The risk of mixing in politics
Over the weekend, the press reported on a story of Cambridge Analytica, a voter-profiling company, illegally obtaining private data of FB users in order to target ads & messages to voters in both the Brexit campaign & the 2016 US Presidential election.According to FB, the data was collected legitimately with user consent for a psychology testing app, but was later illegally sold by a 3rd party to Cambridge Analytica – the press reported that more than 50m FB profiles were harvested without permission. Facebook has rejected press characterization of the events as a "breach" & instead pointed to 3rd parties "violating" the company's policies/procedures. Lawmakers immediately called for government actions (potential new regulations) & investigations into data safeguards at Facebook and demanded company executives to testify.
Facebook has initially responded on March 16 proactively suspended all accounts of parties involved (see company blog post) and highlighted its efforts over the past few years to detect / prevent violations by app developers & give users more control over privacy settings. On a go-forward basis, FB is committed to a variety of manual & automated checks to ensure policy compliance incl. 1) random audits of existing apps & 2) regular & proactive monitoring of fast growing apps. It will also pursue suspension or litigation if necessary.
But where to from here? There is no doubt that such headline driven days (with a heavy potential regulatory bent) are a rising occurrence for mega-cap US Internet given the size / scale / scope of the companies. That being said, we see FB as taking proactive steps to address the above set of facts and to constantly address broader concerns through business model iteration – remember that 2018 is a year focused on users and community. Changes in the regulation of social media platforms and the collection / use of 1st party data remain the main risk factor for Facebook.
Facebook is a global technology company with a stated mission to make the world more open and connected. With 2.07 billion monthly users (as of Q317), Facebook operates the largest social networking platform on the web. The company also owns Instagram, WhatsApp, and Facebook Messenger, which are among the most frequently used mobile applications globally. Most of Facebook's revenue is derived from advertising (98% in Q317) and a significant portion of this comes from mobile (88% in Q317). The remainder is derived from payments & other (Oculus).
The rapid pace of evolution in the Internet and Technology sectors, including the emergence of new competition (Tumblr, Pinterest, Snapchat, Twitter, etc.) and new form factors of hardware devices, could cause a shift in user behavior that diverts traffic away from Facebook. Additional key risks include macroeconomic impacts on global advertising budgets, damage to the Facebook brand, specifically pertaining to privacy concerns. Facebook can pay a very high price for being in the hurricane hole of disputes between Republicans and Democrats.