Facebook (FB) Chief Executive Mark Zuckerberg touts the world’s largest social network as a platform for bringing people closer together. But the Cambridge Analytica scandal whipped up by news of a Facebook data breach is fueling fears that social media are tearing Americans apart and may be jeopardizing their own success in the process.
Concerns were stoked by Facebook Russia ads meant to influence the 2016 presidential election. Those concerns flared with news that data was commandeered from 50 million Facebook user accounts by political consultant Cambridge Analytica and put to work for the Donald Trump campaign.
The statement by Facebook security chief Alex Stamos that he will exit the company by August , followed by a round of public apologies from Zuckerberg, appeared only to worsen the meltdown of Facebook stock, long one of the stock market’s premier leaders.
Now Facebook, along with Twitter (TWTR) and the YouTube video platform of Alphabet (GOOGL), face what could be their biggest challenge to date. Amid the Cambridge Analytica scandal and Facebook data breach, the three social networks face public-relations mine fields with advertisers that provide the vast majority of their revenue. Some critics are calling for tough new regulations. Celebrities and other influencers are urging users to quit Facebook, a call to action with its own Twitter hashtag, #deleteFacebook. Elon Musk joined the Facebook revolt Friday with the jeer “What’s Facebook?” as he deleted Tesla (TSLA) and SpaceX pages.
User time spent on Facebook already had shown a dip in the latest quarter.
“It is in the digital media industry’s interest to listen and act on this, before viewers stop viewing, advertisers stop advertising and publishers stop publishing,” warned Keith Weed, chief marketing officer at Unilever, during a speech at the Interactive Advertising Bureau’s annual meeting last month.
Unilever, one of the world’s largest advertisers, spent about $9.5 billion last year marketing its many brands, which range from Dove soap to Best Foods mayonnaise and Lipton tea. A quarter of that amount, about $2.4 billion, was spent on digital advertising.
Fallout from the Cambridge Analytica scandal sent Facebook shares down 14% in what was the stock’s worst week since July 2012, just after the company’s May 2012 IPO. Despite a 53% gain in 2017, the stock — now broken down below critical levels of support and with a number of key technical gauges lagging — has been stripped of its leadership status.
Research firm eMarketer recently predicted that Google and Facebook will both lose U.S. digital advertising market share in 2018 as Amazon (AMZN) and Snap (SNAP) gain ground.
Agitators use the Facebook platform to antagonize, spew hatred and intolerance. Evidence increasingly shows how Russian entities tried to influence the 2016 U.S. elections by littering the site with “news” that was either inaccurate or entirely fabricated.
The plot thickened as details of the Facebook data breach surfaced and the Cambridge Analytica scandal grew. The New York Times and U.K. media reported March 17 that the data mining and analysis firm employed by President Trump’s 2016 campaign accessed data on Facebook users without their knowledge and tried to affect their vote. Facebook faced criticisms that it did too little to protect user data and failed to disclose the leaks to users or investors.
Facebook Data Breach: Advertising Impact
“Fake news, racism, sexism, terrorists spreading messages of hate, toxic content directed at children — parts of the internet we have ended up with is a million miles from where we thought it would take us,” Unilever’s Weed said in his speech.
Advertisers judiciously avoid any toxic environment that can damage a brand name. Since last year, they’ve pulled hundreds of millions of dollars of planned spending from digital ads, while telling Facebook, Twitter and Alphabet to clean up their act. All three have come under heightened pressure from lawmakers, academics and industry critics to invest more heavily in ways to filter out misinformation, hate speech, fake news and other misleading and divisive content.
The social media giants have taken action to thwart abuse of their platforms. But the abusers present many moving targets, demanding expensive vigilance. Among recent moves, Facebook banned pages belonging to far-right political group Britain First and its two leaders for repeatedly violating policies on community standards, such as inciting animosity and hatred against minority groups. Facebook also suspended the account of Cambridge Analytica.
On Wednesday, in a posting to his Facebook page, Zuckerberg outlined three steps the company will take to prevent abuses like those that occurred with Cambridge Analytica. The steps include restricting app developers’ data access.
“While this Cambridge situation will remain a dark cloud over the Facebook name in the near term, breaking his silence and the actions outlined should help users, advertisers and investors feel more comfortable that Facebook and Zuckerberg are starting to get their arms around this issue,” wrote GBH Insights analyst Daniel Ives in a report to clients.
But weeding out the riffraff is a tough whack-a-mole game. Even before recent Facebook data breach news and the Cambridge Analytica scandal, Facebook, YouTube and Twitter were trying to knock out bad actors.
Facebook last October announced plans to hire an army of 10,000 workers to help police its content. In December, Alphabet said it too would have 10,000 employees dedicated to police its content by the end of 2018. The additional staff will add to costs without likely generating the kind of revenue that other investments might.
YouTube has deleted thousands of offending videos. Twitter has deleted thousands of users who cross its boundaries. These are steps in the right direction, some observers say. But will they be enough — or even work?
“It’s a big problem,” said Tom Shields, chief strategy officer at AppNexis, which runs one of the largest online ad exchanges, with clients that include Microsoft (MSFT) and LinkedIn (LNKD). “You’re always going to be fighting fires and there’s no magic bullet to stop it.”
After Cambridge Analytica Scandal: Social Media Regulation?
Another question is whether the social media giants will face more regulatory pressure, which could hinder revenue growth and add further costs. The Facebook data breach comes at a time when the company and other internet giants face complaints they’ve grown too big and powerful. Critics in Washington include people on both sides of the political spectrum.
In reaction to the Cambridge Analytica scandal, British Information Commissioner Elizabeth Denham said she will vigorously probe whether Facebook data were illegally acquired and used. Massachusetts Attorney General Maura Healey announced in a Twitter post that a Facebook investigation will be launched. And the Federal Trade Commission is reportedly investigating whether Facebook mishandled user data.
Pivotal Research analyst Brian Wieser on Wednesday reiterated a sell rating on Facebook, saying that regulatory risks will intensify. His 152 price target was 5% below Friday’s closing price.
“We think this episode is another indication of systemic problems at Facebook, although the company’s business won’t likely be meaningfully impacted for now because we don’t think advertisers will suddenly change the trajectory of their spending growth on the platform,” Wieser wrote in a March 19 research note to clients. “However, risks are now enhanced in several ways.”
Alphabet last year saw hundreds of millions of ad dollars pulled from YouTube by Unilever, Proctor & Gamble (PG), AT&T (T), Walmart (WMT) and others after reports surfaced that ads were appearing on videos promoting hate speech, terrorism and other disturbing content.
Facebook Russia Ads: Troll Armies, Bot Manipulation
Officials from Facebook, Alphabet and Twitter all acknowledged, in a congressional hearing in November, that their platforms had hosted disinformation campaigns carried out by Russian state actors.
Facebook said a “troll farm” tied to the Kremlin, called the Internet Research Agency and backed by an oligarch with links to the Kremlin, posted 80,000 times from 2015 to 2017, reaching around 126 million people in the U.S. Russian agents also published more than 131,000 messages on Twitter and uploaded over 1,000 videos to Google’s YouTube service.
On Feb. 17, a grand jury indictment filed by special counsel Robert Mueller against 13 Russians provided a detailed account of a scheme to interfere in the U.S. political system.
The Internet Research Agency used automated programs called bots to flood social media, amplifying some stories while trying to bury others, and flooding certain channels with false stories. The activities from Russian operatives centered on the presidential election but also included gun rights, immigration, gay rights and other divisive issues that were hotly debated during the election.
Zuckerberg responded to criticism in early January by revealing changes in how the Facebook News Feed would present content to its 2.1 billion users. The changes place an emphasis on postings from friends and family, as opposed to news organizations and brands. Zuckerberg said Facebook made the changes to generate more “meaningful” interactions. The downside was that user time spent on Facebook fell 5% in the fourth quarter, or about 50 million hours less per day than the previous quarter.
“2017 was a hard year,” Zuckerberg said on Facebook’s quarterly earnings conference call on Jan. 31. “We’ve seen abuse on our platform, including interference from nation states, the spread of news that is false, sensational and polarizing, and debate about the utility of social media,” he said.
Twitter CEO Jack Dorsey last month expressed similar remorse over how his company handled mischievous and malicious activity on its site.
“We have witnessed abuse, harassment, troll armies, manipulation through bots and human-coordination, misinformation campaigns, and increasingly divisive echo chambers,” Dorsey said in a string of more than 10 posts on Twitter. “We aren’t proud of how people have taken advantage of our service, or our inability to address it fast enough.”