performances where we often create and share our work,” he says.

BARS was built with a team of aspiring rappers, and today launched into a closed beta.

Image Credits: Facebook

Despite the focus on music, and rap in particular, the new app in a way can be seen as yet another attempt by Facebook to develop a TikTok competitor — at least in this content category.

TikTok has already become a launchpad for up-and-coming musicians, including rappers; it has helped rappers test their verses, is favored by many beatmakers and is even influencing what sort of music is being made. Diss tracks have also become a hugely popular format on TikTok, mainly as a way for influencers to stir up drama and chase views. In other words, there’s already a large social community around rap on TikTok, and Facebook wants to shift some of that attention back its way.

The app also resembles TikTok in terms of its user interface. It’s a two-tabbed vertical video interface — in its case, it has  “Featured” and “New” feeds instead of TikTok’s “Following” and “For You.” And BARS places the engagement buttons on the lower-right corner of the screen with the creator name on the lower-left, just like TikTok.

However, in place of hearts for favoriting videos, your taps on a video give it “Fire” — a fire emoji keeps track. You can tap “Fire” as many times as you want, too. But because there’s (annoyingly) no tap-to-pause feature, you may accidentally “fire” a video when you were looking for a way to stop its playback. To advance in BARS, you swipe vertically, but the interface is lacking an obvious “Follow” button to track your favorite creators. It’s hidden under the top-right three-dot menu.

The app is seeded with content from NPE Team members, which includes other aspiring rappers, former music producers and publishers.

Currently, the BARS beta is live on the iOS App Store in the U.S., and is opening its waitlist. Facebook says it will open access to BARS invites in batches, starting in the U.S. Updates and news about invites, meanwhile, will be announced on Instagram.

Facebook’s recent launches from its experimental apps division include Collab and collage maker E.gg, among others. Not all apps stick around. If they fail to gain traction, Facebook shuts them down — as it did last year with the Pinterest-like video app Hobbi.

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