The Take

Facebook Saves Face?17/05/18

Lachie Cardiff is the Acting President of QUTEFS. He teams up with Acting Secretary Courtney David to reflect on the Facebook data scandal a few months later, in this edition of The Take:

The Facebook-Cambridge Analytica data scandal involved the non-authorised collection of personal information of up to 87 million Facebook users. The scandal was undertaken so that user data, particularly the personal information of US citizens, could be used online to target voters and influence opinion prior to the 2016 US election. The scandal exploded in March after Christopher Wylie, a former Cambridge Analytica employee-turned whistle blower blew the lid on the operation which had been in operation since 2014. The public outcry was extensive for Facebook, with March 2018 seeing Facebook’s shares dropping by by 7%.

It begs the question, how did an unauthorised third party obtain access to the personal data of 87 million Facebook profiles, and further, how was this data used to influence voter opinion during the Trump-Clinton election campaigns? Between 2007 and 2015, a policy was in effect which enabled third party app-builders to use Facebook’s extensive user base and information to enable establishment their own apps. This practice of sharing user information still in fact occurs for many existing apps; for example, Tinder allows users to authorise app access through their Facebook profile as part of the account set up process. It should be noted that a number of the apps that use Facebook’s user base and information are in fact owned by Facebook. Even though these third party app-builders were contractually prohibited from utilising the user information outside of their own app, Cambridge Analytica, a British firm involved in Trump’s Presidential campaign, managed to illegally obtain Facebook user data through a survey application. A Cambridge University Researcher shared the survey data with Cambridge Analytica, who then shared the information with the Trump campaign. The Trump campaign then used their unauthorised access to publish advertisements designed to influence American voter opinion.

Much to the surprise of the public and to Facebook’s competitors, despite facing hearings before the U.S. Congress, Zuckerberg’s company suffered barely a scratch to its name. Headlines included “Facebook bruised but far from broken”. After losing $80bn in market value directly prior to the news of the scandal breaking, Facebook’s stock gained just over 4% during the course of Zuckerberg’s Congress hearing, and Facebook is already returning to pre-scandal market capitalisation. Analyst John Blackledge has predicted that Facebook will experience 17.3% growth between 2018-23 – only 0.6% less than previous years of growth. Unfortunately, it is the companies (and app developers) that depend on the information provided by Facebook in order to make their businesses profitable that will bear the brunt of the new and improved regulations and vetting processes intended to block future breaches of privacy.

Since the scandal, the world has been eagerly watching Facebooks response, with a raft of changes coming from Facebook HQ, the majority occurring in the company’s mobile application. The notable changes to Facebook’s operational and privacy policies were:

  • Users were prompted to say whether they want to see targeted ads based on the personal data they share on their Facebook profile, or data that collected by Facebook partner apps;
  • Facebook prompted users to agree to its updated version of its privacy policy;
  • Users were prompted to review the third party apps they use through Facebook, as well as the data shared on these apps;
  • The company made a statement that it would vow to draw away from the ever-increasing ‘business and viral content’ element of the business, and focus more on its ‘meaningful interactions’.

One of the most substantial changes Facebook will announce is its compliance with the EU’s General Data Protection Regulation (GDPR) laws, which come into effect on May 25. The GDPR is a set of guidelines regulating the use of consumer data, as well as giving users much more control over where their data is shown, used and published. To ensure that the GDPR laws are followed by those companies under its umbrella, a maximum fine for offending parties carrying a fine of 4% of annual revenue, or EU$20m, whichever comes first.

Facebook’s first quarter-earnings for 2018 were unaffected by the scandal, partially due to the timing of the scandal, with it occurring late in the quarter, but also may be reflective of the low real impact the scandal had on the company. But Facebook’s profits may soon take a hit, thanks to an expensive overhaul of data privacy and audits of third-party applications. Through April, advertiser spending on Facebook was up by an average of 43% year-on-year over the weeks following the data row, according to advertising analysts, with several major advertising groups threatening to boycott Facebook pending data and privacy policy updates. It seems as though through the past two months, there has been one winner from this scandal, and its been Facebook. The 500-billion-dollar company is now operating above pre-scandal market share levels, with the company’s share price rebounding better than many experts predicted. When the scandal broke, the consensus was that this is big, this is the kind of privacy breach that sees companies fail, but were we all too naive? The outcomes of this scandal seem to suggest we were, with Facebook’s performance increasing to pre-scandal levels and no real drop in the number of users of the platform; who’s the real winner?