Transparency: How Facebook Can Recover From The Cambridge Analytica Crisis | Forbes
Dr. Granados covers the recent Facebook incident and their future steps to prevent similar repeated events from occurring
March 26, 2018 | 3 min read
Facebook's Cambridge Analytica crisis has struck a chord around the world because it signals the potential for social media platforms to abuse their privileged access to user information. A poll conducted late last week in the U.S. and Germany by Reuters/Ipsos shows only 41% of consumers trust Facebook with its information. What can Facebook do to recover from this crisis?
Many users now realize the use of social media platforms is not free, that they pay with attention to personalized ads and through loss of privacy about their personal information and social interactions. But let's be honest. Even as millions of users demand action after reading that Cambridge Analytica misused the profile data of 50 million Facebook users, the business model of social media platforms, which is to monetize user data, is not likely to change.
Social media platforms provide value to a user by enabling digital connections to the user's social network. And the more users in the network, the higher the value of the network to each user, or the so-called "network effect." This means that we will always be attracted to participate in social media platforms that have scale because we want a ubiquitous platform where we can find all the people we want to socialize with online.
These large-scale social media platforms use their market power to monetize our information and digital behavior. And because we are locked into these networks, we are not bound to massively flock away from them. Facebook made $40 billion in ad revenues in 2017, and while the crisis may temporarily reduce this number, I don't think it's likely it will cost Facebook its place as the second largest media owner in the world after Google GOOGL -0.55%.
What is undeniable is that Facebook and other social media sites are seeing crystal clear the risk of not having a deliberate disclosure policy on how user information is shared with advertisers. If Facebook can fall victim to a reactive approach to transparency about user data monetization, then any other social media platform can too.
I have been studying for almost two decades how firms strategically disclose information to consumers on the internet. One of the key findings is that, despite the benefits of proactively competing with transparency, most companies in the digital space are reactive, as we are witnessing with the Facebook crisis. Only after clamor for Facebook's founder Mark Zuckerberg to explain did he come out with a post and interviews late last week.
He said he's sorry, and summarized the actions the company will take to try and ensure it doesn't happen again. This was good, but not enough or perhaps late, as the user movement to #DeleteFacebook gains momentum in social media, and as corporate users like Tesla deleted their brand page and advertisers like Commerzbank and Mozilla suspended advertising on Facebook.
For Facebook, in the next few weeks, the big dilemma will be to decide how transparent it wants to be with its users about how their data is shared and monetized. Zuckerberg promised so far more control over third-party use of the data, and more salient tools for individual users to control which company apps can access their information.
That's a start, but only time will tell if it will be enough. In my view, it's not. There are crisis management and ethical motivations, but it may also make business sense. For example, a recent study by researchers at Rotterdam School of Management in Netherlands and Temple University in the U.S. shows that personalized Facebook ads, which leverage user information, generate privacy concerns. These privacy concerns, in turn, reduce ad performance. Providing users with information and control over their privacy may be in the best interest of Facebook and its advertisers, not just its users.
A deliberate disclosure policy to users about which information is shared with advertisers and how it is monetized is now necessary for Facebook to recover user trust. And other social media platforms should respond with a similar initiative unless they want to risk subjecting their users and investors to a similar crisis.
Authored by Nelson Granados