Since the revelations on Cambridge Analytica ‘s data mining that broke out a little over a week ago, a lot has happened. After first seeking to downplay its role in the scandal, Facebook apologized and opened the door to regulation.
A second scandal related to the collection of calls and SMS history of Android users was raised, which Facebook sought to clarify. Senators called on Chief Executive Officer Mark Zuckerberg to testify before Congress, which he said he wanted to do.
Dozens of articles are written about the implications of these controversies and about “how to fix Facebook”. There are now five interconnected threats to Facebook in the short and long term. Some are more serious than others. They are:
- Abandonment of an advertiser.
- Disenchantment with investors.
- Disengagement from the user.
- Fines and litigation.
- Regulatory action.
Among these threats, advertisers are the least likely to change behavior or abandon Facebook. Unless or until there is a massive structural change in the platform, it’s as usual for traders. They will probably continue as if nothing has happened.
Then there is the disenchantment of investors. Investors have clearly been frightened by the potential implications of Cambridge Analytica. The company lost nearly $ 50 billion worth in the two days following the publication of the bad news. Overall, last week, Facebook shares were down about 14 percent. Investors are fickle, and I would expect the stock to recover relatively quickly as fears subside.
The disengagement of the user is more serious and potentially sustainable. Polls conducted last week in the United States and Germany revealed a largely negative user sentiment and mistrust. A Reuters / Ipsos poll in the United States revealed that Facebook was less reliable than other technology companies in processing personal data:
Less than half of Americans trust Facebook to obey US privacy laws. . . The survey, conducted from Wednesday to Friday, also revealed that fewer Americans trust Facebook than other technology companies that collect user data, like Apple Inc., Google’s Alphabet Inc., Amazon .com Inc, Microsoft Corp and Yahoo.
About 41% of Americans trust Facebook to comply with the laws that protect their personal information, against 66% who say they trust Amazon, 62% to Google, 60% to Microsoft and 47% to Yahoo.
This follows a decline in Facebook’s average daily users in Canada and the United States. Although the use of North America was relatively stable for the quarters, the reported decline in total number and time spent on the site was worrisome before recent revelations.
It is likely that if Facebook can put these scandals behind it, perhaps with the help of regulation, it will be able to restore confidence. It is also very unlikely that the company will see massive user defections despite the recent #DeleteFacebook campaign. Indeed, there are indications that he has already taken his course.
The risk of fines and litigation is very real. The FTC is formally reviewing whether the circumstances surrounding Cambridge Analytica’s data extraction violated Facebook’s 2011 consent decree with the agency:
Companies that have settled prior FTC shares must also comply with the FTC order requirements that impose confidentiality and data security requirements. As a result, the FTC takes very seriously recent press reports raising substantial concerns about Facebook’s privacy practices. Today, the FTC confirms that it has opened a non-public investigation into these practices.
There are also several class actions brought by shareholders and users against the company. In addition, Cook County, Illinois, has instituted a lawsuit alleging fraud against the company, among other claims. This is probably not the last public entity that will do it.
These lawsuits could result in billions of dollars in legal regulations. If the FTC determines that the consent decree has been violated, this represents billions more in potential fines. The company is also exposed to potential fines related to privacy in Europe.
Finally, there is the threat of regulation. In Europe, of course, the new privacy rules (GDPR) will come into effect on May 25th. But will Cambridge Analytica bring a new impetus for something similar in the United States?
As stated, Mark Zuckerberg is open to regulation, at least as far as political advertising is concerned. There may be efforts to introduce more comprehensive privacy legislation in Congress following the Cambridge Analytica scandal. However, such efforts have stagnated in the past. And the Republican-controlled Congress recently moved to privacy regulation by removing a rule that would have prevented broadband providers from capturing and selling consumer data without prior consent.
So, unless there is a change in congressional control, more comprehensive privacy rules for Americans are unlikely anytime soon.