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The Facebook Fiasco and Its Future

Posted On April 4, 2018 1:54 pm
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Facebook Inc. (Nasdaq: FB) is in a heap of trouble.

Users are deleting their accounts and threatening a class-action suit.

Advertisers could pull back in droves.

Congress wants CEO Mark Zuckerberg to testify before them.

UK regulators could file charges against the company.

And, worst of all, Facebook likely violated a 2011 consent agreement with the Federal Trade Commission to safeguard users’ personal information and could be subject to trillions of dollars in fines.

Here’s the fiasco facing Facebook, what it means for its once high-flying stock price, and the far more insidious things that are going on behind the scenes.

Zuck Let Hackers into His Network

What looks like a new problem is actually Facebook’s business model.

The current firestorm in front of Facebook, which over the past two weeks knocked $100 billion off the company’s equity value, centers around British data-mining company, Cambridge Analytica.

Cambridge Analytica’s co-founder, Christopher Wylie, for reasons no one’s sure about, blew the whistle on his company after they got 270,000 Facebook users’ information (obtained legally with their consent). Then through those users, the company illegally acquired personal data on 50 million of their Facebook friends.

Rather than mining all that information to figure out how to hard-target advertisements to users, Cambridge used personal data to create “psychographic profiles” to target users with political ads, news, and who knows what else, to try to influence how they might vote in elections.

Cambridge sold data to Donald Trump’s campaign, to the “Vote Yes on Brexit” campaign, to politicians in Kenya, and probably other political entities around the world.

The outrage over Facebook letting Cambridge “hack” into its databases, as Facebook’s Mark Zuckerberg called the breech, is what’s front and center today. What Cambridge did, with whom, to what ends, and how effective it may have been is another story.

#DeleteFacebook

Facebook’s in trouble because its business model includes allowing advertisers and others access to its databases. That’s how they sell tens of billions of dollars’ worth of ads a year. Facebook is paid by advertisers because of their ability to target ads.

That’s all fine and good when someone’s trying to sell a pair of sneakers or a vacation package – not when someone’s trying to influence democratic processes, like voting.

High-profile Facebook users like Elon Musk, his Tesla Inc. (Nasdaq: TSLA) car company, and his SpaceX company have publicly deleted their Facebook pages. So has Playboy. There’s a huge #DeleteFacebook movement.

Facebook’s earnings come out in early May. We’ll see then what’s happened to user engagement, total subscribers, and ad revenue. If they’re all off, and they could be, Facebook’s stock is headed even further south.

The stock’s already been hit as investors flee the unknown. And that’s not about users and ad dollars.

Regulators in the United States and around the world are looking at Facebook and likely to file charges against the company for its part in allowing Cambridge to continue doing what Facebook knew it was doing.

Things aren’t looking good for Zuckerberg and company because this isn’t the first time the company’s been in trouble for playing fast and loose with user information.

 Related: Tesla Stock is Dropping, and Here’s Why
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