Nati Harnik / AP

Ello's new legal status leaves questions unanswered

The social network is part of a growing trend of companies struggling to balance privacy concerns with market needs

Ello’s recent move to become a public benefit corporation, which commits the budding social networking site to remaining ad-free and not selling user data, says less about the website and more about its more dominant competitor Facebook and users’ growing privacy concerns, say digital privacy experts.

Ello announced on Thursday that it had registered as a public benefit corporation to ensure that it never displays ads or sells user data — a move aimed at quashing speculation that the so-called “anti-Facebook” site would someday be forced to run paid ads.

Benefit corporations are for-profit enterprises that are required to produce a benefit for society as a whole, according to the Benefit Corporation Information Center.

Ethically minded Ello, which made its public debut in August, touts itself as an alternative to ad-driven social networks.

The social network even has a manifesto, which spells out its legal commitments to remaining ad-free and safeguarding user data.

“Ello’s explosive growth over the past few months proves that there is a hunger to connect with friends and see beautiful things — without being manipulated by ad salesmen, boosted posts, and computer algorithms,” the network’s manifesto states.

Neil Richards, Professor of Law at Washington University, agrees.

“This is not about Ello. It’s about alternatives to Facebook and companies that have begun competing on privacy,” Richards said. “People are looking for alternatives, and the public’s attention has seized upon Ello as the most likely one.”

Ello’s new legal designation as a public benefit corporation allows it to draw up a legally binding charter barring it from ever running advertisements or selling user data. In the event that Ello is ever sold, the new owners will also be legally bound by the charter’s terms.

But experts say the devil is in the details. "While I don't doubt their sincerity, if you look at the actual pledge, it says that it will never "sell" user specific data. But very few companies sell user data. They might lease or trade the information, but rarely ever do they sell it," said Fred Cate, professor of law and senior fellow at the Center for Applied Cybersecurity Research at Indiana University. 

Ello may not have the right model or technology but that doesn’t mean that something else isn’t possible. That’s why this story is refusing to going away

Neil Richards

Professor of Law at Washington University

In addition, Cate says that the provision binding would-be owners will not apply in the event of bankruptcy. “It’s a significant point because if a company like this goes bankrupt — and a lot of them do — data about individuals may be the biggest asset they own."

Others question the timing of the move. "While this is a step in the right direction, the fact that it came after people raised various concerns speaks to a lack of prior thought as to how they’re going to sustain their mission," said Irina Raicu, Internet ethics program director at the Markkula Center for Applied Ethics at Santa Clara University.

But Richard says that whether or not Ello succeeds is besides the point.

“Ello may not have the right model or technology but that doesn’t mean that something else isn’t possible. That’s why this story is refusing to going away,” Richards said.

Ello exploded onto the digital scene in September, when it experienced a massive growth following Facebook’s controversial crackdown on people using fake names in their profiles.

Facebook’s decision triggered a backlash particularly among the LGBT community, many of whom flocked to Ello, which permits users to use pseudonyms.

In September, Ello gained hundreds of thousands of new users.

"Ello welcomes the LGBTQ community and we're very excited to see so many people moving over!" Ello founder Paul Budnitz told the Daily Dot

But by October, Ello’s search traffic had dwindled and skeptics continued to balk at its claim that it could remain ad-free. With its new legal status, Ello is hoping to tempt back its users and win over skeptics.

“There has been some speculation in the press since our launch that Ello will someday be forced to allow paid ads on our social network,” Ello says on its site. “With virtually everybody else relying on ads to make money, some members of the tech elite are finding it hard to imagine there is a better way. But 2014 is not 2004, and the world has changed.”

'New breed of companies'

Ello’s ethics represents a “new breed of companies” and reflects a larger trend of businesses, old and new, competing on privacy, Richards said.

From Apple and Google’s tougher encryption technologies, which drew complaints from the FBI, to DuckDuckGo, a new search engine with a no-tracking privacy policy, companies are responding to mounting public concerns over online privacy, Richards said.

“The real challenge for these companies,” says Richards, “is creating a sustainable long-term relationship between companies and users that establish trust and don’t rely on other means to make profit that ultimately result in an invasion of privacy — that’s the Holy Grail.”

When it was revealed last month that Ello had attracted a huge sum of venture capital, an uproar ensued and Ello was accused of having caved to investors.  

But the social network, with over one million new users and three million more on the waiting list, apparently needed the financial support to complete beta testing so it can open registration, which is currently by invite only, to its growing waiting list.

Ello stressed that despite the funding it would not go back on its values. 

“If we ever sold our users data or posted ads, everyone — including us — would leave our network,” Todd Berger told Betabeat. “Why would we ever do that?”

Cate said that the million-dollar question is how will Ello sustain itself while maintaining user privacy. There have been thousands of efforts to sell products or services based on privacy and almost all of them have failed, Cate said.

"I can’t think of anything sustainable in the market right now that competes on privacy. I think if you could get Facebook-like services and privacy, people would love that. But right now the only way to do that is to charge for services, and people hate that," Cate said.

Still, Richards says he remains optimistic.

He said the real story of companies competing on privacy is a positive development: “It shows a maturation of the social network sector.”

He added, “We’re going to see continued progress on consumer privacy as companies compete to develop long-term sustainable, ethical norms in this critically important sector of the economy.” 

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