The recent Cambridge Analytica incident that opened the floodgates for Facebook (FB) shares is in itself not the problem. We all knew companies and advertisers were using user data in all sort of ways for many years now. Perhaps not is such a provocative way, but it was happening.
In a nutshell, Cambridge Analytica used apps to not only harvest user information, but also friends of friends' information. Again, that in itself might not be the problem, if users themselves were aware of it.
The problem is the change in perception, pertaining to the way personal information is used, and who can use this information.
According to published articles and sources over the past several years, FB offers advertisers 98 data points to try to sell you something. The list is as follows:
6. Education level
7. Field of study
9. Ethnic affinity
10. Income and net worth
11. Home ownership and type
12. Home value
13. Property size
14. Square footage of home
15. Year home was built
16. Household composition
17. Users who have an anniversary within 30 days
18. Users who are away from family or hometown
19. Users who are friends with someone who has an anniversary, is newly married or engaged, recently moved, or has an upcoming birthday
20. Users in long-distance relationships
21. Users in new relationships
22. Users who have new jobs
23. Users who are newly engaged
24. Users who are newly married
25. Users who have recently moved
26. Users who have birthdays soon
28. Expectant parents
29. Mothers, divided by "type" (soccer, trendy, etc.)
30. Users who are likely to engage in politics
31. Conservatives and liberals
32. Relationship status
35. Job title
36. Office type
38. Users who own motorcycles
39. Users who plan to buy a car (and what kind/brand of car, and how soon)
40. Users who bought auto parts or accessories recently
41. Users who are likely to need auto parts or services
42. Style and brand of car you drive
43. Year car was bought
44. Age of car
45. How much money user is likely to spend on next car
46. Where user is likely to buy next car
47. How many employees your company has
48. Users who own small businesses
49. Users who work in management or are executives
50. Users who have donated to charity (divided by type)
51. Operating system
52. Users who play canvas games
53. Users who own a gaming console
54. Users who have created a Facebook event
55. Users who have used Facebook Payments
56. Users who have spent more than average on Facebook Payments
57. Users who administer a Facebook page
58. Users who have recently uploaded photos to Facebook
59. Internet browser
60. Email service
61. Early/late adopters of technology
62. Expats (divided by what country they are from originally)
63. Users who belong to a credit union, national bank or regional bank
64. Users who investor (divided by investment type)
65. Number of credit lines
66. Users who are active credit card users
67. Credit card type
68. Users who have a debit card
69. Users who carry a balance on their credit card
70. Users who listen to the radio
71. Preference in TV shows
72. Users who use a mobile device (divided by what brand they use)
73. Internet connection type
74. Users who recently acquired a smartphone or tablet
75. Users who access the Internet through a smartphone or tablet
76. Users who use coupons
77. Types of clothing user's household buys
78. Time of year user's household shops most
79. Users who are "heavy" buyers of beer, wine or spirits
80. Users who buy groceries (and what kinds)
81. Users who buy beauty products
82. Users who buy allergy medications, cough/cold medications, pain relief products, and over-the-counter meds
83. Users who spend money on household products
84. Users who spend money on products for kids or pets, and what kinds of pets
85. Users whose household makes more purchases than is average
86. Users who tend to shop online (or off)
87. Types of restaurants user eats at
88. Kinds of stores user shops at
89. Users who are "receptive" to offers from companies offering online auto insurance, higher education or mortgages, and prepaid debit cards/satellite TV
90. Length of time user has lived in house
91. Users who are likely to move soon
92. Users who are interested in the Olympics, fall football, cricket or Ramadan
93. Users who travel frequently, for work or pleasure
94. Users who commute to work
95. Types of vacations user tends to go on
96. Users who recently returned from a trip
97. Users who recently used a travel app
98. Users who participate in a timeshare
Obviously one of the reason for FB's success as an advertising platform stems from the number of datapoint available to advertisers. In addition, FB also offers the best geographic targeting.
My answer is that this should be up to the individual. Users should have the option to let FB forward this information to advertisers or not. This because some feel comfortable with third parties having this information, other do not.
The answer is yes it should. Besides the fake news, fake products, or illegal products that are rampant on social platforms, hate groups have been allowed to operate on them, as have terrorist organizations in many instances.
You cannot advertise fake products, unregulated products, or hate views on regular television. As such, some regulation is in order, even if FB has already taken steps to clean house.
Also, irrespective if FB cleans house or not, it should not be allowed to self-regulate itself. No I am not a big government fan (quite the opposite), but that's what governments are supposed to do.
GDPR is the most comprehensive law governing social media over the past 20 years. By most accounts, Europe is ahead of the U.S. in social media regulation. Most commentators I heard think that for once the U.S. will probably follow Europe in this respect.
From GDPR's site:
The conditions for consent have been strengthened, and companies will no longer be able to use long illegible terms and conditions full of legalese, as the request for consent must be given in an intelligible and easily accessible form, with the purpose for data processing attached to that consent. Consent must be clear and distinguishable from other matters and provided in an intelligible and easily accessible form, using clear and plain language. It must be as easy to withdraw consent as it is to give it.
So for example, out of the 98 datapoints FB collects on us, users would have to agree that FB is allowed to collect them. Also, users might consent to only several datapoints, and not all 98.
So for example, I might agree through a Q&A process to permit FB and its advertisers to only see where I am located, my age, and gender. So instead of 98 datapoints, advertisers will only have 3.
Is this less appealing to advertisers? Of course it is, and chances are that they will pay less for those 3 datapoints as opposed to 98. So yes, on a forward looking basis, chances are that FB will face strong revenue headwinds.
Another problem is compliance. FB and other social media platforms will have to spend a lot of money on compliance. This will involve both hiring more people, and spending money on software. Yes, this in the long term will bite into earnings.
European officials said FB will not be reprimanded for the Cambridge Analytica case this time, because the regulation is not yet in effect. However please note that GDPR is going into effect on May 25, and companies will have a 2 year grace period to comply.
And it is my opinion that sooner to later the U.S. will have similar laws governing the collection of personal information and use thereof.
Eventually social media platforms will be regulated, especially as per the collection and use of personal information.
European GDPR regulation is a work in progress for over 5 years now, and has nothing to do with the Cambridge Analytica incident.
Chances are FB and other platforms will spend a lot of money on compliance in the future that will to some extent eat into their earnings.
FB's advertising appeal in the future might come into question, if advertisers deem that fewer user datapoints are worth less.
As such, FB's valuation has been called to question by the market, because we do not yet know if all the above will affect its advertising revenue in the future.
Many commentators have pointed out that Europe is ahead in social media regulation, and that GDPR regulation will eventually be adopted by the U.S. and by many other countries.
FB shares might look like a great bargain, however with future revenue growth and profitability in question, market participants are better off remaining on the sidelines until the dust settles, and we get a more complete picture of how regulations might affect FB's business model in the future.
This article was written by
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.