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Facebook is under fire after one of its digital consultants, Cambridge Analytica, misused data on tens of millions of Facebook users. Now, Mark Zuckerberg, Facebook’s CEO, faces grilling from Congress on the company’s policies and pitfalls in securing its user data.
Facebook has been transformative in the way people connect and interact. Security breaches threaten to undermine not only the credibility of the company but the value it generates from the data it possesses.
The beauty of Facebook from an advertiser’s perspective is the data it has on its user base. With 2.2 billion users, 1.4 billion of which log in each week, Facebook is an advertiser’s gold mine. Every base is covered demographically and geographically that an advertiser could ever want.
As an advertiser, you only care about your target market reading your ad. If you sell gardening supplies and your target market is females aged 40-75 in the northeast, then what do you care about 35-year-old males in California? While mailing lists have been around for decades, the level of detail regarding how users interact and navigate the Internet is relatively new. It’s very powerful information and Facebook allows advertisers to target and test the effectiveness of their ads.
Facebook’s value could be greatly diminished by this security breach. The #deletefacebook movement is overblown. People are still going to want to stay in touch with family members and long-lost friends from high school.
However, the breaches could accelerate some social media fatigue. Is “liking” a friend of a friend’s post really a true social interaction? The threat of exposing your privacy will clearly lead people to reevaluate their use of Facebook.
But the biggest issue facing the company is regulation. Judging by many of the questions from Congress, our esteemed representatives are still using typewriters. They just don’t get it. The danger is that they come down with a heavy hand.
Even a lighter form of regulation such as “opting-in” to share your data could lead to significant loss in value for Facebook. Less data equals less value for advertisers. This would cause rates to decline, if not crash, and result is significantly less cash flows for the company.
It’s tempting to “buy the dip” on leading stocks under pressure. But, just like Facebook was a gamechanger for advertisers this breach may very well be a gamechanger for its financial performance.
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