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Abu Dhabi, UAESunday 16 December 2018

Facebook proves its strength as it shrugs off data debacles

Survey adds to mounting signs that the world’s biggest social network has emerged relatively unscathed

Founder and CEO of Facebook Mark Zuckerberg (R) and Antonio Tajani (L), President of the European Parliament where Zuckerberg was grilled on the data information breach by Cambridge Analytica. EPA
Founder and CEO of Facebook Mark Zuckerberg (R) and Antonio Tajani (L), President of the European Parliament where Zuckerberg was grilled on the data information breach by Cambridge Analytica. EPA

If you think everyone is #deletingFacebook, you can think again.

Despite the massive Cambridge Analytica data breach involving more than 80 million of its users in March, and an online campaign urging people to delete the app in the wake of the scandal, a recent study shows that there has been no mass exodus from the social media giant. In fact, the majority of Facebook’s users have remained loyal throughout the most turbulent few weeks in the company’s history.

The Reuters/Ipsos poll, conducted April 26 to 30 and published in May, found that half of Facebook’s American users remain as active on the website as they were before the Cambridge Analytica privacy debacle. Another quarter said they were actually using it more. Only a quarter of respondents said they had deleted their account since the saga, or were using it less.

The survey adds to mounting signs that the world’s biggest social network has emerged relatively unscathed from the whole affair.

Its share price, which collapsed in March after the revelations that Cambridge Analytica had obtained the personal information of at least 87 million Facebook users without their consent, has since recovered almost entirely. However, the UK firm was itself fatally damaged by the revelations and this month announced it was closing down.

The Facebook rebound was further helped by a better than expected performance by chief executive Mark Zuckerberg in front of the US Congress in mid-April. Despite a 10-hour grilling from some 40 senators on the company’s errors in handling personal data, Mr Zuckerberg kept his cool and his testimony seemed to restore investor confidence in the company. His own net worth was boosted by an estimated $3 billion in the two days he was in the hot seat. And just last week, he sailed through an interrogation from EU policymakers about the social network’s data policies as lengthy questions left the 34-year-old little time to answer, Reuters reported. However, he avoided answering numerous specific questions, notably around opt-outs from targeted advertising, the sharing of data between Facebook and its messaging service WhatsApp, as well as Facebook’s collection of data on non-users.

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Negative headlines aside, most analysts think Facebook remains a high-quality company with strong revenue and earnings growth, and a solid balance sheet. There were 42 “buy” ratings on the stock, and only two “sells”, according to Bloomberg data in mid May.

Facebook’s latest results provided further reassurance. Its revenue soared to $11.9bn in the first quarter of 2018, a 49 per cent rise year-on-year. User growth was also strong, with monthly active users in the three months of the year rising to 2.2 billion, up 13 per cent from the previous year.

“After the hullabaloo around the #deleteFacebook campaign, it was encouraging to see the group deliver a 13 per cent increase in monthly active users in its most recent quarterly results,” George Salmon, equity analyst at Hargreaves Lansdowne, tells The National. “Provided there’s no dramatic change in user numbers, Facebook should be capable of meaningful growth in the years to come.”

So does all of this mean business as usual? Aside from a PR headache, it appears Facebook has bounced back stronger than ever. For many investors, the pullback in March provided the buying opportunity they’d been waiting for.

But Facebook has also admitted that it will take many years before it is where it wants to be on data security.

“I wish I could solve all these issues in three months or six months, but I just think the reality is that solving some of these questions is just going to take a longer period of time,” Mr Zuckerberg told media publication Vox in April.

The episode has also increased consumers’ awareness of the value of their personal information. This is an important consequence that will change the dynamic between businesses and customers in years to come, says Alex DeGroote, a media analyst at Cenkos Securities.

“One of the lasting implications from this Cambridge Analytica saga is that consumers will be far more aware of the value of their data,” Mr DeGroote tells The National. “For a long time, there has been an implicit relationship between the consumer and the big internet companies. Facebook and Google give you these great fun tools to play with, such as the search function or news feed, and in return for that, you give them your data and they can do whatever we want with that, including creating very valuable advertising businesses.

“But consumers are now beginning to wake up and realise what is actually being done with their data. They don’t want it ending up in the hands of people they’ve never even heard of.”

While it is not yet clear how consumers can monetise their data, they are going to be less willing to give it away for free in future. That could mean that large companies will have to start paying to access the information that they’ve been taking for free.

But it’s not just consumers who have woken up, regulators are also scrutinising businesses more than ever, and asking tough questions about how they handle personal information.

On May 25, the new EU data protection law came into force. Known as the General Data Protection Regulation, or GDPR, it is touted as the biggest change to privacy laws across Europe in the past two decades. It aims to overhaul how businesses handle data and give control to citizens over their personal information in an increasingly digital age.

GDPR was in the pipeline well before the Cambridge Analytica furore. But since then it has taken on a new impetus, says Matt Palmer, senior director for cyber risk solutions at Willis Towers Watson.

“We’re no longer in an environment where it’s ok to run into a casual customer and then add them to a mailing list,” he tells The National. “Companies have to consciously ask for that information, and I think there will be higher expectations of what they do with that information.”

Although it is a European legislation, Mr DeGroote predicts GDPR will become the template for new privacy laws everywhere – “because the EU is well ahead of everyone else in this”. Already, the laws apply well beyond the boundaries of the eurozone to any company that offers goods or services to individuals in the EU.

The risk, he says, is that the new legislation could inadvertently end up strengthening the market position of mammoth companies like Facebook, Google and Amazon.

“That’s not what’s intended but that’s what will happen … because for many consumers, those are their go-to landing pages,” he says.

“GDPR will put people off using websites which are more obscure. Google and Facebook, bizarrely, have built up a position of trust with their users over a long period of time, and I don’t think that will be negated because of what’s happening with Cambridge Analytica.”

Could regulators decide, in the wake of the Cambridge Analytica leak, that the internet majors have simply become too powerful and need to be broken up? The question will definitely be raised, Mr DeGroote says.

He points out that the FAANG stocks – Facebook, Apple, Alphabet, Netflix and Google – have grown extremely quickly from zero to hundreds of billions of dollars in market cap. “They’ve taken over the world,” he says.

“We’re still wrestling about what to do with these companies. Regulating them is one of the biggest issues we face. Do we do it nationally? Globally? It’s a tricky question.”

Mr Palmer agrees that, post-Cambridge Analytica, the temptation will be to step up regulation in the digital space.

The issue of accountability, he says, is the other major consequence of the Facebook scandal.

“Zuckerberg is in the eye of the storm at the moment … but I don’t think he is going to be the last social media CEO who’s asked to come and testify before Congress,” he said.

“It goes back to the critical point, which is that consumers are much more aware of this issue, of the value of their data, and their right to be private citizens.

“I think in many ways it’s a credit to [Mr Zuckerberg] that he realised he needed to step up and take responsibility for what had happened.

“I think this is an emerging recognition, not just from Facebook but from other companies as well, that if this happens to them, they need to stand up and take ownership, because people increasingly demand it.“If they’re reticent to do so, the PR impact on their company could be significant.”