In its little more than 10 years of existence, Facebook, Inc. (FB) has generated enough of a user base that it is able to operate a successful business model. As users of the now-ubiquitous social medium share their information with the world, they also provide an audience that Facebook can deliver to advertisers. Facebook is a business after all, and the company generates its revenues from advertisements, since it doesn’t charge Facebook account holders for what is essentially a free service. (Be careful what you post! See "6 Career-killing Facebook Mistakes.")
Still, you do pay a price in the form of loss of privacy. That’s because Facebook has access to all sorts of information about you. That information helps develop a profile of you and makes it easier for advertisers to more effectively sell their wares to specific targeted audiences, such as older animal lovers.
Manipulation of Newsfeed
Over the years, Facebook users have complained about the various ways that they feel the social network is imposing on their privacy. One way that Facebook has been known to use its access to your input is its presentation of your “newsfeed” of items. By prioritizing the items that Facebook wants you to see, so that it can feed you input that helps it better monetize your use of the network, it is essentially intruding on your choice and your privacy. Of course, the rationale that Facebook provides is that its algorithm has an idea about what items you are most interested in. And this prioritization of newsfeed items is just a softer intrusion.
In another issue involving its newsfeed and the invasion of privacy, the Electronic Privacy Invasion Center filed a complaint against Facebook to the Federal Trade Commission, alleging that Facebook had manipulated its users’ newsfeeds in order to study the impact on them for its own purposes. According to this complaint, Facebook “purposefully messed with people’s minds.”
Other Invasions of Privacy
Facebook has also been cited for other, more serious, violations of privacy. For one, there has been at least one instance in which the company has faced a lawsuit, in California, accusing it of invading users’ privacy. According to that suit, Facebook intercepted its users’ private messages to collect input that it could sell to advertisers and aggregators of data. Another lawsuit has alleged that Facebook used its users’ “like” endorsements for advertising purposes without their knowledge.
Europeans Follow Suit
There have also been complaints in Europe against the company. In one such development, a Belgian privacy watchdog has sued the company for tracking, with the help of cookies, Europeans who are not even Facebook users on third-party sites.
No Tangible Fallout Yet
So far, there doesn’t seem to have been any tangible fallout for Facebook because of these privacy issues. Indeed, the social media company has been gradually improving its revenues since it went public in 2012. For the first quarter of 2015, in what Facebook CEO Mark Zuckerberg describes as a “strong start to the year,” revenues were up to $3.5 billion, a 42 percent increase from the 2014 first quarter. However, the company’s expenses were also up, so that its earnings per share were down to $0.18 in the first quarter, from $0.25 for the 2014 period.
The company also reports that its user base has grown 17 percent over the year to 936 million people who are active on the social network everyday. Those who access the network through mobile devices have also grown 31 percent over the year, providing another venue for the company to cash in with advertising. And since going public in 2012 at $38 per share, the company has certainly enriched its shareholders and now trades around $80.
Possible Consequences in Future
While Facebook has been able to successfully monetize its business model so far, it can’t be said that the company will be unscathed in future. There is growing government interest in issues of digital privacy, and Facebook has been at the receiving end of a number of lawsuits. In case any such lawsuit is successful, it could set a precedent and there could be a threat to Facebook’s business model, which could even endanger the existence of the company. At the very least, privacy issues could impede the company from more aggressively monetizing its user base.
The Bottom Line
There have been a number of privacy issues involving Facebook and a number of lawsuits have been filed against the company. There hasn’t been any significant impact on the company’s business model so far, but this is a gradually evolving area that investors should keep an eye on.