Full impact of Facebook scandal yet to be seen

March 23, 2018 17:06
Facebook chief executive Mark Zuckerberg is facing a crisis that has enormous repercussions not only for his social media network but for the entire tech sector as well. Photo: Reuters

The impact of Facebook’s data leak scandal may have been underestimated. Let’s look at the issue from different angles.

At least 50 million Facebook users’ data have been harvested by Cambridge Analytica. It’s not a simple issue that can be solved by an apology. It is likely to shake up the internet giant’s business model.

On the surface, Facebook makes its profit by selling ad space on its social media platform. But more fundamentally, it is selling its data.

By allowing its advertising customers to better target a specific group of users based on their age, gender, profession, address, personal interests, etc., what Facebook is actually doing is selling its users' data.

As an indirect way of selling data, Facebook also allows third-party programs on its platform in order to lure its users to spend more time on Facebook. The quiz developed by Cambridge University researcher Dr. Aleksandr Kogan is one example.

To generate income, program developers such as Kogan usually collect users' data with these programs and re-sell the data to other parties, such as Cambridge Analytica.

Following the data leak scandal, CEO Mark Zuckerberg pledged to restrict app developers' data access "even further" to prevent other kinds of abuses that would definitely affect its bottom line.

In the meantime, Facebook's 2.2 billion users worldwide may pay more attention to data privacy even if they decide to keep their accounts. That means less data would be available for Facebook to collect, eventually hurting its income-generation capability.

Then there is the risk of lawsuits. More than 50 million users have been affected in the scandal. If they sue Facebook, the company may need to spend a great deal of time and money.

There could also be ramifications across the entire tech sector. The business models of other tech giants like Google, Amazon, Tencent and Alibaba are, to some extent, all related to data selling. Adjustments may be needed and revenue could be hurt.

Also, the scandal may prompt governments and regulators to seriously think about data privacy. That could lead to more stringent legal and regulatory frameworks.

If that happens, internet giants may face mounting compliance costs in the future.

This article appeared in the Hong Kong Economic Journal on March 23

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist