Facebook had never faced a scandal as big as the one it is currently fighting. Over the weekend details of his reckless use of user data came to light and the value of his shares fell. The possibility of regulating the activities of the social network is greater than ever.
It has been reported this week on several news blog that Cambridge Analytica, a U.K.-based data-analysis firm that was hired by the President Donald Trump’s campaign team, improperly obtained personal data of about 50 million of users of the social network, and Facebook did virtually nothing about it. Facebook said in a publication last Friday that it suspended the accounts of Cambridge Analytica and its parent company, SCL, while investigating its possible breach of an agreement to eliminate the data obtained illegally.
The particular details of this case are somewhat complex, but the most important thing is to understand that Facebook collects a huge amount of information about its users, and the data from millions of Americans were misused in order to influence voters.
Facebook on Friday said that a professor used Facebook’s log-in tools to get people to sign up for what he claimed was a personality-analysis app he had designed for academic purposes. To take the quiz, 270,000 people gave the app permission to access data via Facebook on themselves and their friends, exposing a network of 50 million people, according to the New York Times. That kind of access was allowed per Facebook’s rules at the time. Afterward, the professor violated Facebook’s terms when he passed along that data to Cambridge Analytica.
In the past, whenever a scandal like this is reported, Facebook could easily deny it and sometimes promised to change, without seeing its image seriously affected. This time, the market showed that the house of cards could be about to collapse.
On the morning of Monday, Reuters reported that Facebook shares fell more than 4% in the operations prior to the opening of the market. This trend has continued throughout the day, with shares reducing their value by 6.42% at the time of writing these lines . This has also been reflected in the Dow Jones and Nasdaq, and analysts warn investors not to buy during the fall. According to Reuters:
A Wall Street analyst said the reports raised “systematic problems” with Facebook’s business model and this could encourage regulatory scrutiny of the platform.
“We think this episode is another indicator of Facebook’s systematic problems,” said Brian Wieser, an analyst at New York broker Pivotal Research Group.
Wieser argued that the regulatory risks to the company would intensify and that the use of personal data in advertising would be at greater risk than ever.
However, he also added that it was unlikely that this would have a significant effect on the company’s business, at least for now, given that advertisers are unlikely to “suddenly change the trajectory of their growth in platform expenses.”
Facebook has already faced similar scandals denying that they were at fault or promising that they will improve their algorithms and launch new terms of service, but this time it seems that it will be different.
Legislators around the world have been demanding new regulations, hearings and investigations into this incident for days. Frank Pallone, representative of New York, commented that “the Committee on Trade and Energy should hold hearings soon.” Senator Amy Klobucher of Minnesota also demanded that Mark Zuckerberg testify before the Senate Judiciary Committee for questioning.
In addition, experts say that this case could be considered a violation of the Consent Decree of the Federal Trade Commission (FTC) that resolved a case related to privacy in 2011. If the FTC investigators decide to investigate and take action against Facebook, they could raise “billions of dollars” in fines.
Theresa May, the British prime minister, published a statement on Monday expressing her concerns about this case, and Damian Collins, a member of the British Parliament, went further and said that “someone should take responsibility for this. It’s time for Zuckerberg to stop hiding behind his Facebook page.”
In past controversies, Zuckerberg will usually published long statements on his personal Facebook page, promising that they would do better. But until now the CEO has not said anything about this particular case.
Facebook’s growth and revenue have increased considerably in recent years, but by the end of January the company reported that users were spending less time on the platform and experienced its first decline in daily users in history. As more and more people learn about this incident, the public will be more cautious with Facebook. After all, how many “non-leaks” have happened just like this in the past?
Investigations and prolonged hearings could have a severe effect on the company’s actions. And most likely, if they come to face Washington, they will be alone since the technology industry may use Facebook as a sacrifice to try to redeem their sins.
[ Bloomberg ]