Facebook Can’t Fix this Problem Alone

April 20, 2018, 12:00 PM UTC

Mark Zuckerberg came to Washington, D.C., to testify before Congress for the first time, trading his customary gray T-shirt for a snappy, hearing-appropriate suit and armed with a litany of well-rehearsed talking points.

Throughout two days of Q&A, the Facebook CEO apologized repeatedly for the massive misuse of 87 million users’ personal data.
Some lawmakers came off sounding like buffoons, and the glib verdict rendered Zuckerberg the winner. Wall Street certainly
agreed, sending Facebook’s stock up 6% over the two days of hearings.

But as Zuckerberg’s testimony recedes into memory, its ultimate impact is just beginning to be felt. The Cambridge Analytica affair will likely be remembered as the beginning of a larger reckoning. As even Zuckerberg has said, new regulation is “inevitable.” The question now isn’t whether today’s Internet giants are impacted, it’s how profoundly.

It’s not just Facebook’s $40 billion of revenue that’s at risk. Google collects as much or more data about its users, and Amazon, Microsoft, and Verizon (via its AOL and Yahoo acquisitions) are also vying for more online advertising revenue. It’s a business model that relies on the harvesting of customer information, and one that is prone to placing the interests of data-hungry advertisers above the privacy concerns of users.

“The Internet is growing in importance around the world … it is inevitable that there will need to be some regulation.” —Mark Zuckerberg before Congress during his moment in the spotlightTom Williams—CQ Roll Call/Getty Images
Tom Williams—CQ Roll Call/Getty Images

How far will lawmakers go to reconcile those competing interests? On the more modest end, there’s the Honest Ads Act. The bill, supported by Zuckerberg, is likely to pass, and it will require Internet companies to divulge who pays for every political ad—just as TV and radio stations must do now.

Zuckerberg also voiced partial support for the European Union’s new privacy law that will require Internet companies to get affirmative permission from users before collecting many kinds of data, including browsing history. If users don’t opt in, Facebook, Google, and others won’t have as much information available for targeting ads and might see less revenue as a result.

Meanwhile, telecom companies have long been lobbying for broader limits on online tracking, an approach that appears likely to gain more momentum.

Whatever the approach, analysts doubt Washington will be able to act quickly. And in the meantime Facebook is likely to curtail some of its data collection and ad targeting practices on its own. In late March, the company agreed to stop letting advertisers combine third-party data with Facebook’s information to select who would see their ads. And Zuckerberg committed to putting 20,000 people on the job of weeding out offensive or inappropriate content.

There’s disagreement over what effect such measures will have. “These are persistent costs,” says Brian Wieser at Pivotal Research. “It’s not a one-off thing and then you go back to normal.” But the recent actions are unlikely to fundamentally alter the company’s business. “Look, Facebook is a core part of people’s mobile world,” says Rich Greenfield at BTIG Research. “There could be more problematic consequences down the road. But will [the voluntary measures] have a near-term impact on users or revenue? I don’t see it.”

Perhaps the greatest current threat to Facebook is one that several lawmakers mentioned during the hearing: the possibility of breaking up the company and forcing it to divest Instagram and Whats­App.

“There’s usually a preference for using competition and market forces in cases like this,” says Maurice Stucke, a law professor at the University of Tennessee and a former Justice Department antitrust lawyer. Regulation is hard to enforce and hasn’t worked in the past, he notes, while a breakup might “unite both the liberals and the conservatives.”

If that option remains on the table, it’s safe to say this isn’t the last time we’ll see Zuckerberg in a suit.

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