As shares fall 7pc, will the universe put a dent in Facebook?

20 Dec 2018

Mark Zuckerberg, CEO of Facebook. Image: Frederic Legrand – COMEO/Shutterstock

Social media giant’s fumbling with privacy is hitting it and its investors squarely in the wallet.

The latest privacy breach at Facebook whereby the social media giant is alleged to have disclosed private messages to other platforms including Netflix and Spotify has caused its share value to plummet.

Facebook’s stock was down by 7.3pc last night (19 December), shedding more than $22bn from its market cap, following revelations in The New York Times that Facebook shared larger amounts of user data than previously thought with major firms that it categorised as data partners.

‘Facebook failed to protect the privacy of its users and deceived them about who had access to their data and how it was used’

After a year that has seen the Cambridge Analytica scandal erupt in March, a 50m-user breach in October, a photo-sharing glitch in recent weeks that affected up to 7m users and now this, could 2018 have been the year that saw the beginning of the end of Facebook as we know it, a kind of internet within the internet?

The stock fell just as Washington DC sued the social media giant over the Cambridge Analytica scandal earlier this year.

“Facebook failed to protect the privacy of its users and deceived them about who had access to their data and how it was used,” attorney general Karl Racine said in a statement.

The stock slide was the worst since Facebook warned in July that its profit margins would erode because of pressure to better protect data and prevent the sharing of objectionable content.

Clearly, investors in Facebook are afraid that social media companies will come under greater regulatory pressure and that the US could implement its own version of the General Data Protection Regulation (GDPR). GDPR came into law across Europe on 25 May this year. Under GDPR, companies could be hit with fines of up to €20m or 4pc of global turnover, whichever is higher.

Earlier this week, the Data Protection Commission in Ireland confirmed that it was investigating a number of breaches at Facebook under GDPR. A potential fine could reach an estimated €1.6bn based on its annual revenues of €40.6bn for 2017.

Software problems will eat Facebook

In explaining the company’s own version of events around the latest revelation, Ime Archibong, vice-president of product partnerships at Facebook, said in a blogpost that the agreements with other platforms ended three years ago.

“In the past day, we’ve been accused of disclosing people’s private messages to partners without their knowledge. That’s not true – and we wanted to provide more facts about our messaging partnerships,” Archibong said.

“We worked closely with four partners to integrate messaging capabilities into their products so people could message their Facebook friends – but only if they chose to use Facebook Login. These experiences are common in our industry – think of being able to have Alexa read your email aloud or to read your email on Apple’s Mail app.

“People could message their friends about what they were listening to on Spotify or watching on Netflix, share folders on Dropbox, or get receipts from money transfers through the Royal Bank of Canada app. These experiences were publicly discussed. And they were clear to users and only available when people logged into these services with Facebook. However, they were experimental and have now been shut down for nearly three years.”

Archibong said that in order for users to write a message to a Facebook friend from within Spotify, Facebook would need to give Spotify “write access” and Spotify would have to give Facebook “read access”.

“Many news stories imply we were shipping over private messages to partners, which is not correct,” Archibong railed. “These partnerships were agreed via extensive negotiations and documentation, detailing how the third party would use the API [application programming interface], and what data they could and couldn’t access.”

Archibong actually raises an interesting point. The entire kerfuffle over how Facebook worked with other platforms strikes at the very heart of the API economy and why APIs exist in the first place: to allow applications to talk to each other.

APIs are precisely the reason why Marc Andreessen proclaimed in 2011 that “software will eat the world”. If new regulations prove to be too stringent and blunt the capabilities of APIs, then the entire digital economy as we know it today risks being undermined.

In many ways, Facebook was the catalyst or cast the mould for how the tech world and its legions of start-ups and so-called visionary leaders have shaped themselves, and now its litany of privacy problems could unravel the whole thing.

Mark Zuckerberg started 2018 saying he was going to fix the entire privacy mess. As we enter 2019, no one knows who exactly is in charge at the company.

Yes, Facebook, you moved too fast and you broke things. And now, if you are not careful, the universe is going to put a dent in you.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years