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Facing the Analytica fallout PDF Print E-mail
Friday, 27 July 2018 04:00
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Facebook’s second-quarter results announcement on Wednesday shocked investors enough for the company’s share to plunge by as much as over 20% in after-hours trading, knocking as much as $150 billion off its market value. The social media leviathan reported lower global daily active user (DAU) growth than Wall Street’s estimates. Revenue, too, fell short of analysts’ estimates. But, the most disquieting bit was the company’s guidance for the third and fourth quarters—Facebook expects revenue growth rates to decline till at least end-2018. Facebook’s financial performance had seemed almost magically resilient to criticism of content and privacy policies in earlier years, but that was before the Cambridge Analytica scandal, involving a breach of the data of 87 million users, broke—soon after, co-founder-CEO Mark Zuckerberg was grilled by the US Congress over the company’s policies and the massive cross-border data breach. The famed resilience was also before Facebook’s content policy came under a cloud over misinformation-related violence in Sri Lanka and Myanmar, and over the investigations into alleged Russian manipulation of the 2016 US presidential elections and the role of the company therein. Most important, that was before Zuckerberg committed to rejigging Facebook to make the Facebook “community safer for everyone going forward”. Facebook’s latest performance and outlook, it would seem, stem from a painful privacy/content sting, as also what the company intends to do about it.

With the EU’s General Data Protection Regulation now in force, and the ghosts of privacy scandals continuing to haunt, Facebook won’t find it easy to expand its ad business despite holding one of the largest and, arguably, most valuable, data-sets in the world. Wary of data security, users may limit engagement—Facebook, thus, will probably have to radically rethink its revenue model dependent on customised ads based on user data. The company must also contend with the fact that future user growth will be slow—it has 2.23 billion monthly active users, but China, one of the world’s largest markets, is still out of its grasp. Given China’s infamous state-driven violations of citizens’ privacy, in a post-Analytica world, Facebook will have to take a long, hard look at whether it even wants to be there. China has just withdrawn permission for an innovation hub the company was looking to set up there. Given many saw this as the first step to Facebook setting up shop in the country, it should signal the company’s seriousness on guarding user privacy. Facebook also changed its ad policy, following criticism over fake news and political polarisation in the US, making it compulsory for all political advertisers to verify their identities. Given what it defines as “political”, a Bloomberg analysis says, the company may have been forced to refuse more ads than what it would have estimated. Given the systemic and regulatory limitations of social media, Facebook may have to bank on its other offerings and diversification—Zuckerberg is keen on AI and machine learning, where future growth in tech could lie.

 

 

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