Unless you have been living under a rock for the past month or so, chances are you must have, at the very least, heard of the massive Cambridge Analytic scandal that has rocked Facebook Inc. (NASDAQ:FB) to its very core. The social media giant has found itself in a quagmire, with its future looking somewhat uncertain. Every day the scandal only seems to grow in scale as new details emerge about the largest data breach in Facebook’s history and their part in it.
However, in this article, we are not going to be looking at the details of the scandal itself; to get up to speed with the finer details of what actually happened, refer to this article that we published a few weeks ago. Instead, we are going to be focusing on Facebook and deep dives into the matter to understand:
- How has the scandal affected Facebook, and what is their response to it?
- Is this response good enough to placate angry users and lawmakers around the world?
- What tangible impact has this scandal had on Facebook, both financially and in terms of the size of their user base?
- Can Facebook recover from this, or is this the beginning of the end of the golden era of Facebook?
Let’s take a deep dive into it.
Cambridge Analytica – The Gift That Keeps On Giving
What started out as a scandal of moderate proportions has now snowballed into a behemoth that is threatening to crumble Facebook’s very foundations. When the scandal first broke, Facebook confirmed that only 270,000 people had downloaded the notorious ‘thisisyourdigitallife’ app used by Cambridge Analytica to gather user data. However, it was also revealed that this app unscrupulously gathered the data of anyone in the original user’s friend’s list as well. Many estimations pegged the total number of users affected to as many as 50 million! Surprisingly, the number turned out to be a gross underestimate.
Now a newer estimate claims that the total number of affected users may be as high as 87 million. This figure has been corroborated by Facebook CEO Mark Zuckerberg, who said, “I’m quite confident it’s not more than 87 million.” Former Cambridge Analytica researcher and whistle-blower Christopher Wylie believe that this number could even be higher than 87 million.
As expected, there has been a tremendous global response to the scandal. Users across the world have directed their ire at Facebook with #DeleteFacebook trending everywhere. The movement has rapidly gained momentum globally, with several high profile personalities also lending their support. This includes the billionaire visionary CEO of Tesla and SpaceX, Elon Musk, WhatsApp co-founder Brian Acton and even Apple co-founder Steve Wozniak. Such was the anger directed at Facebook that the #DeleteFacebook movement even got CEO Mark Zuckerberg worried.
The scandal has also opened up Facebook to regulatory and governmental scrutiny across the world. Few hours before Mark Zuckerberg had to appear before the US Congress in order to testify. This was not the first time when Zuckerberg faced few very tough questions; Facebook has also heard the music from lawmakers across the world seeking justification over their growing list of concerns regarding the social media giant.
A nasty Pandora’s box has been opened, and everyone across the world is questioning Facebook’s motives. They have even been accused of being complicit in the scandal after it emerged that Facebook knew about Cambridge Analytica’s misdeeds as early as in December 2015, but chose to cover it up instead. All of this also comes at a time when Facebook is still recovering from the effects of widespread fake news and Russian interference in the 2016 US Presidential elections through their platform. People are also questioning the role Facebook and Cambridge Analytica in undermining democratic processes across the world, including Africa and the Brexit vote in the UK. It is fair to say that global user and governmental trust in Facebook has hit rock bottom, and it is up to them to quickly remedy that situation.
Facebook’s Response: Good Enough?
In the light of recent events, one would expect Facebook’s response being quick and effective. Contrary to belief, things got off to a bad start when they maintained radio silence during the initial few days when the scandal broke. Since then, the top honchos at Facebook have come out with apologies, including CEO Mark Zuckerberg and COO Sheryl Sandberg. Naturally, apologies ring hollow without the requisite actions to back them up, and Facebook has outlined several ways it seeks to remedy the myriad of issues plaguing their platform:-
- Facebook is planning audits of companies and apps related to Cambridge Analytica in any shape or form.
- Restrictions will be placed on Facebook login tools which allow users to log into various services using their Facebook data. Consequently, all apps requiring sensitive information such as check-ins, likes, photos, posts, videos, events and groups will need individual approval.
- Third-party apps will not be allowed to gather information regarding political or religious views, relationship status and work history of individual users.
- The ability to search for people using their phone number will now be disabled by default.
- The content of text messages on Messenger will not be collected, and call logs will be deleted after a year.
- Shutting down Partner categories, which allowed third-party data-providers offer their targeting directly on Facebook.
- Greater transparency, by showing people what apps they use, and what information those apps have access to. The app removal process has also been simplified.
- Facebook has announced plans to partner with news service Agence France-Presse (AFP) to fact check news, images and even video on its platform in order to combat fake news.
- Facebook intends to have a team of 20,000 employees working on security and content reviews by the end of the year. They have already hired 15,000 of them.
All of these measures are too little, too late. They are merely a band-aid on a gaping wound. Don’t take this from me, take it from Mark Zuckerberg himself, who has stated that it will take Facebook years to completely fix itself.
While Zuckerberg has owned up to the mistake and even taken personal responsibility for it, he has cheekily conveyed the message that all users are using Facebook at their own risk, and will be doing so for the foreseeable future. This has come as somewhat of a shock to users and lawmakers across the world but makes sense if we consider the state of the Facebook platform. Eliminating or even minimizing such abuse of users’ private data fundamentally clashes with Facebook’s primary business model, which relies heavily on targeted advertising. Limiting advertiser access to users’ public data will have an extremely detrimental effect on their financial model, and could drastically reduce revenue. Facebook COO Sheryl Sandberg acknowledged this problem, stating that users may have eventually had to pay to completely stop sharing their profile data with advertisers.
Could Facebook End Up Meeting MySpace?
There is no denying the fact that this scandal has hit Facebook hard. Facebook’s stock fell over 22% since the Cambridge Analytica scandal broke, resulting in over $100 billion being wiped out from its market capitalization. The scandal has also affected CEO Mark Zuckerberg personally, who saw $14 billion being wiped out from his personal wealth, including losing $6 billion in one day alone! In addition, Facebook has also had to contend with the #DeleteFacebook movement and regulatory scrutiny.
Despite all of this, Facebook’s user metrics haven’t seemed to have suffered at all. Analyst Brent Thill claims that time spent on the platform is up by 15% on average in March 2018 compared to the same time last year (Android users). A survey of 750 Facebook users also found that more than 60% were using Facebook as much or more than they did before the scandal broke. This data has seemingly also been corroborated by Zuckerberg, who said that the #DeleteFacebook campaign did not have a significant effect on their user-base or advertising spend on the platform.
It would seem that despite all the noise, the scandal actually did very little to fundamentally affect Facebook. But it does not mean that there hasn’t been any near-term impact. The effects have started appearing and are quite evident in Facebook stock’s performance, which has been going from bad to worse since the scandal broke.
The Wall Street, however, remains positive over the long-term health of the company and its stock. All of this is not very surprising; while statements such as #DeleteFacebook may sound incendiary, they are not a viable solution to the problem at hand. Social media is now ingrained into the fabric of our lives, and it is no longer feasible to completely abstain from it. Today, it is probably the only best way for millions across the globe to connect with friends and family. It has also developed into a vital marketing tool for businesses, and can be especially critical for smaller ventures. In fact, in parts of the world such as many African nations, Facebook is the internet. As such, deleting Facebook is not an option for them. This realization is made even more acute by the fact that there are no natural challengers to Facebook’s throne as the king of social media. Competitors such as Snapchat are nowhere near or big enough to inherit that crown, and have been plagued with troubles of their own over the past year or so.
Nevertheless, this has not stopped some from calling for Zuckerberg’s head, as they feel he is no longer the right man to lead the company forward. However, as we outlined a while ago, that would be extremely counterproductive from a financial and growth perspective. Under Zuckerberg’s leadership, Facebook has posted record-breaking growth and shown impressive ambition. They have become the world’s 8th most valuable brand, and one of the biggest entities globally in terms of market valuation. They have also successfully branched out into other lucrative ventures, including video streaming and Virtual Reality, both of which are slowly paying dividends. Keeping all of this in mind, it seems extremely unlikely that Zuckerberg would step down.
But, this does not mean that Facebook has got off completely scot-free. A lot rests on the outcome of the congressional testimony on April 11. If lawmakers decide to impose further regulatory burdens on Facebook, they could find themselves struggling to comply adequately. Meanwhile, stock performance could continue to suffer in the short term.
Undoubtedly, Mark Zuckerberg and its core team understand the gravity of the situation. There won’t be a stone unturned by the youngest billionaire mind to keep Facebook growth intact. No one better than Mark Zuckerberg knows that it’s not impossible to pull down the social media titan from its numero-uno position; and even a small competitor could do that – exactly the way he dethroned MySpace in 2005.
