Facebook facing mounting pressure
Facebook faces substantial business risks from new European Union privacy rules set to take effect in May, a looming reality that came into stark relief over the weekend with revelations that a controversial political consulting firm had improperly obtained personal data on 50 million Facebook users.
Privacy experts said the disclosure that a researcher had sold Facebook data collected via a personality quiz to the consulting firm Cambridge Analytica is a prime example of the kinds of practices that the new General Data Protection Regulation, or GDPR, is supposed to prevent or punish.
The danger faced by Facebook going forward is two-fold: Complying with the rules means letting European users opt out of the highly targeted online ads that have made Facebook a money machine.
Violating GDPR mandates could subject the California company to fines of up to 4 per cent of annual revenues.
Had the Cambridge Analytica incident happened after GDPR becomes law on May 25, it "would have cost Facebook 4 per cent of their global revenue", said Austrian privacy campaigner and Facebook critic Max Schrems.
Because a UK company was involved and because at least some of the people whose data was misused were almost certainly European, GDPR would have applied.
Mr Schrems first raised concerns in 2011 about how easy it would be for third-party apps to harvest data from the unwitting friends of Facebook users.
Mr Schrems has founded a non-profit, called None Of Your Business, that is hiring lawyers and exploring avenues for "strategic litigation" over GDPR privacy violations.
"The fact of the matter is that Facebook lost control of the data and wasn't adequately monitoring what third-parties were doing," said Mr Scott Vernick, a partner and an expert in privacy and data security at the Philadelphia law firm Fox Rothschild.
Mr Vernick said the maximum GDPR fine could come into play in an incident like this because of the number of users affected and what appears to have been inadequate monitoring of third-party data practices.
Facebook said it changed its policies in 2014 to "to give much less data, especially about friends," Facebook Vice-President Andrew Bosworth said in a post on Monday.
"We conduct a robust review to identify potential policy violations and to assess whether the app has a legitimate use for the data," the company said on Monday.
"We actually reject a significant number of apps through this process."
Compliance with GDPR rules could cost Facebook a significant amount of money.
Deutsche Bank analysts in January estimated that Facebook's overall revenue could be lowered by 4 per cent in a scenario in which 30 per cent of EU users opt out of targeted ads, reducing the effectiveness and likely price of ads shown by 50 per cent.
The EU represents 24 per cent of Facebook's ad revenue, so multiplying those figures, the bank said the regulations could have a 4 percent impact on overall Facebook revenue.
A December 2017 survey found that only 21 per cent of European consumers know what GDPR is.
But after the regulation was explained, 82 per cent of respondents said they plan to exercise their new rights, according to the survey of 7,000 Europeans conducted by Pegasystems Inc, which makes sales and marketing software.
Another challenge for social networks are GDPR provisions mandating how companies must obtain permissions.
The regulation demands that requests for consent be presented "in an intelligible and easily accessible form, using clear and plain language."
In other words, the days of extensive "terms of service"agreements written in small text will no longer pass muster in Europe, numerous data privacy lawyers told Reuters.
In practice, social network users may find themselves seeing more "permissions screens" and being asked to check boxes every time a social network rolls out a new feature.
That could depress usage, Facebook Chief Financial Officer David Wehner said at an investor conference last month.
"Whenever you walk people through permission screens, there's some potential that people decide they're not going to use the product," Wehner said.
"We don't think it will be big, but there could be some implication there." - REUTERS