Zuckerberg faces harder questions in second round of testimony

If you needed a reminder that Facebook is a company that makes money from advertising -- and that it's 2.2 billion users are the product -- an exchange between CEO Mark Zuckerberg and New Jersey Rep. Frank Pallone, Jr. underscored the point. 

Near the start of Wednesday's congressional hearing, Pallone asked Zuckerberg why Facebook didn't just automatically set all users' default settings to minimize data collection. That would mean Facebook's users would have to opt in if they wanted to share their personal data, rather than opt out, which is the way it works today.

Pallone asked if Zuckerberg would commit to that opt in approach with a "yes" or a "no." 

"That is a complex issue that deserves more than a one word answer," Zuckerberg responded. 

Pallone's response, "That's disappointing to me."

Zuckerberg went to Washington to apologize to lawmaker's for Facebook's recent missteps and to support (some) regulation of a tech industry that's operated for years with little government oversight. And in his first day of testimony on Tuesday, he scored some points. The 33-year-old billionaire addressed a room full of Senate Judiciary and Commerce Committee members who struggled to understand what Facebook does, how the social platform works, and how to regulate it. 

But Zuckerberg's hearing Wednesday before the House of Representatives' Energy and Commerce Committee was defined by pointed questions from lawmakers who appeared to have done their homework on the company.

Some, like Pallone, hammered Zuckerberg on default privacy settings. California Rep. Anna Eshoo asked Zuckerberg if his own data was swept up in the Cambridge Analytica scandal (he said that it was). And Florida Rep. Kathy Castor and New Mexico Rep. Ben Lujan raised concerns about how much Facebook follows people as they browse the web -- and whether people without accounts on the social media network still get tracked via "shadow profiles" (Zuckerberg said he wasn't familiar with that term and that Facebook collects data on nonusers for security purposes).

Zuckerberg, who escaped unscathed from the nearly four dozen senators he faced for five hours on Tuesday, then settled into his roll as both an explainer of technology and receiver of the occasional finger-wag.

He also spent his time attempting to shore up Facebook's image by explaining how he plans to tighten data policies, protect users from further leaks and become more transparent about who's advertising on his site. He also tried to rebuild users' trust.

"We didn't take a broad enough view of our responsibility, and that was a big mistake. It was my mistake, and I'm sorry." Zuckerberg said, repeating what's become his mantra through his apology tour (he delivered the same line Tuesday). "I started Facebook, I run it, and I'm responsible for what happens here."

On Tuesday, Zuckerberg entered the hearing room tense and nervous, as he typically is, having traded his T-shirt and hoodie for a dark blue suit and blue tie. 

By Wednesday, the CEO appeared calm. His deer-in-the-headlights stare was gone, his shoulders were relaxed, and he didn't sweat profusely under pressure. He also didn't appear to egregiously offend any of the lawmakers.

That all adds up to Zuckerberg being likely to squeak through his first series of hearings on Capitol Hill without many repercussions. Quite the opposite, perhaps: Sen. Lindsey Graham, among others, asked him to help write legislation in the future.

Facebook shares on Wednesday built on the previous day's gains. They closed up less than 1 percent, to $166.32, after a 4.5 percent rise Tuesday. 

"He appeared focused, conciliatory and genuinely engaged in a productive discussion with legislators," Wells Fargo analyst Ken Sena said of Zuckerberg by the end of testimony Tuesday. "This is a positive sign."

Tuesday's session ended in detente after senators exposed themselves as not informed enough to seriously take on Facebook, and Zuckerberg wasn't going to win too many of them to his side anyway. His hearing with the House on Wednesday was more productive, with representatives asking detailed and thoughtful questions.

Pallone was among the first to dive in, classifying Facebook as yet another company that "vacuum[s] up our data but fail[s] to keep it safe."

New Mexico's Lujan asked why, after being warned for years, Facebook took so long to respond to the threat of people trying to steal users' profile information. Then he asked how many data points Facebook collects on nonusers and how someone who doesn't have a Facebook account can opt out of its data collection (Zuckerberg didn't respond).

"Your business is built on trust, and you're losing trust," Lujan said.

In terms of how Facebook and other companies could potentially be regulated, California Rep. Raul Ruiz asked Zuckerberg if it would be helpful for some entity to oversee how consumer data is used and to create guidelines for companies. Zuckerberg said the idea deserved consideration. 

Representatives like Michigan's Fred Upton raised questions about Facebook's dominance. Zuckerberg said the average person uses about eight apps to communicate. (A June 2017 report from comScore says Facebook owns three of the apps in the top eight, including Instagram, Facebook and Messenger. Google owns four: YouTube, Search, Maps and Play, with SnapChat rounding out the list.)

After the hearing, Pallone summed up the issue of trust: "All these people have an expectation of privacy [on Facebook], and it doesn't exist."

Watch this: House members hit Zuckerberg hard on data collection, tracking

03:03

Only some did homework

Facebook's shares began their rise Tuesday shortly after the Senate hearing began. What drove the shares higher isn't clear, but it may have had something to do with investors realizing many senators seemed to barely understand the technological issues they were trying to grill Zuckerberg on.

And unlike the House hearing, in which almost all members appeared well-prepared and briefed on the issues, the Senate's questions came down to a mishmash of mostly inane queries, with a few diamonds in the rough.

The Senate session did start with some pointed and sometimes uncomfortable questions about fundamental ways Facebook protects user data, including a key moment in which Sen. Dick Durbin asked whether Zuckerberg would reveal to all the participants what hotel room he'd stayed in. After Zuckerberg awkwardly said, "Uhhhh... no," Durbin made a point about the importance of privacy.

But then the questions got weird. Sen. Orrin Hatch asked how Facebook makes money (Zuckerberg: "Senator, we run ads"). Sen. Roy Blunt didn't seem to understand how apps get access to information on people's phones. And Zuckerberg spent time explaining that Facebook couldn't read messages in its WhatsApp messenger app because they're encrypted.

"These senators are struggling with the role of technology and how it works, and more importantly, how what Facebook does really creates this environment where advertising is critical to its success," said Tim Bajarin, president of Creative Strategies. "They don't understand how Facebook really works."

CNET's Richard Nieva contributed to this report.

First published April 11, 5 a.m. PT

Updates, 7:18 a.m.: Adds quote from Rep. Pallone; 7:29 a.m.: Includes additional quote from Rep. Pallone; 7:46 a.m.: Adds that Zuckerberg himself was affected by Cambridge Analytica scandal; 9:53 a.m.: Adds quote from Rep. Castor and Lujan; 11:14 a.m.: Adds quote from Rep. Ruiz; 12:27 p.m.: Adds quote from Rep. Pallone; 1 p.m.: Adds comScore information. 5:35 p.m.: Adds additional comScore data, updates closing share price.

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