The world's most dominant social media company, Facebook, is facing the biggest crisis of its life after it was revealed that an outfit called Cambridge Analytica managed to obtain Facebook data for some 50m users under false pretenses.

The Cambridge Analytica story has sparked a fury and led to a still-ongoing stream of negative headlines for Facebook that is entering its second week.

This time it's different

Facebook is no stranger to controversy and PR crises. For years, every move the world's largest social network has made has been put under a microscope and when it has made mistakes, the company has by and large been called out on them. Through trial by fire, the company has become adept at putting out PR fires.

But the Cambridge Analytica backlash isn't like any PR fire Facebook has put out before for a number of reasons, including:

It comes at a time when a growing number of users are already engaging less and less with Facebook. 

It comes at a time when public opinion on large tech companies, including Facebook, has significantly soured. Concerns over foreign meddling in elections, fake news and censorship have managed to unite individuals and lawmakers of all political persuasions.

Polls indicate that trust in Facebook has plummeted in the wake of the Cambridge Analytica scandal. According to a Reuters/Ipsos poll released Sunday, well under half of Americans (41%) now trust Facebook to obey U.S. privacy laws. While big tech companies have been under fire, 66%, 62% and 60% of Americans indicated they trust Amazon, Google and Microsoft, respectively.

The backlash has not only been sustained, but has spread to Facebook's stock. Apparently a good number of investors are not happy with the constant stream of negative headlines and more than $80bn in share value was erased as investors sold Facebook stock last week.

People associated with Facebook are turning on the company. For example, Brian Acton, the co-founder of WhatsApp, which Facebook purchased for nearly $20bn in 2014, publicly endorsed the idea that users should delete Facebook.

Mark Zuckerberg is getting involved in a big way. The company's CEO normally likes to communicate with the public through well-crafted Facebook posts but has been forced out of his comfort zone by this crisis. He conducted a CNN interview, which was followed by full-page apologies in major newspapers in the U.S. and U.K.

Regulators around the world seem more serious than ever about regulating Facebook and potentially punishing it for the Cambridge Analytica transgression. In the U.S., the Federal Trade Commission (FTC) confirmed Monday that it has opened a non-public investigation that could have serious consequences for Facebook as the company signed a consent decree with the consumer protection agency in 2011. If Facebook is found to have violated that decree, it could face harsh financial penalties of up to $40,000 per violation.

If the above wasn't bad enough, perhaps the biggest indication that this time it's different for Facebook is that some advertisers are starting to press pause, something they've never done before. Last week, Mozilla Corp., the maker of popular software including the Firefox browser, and Commerzbank, Germany's second largest bank, announced that they were suspending their ad campaigns on the social network. On Monday, they were joined by Pep Boys, a major U.S. automotive retailer.

In a statement, Pep Boys CMO Danielle Porto Mohn explained, "We are concerned about the issues surrounding Facebook and have decided to suspend all media on the platform until the facts are out and corrective actions have been taken."

What's next?

It's likely that Mozilla, Commerzbank and Pep Boys won't be the only advertisers to halt their campaigns or cut back on ads on the social network while the situation plays out. And there's the chance that as Facebook is put under the biggest microscope imaginable, other issues will be discovered and Cambridge Analytica will prove to be just the beginning of its woes, not the end of them.

While it's too early to predict what exactly will happen next, it's not too early for marketers to start contemplating the possibility that this crisis is going to change Facebook, and social media generally, forever.

At this point, it seems probable that Facebook and services like it will be forced to submit to greater regulation. The GDPR will likely just be the start. Countries within the E.U., such as Germany, are already suggesting tighter controls, and it would be surprising if the U.S. doesn't eventually adopt regulation similar to the GDPR. 

Some are pointing out that regulation could ironically help Facebook by creating barriers that smaller competitors won't have the resources to deal with, but that isn't necessarily good news for marketers. New regulations could make it more difficult for marketers to collect data from users and customers, and to use it to target customers on third-party platforms. In other words, marketers' ability to engage in retargeting, which is already impacted by the GDPR, could be hampered significantly by stronger regulations.

New and stronger regulations would likely also hamper marketers' ability to use third party data. For example, when advertising through Facebook's Audience Network, marketers can take advantage of Facebook's data to target users based on demographics, interests, behaviors, locations and connections. They can also employ data from Facebook partners to target specific audiences. Tighter controls over the data third parties are allowed to offer in some form to marketers could upend the digital marketing ecosystem and especially hurt small and mid-size marketers that don't have huge repositories of first-party data.

facebook ad platform

The bottom line

Obviously, tech giants like Facebook, as well as large marketers and industry associations, aren't going to go down without a fight. Even if they resign themselves to greater regulation, you can be sure they'll be working behind the scenes to help craft that regulation as much as they can.

But marketers, particularly those that don't have lobbyists of their own, should prepare for major changes in the coming weeks, months and years. Facebook's Cambridge Analytica crisis is arguably the watershed moment the industry has been hoping would never come: the incident that leaves the industry incapable of mounting a believable defense against the argument that it's not capable of policing itself.

Related resources:

Patricio Robles

Published 27 March, 2018 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2616 more posts from this author

You might be interested in

Comments (1)

Pete Austin

Pete Austin, CINO at Fresh Relevance

The GDPR is the biggest problem for facebook, because it may not be able to get valid consent from data subjects. In that case, facebook would have to fall back on using "legitimate interests" to process personal data, reducing it to a bulletin board.

(1) Facebook has a huge imbalance of power vs its data subjects, because it is a de-facto monopoly - many people feel they have to belong to stay in touch with their family.

(2) But the GDPR states: "In order to ensure that consent is freely given, consent should not provide a valid legal ground for the processing of personal data in a specific case where there is a clear imbalance between the data subject and the controller".

Read that carefully: consent should not provide a valid legal ground ... where there is a clear imbalance between the data subject and the controller. That's facebook's problem.
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32016R0679

And the GDPR is arriving just when facebook has few friends because of the Cambridge Analytica affair. Facebook also has form: the Obama campaign was harvesting friend data for political reasons 8 years before the current scandal. It's brave to bet against a big company with deep pockets, but we live in interesting times.
https://www.investors.com/politics/editorials/facebook-data-scandal-trump-election-obama-2012/

25 days ago

Comment
No-profile-pic
Save or Cancel
Daily_pulse_signup_wide

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Digital Pulse newsletter. You will receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.