Facebook – Broken Valley pt. VI.

For once, I agree with Facebook.

• Facebook has been hit with a fine from a UK regulator over the Cambridge Analytical issue which I think is both unjustified and demonstrates how poorly regulators and governments understand how the Internet works.
• The UK’s Information Commissioner’s Office (ICO) has fined Facebook $640,000, not because UK users’ data was used by Cambridge Analytica, but due to a vague assertion that has not used due care and attention with its custody of UK users’ data.
• This assertion, combined with the questions that were asked of Facebook when the company presented itself in front of the US Senate, show that lawmakers and regulators have almost no understanding of how the Internet works or the economy that it has enabled.
• This is why I think Facebook is absolutely right to appeal this fine as simply subjugating itself will only serve to threaten its business model further.
• There are three methods of monetisation of Internet services: 1) Hardware (Apple), 2) Advertising (Google, Facebook, etc) and 3) Subscription (Amazon, Microsoft, Netflix etc).
• Facebook is firmly rooted in advertising which during 2018 has run into some serious problems.
• The nature of this method of monetisation is that users sell their data to Facebook in return for the service that they enjoy.
• Consequently, this data belongs to Facebook and therefore it should be at liberty to use that data to earn a return on the investments that it has made in developing and operating its service.
• Obviously, there are limits to what constitutes reasonable use of that data, but given that users have sold their data to Facebook, most of its monetisation is fair and above board.
• Furthermore, I fail to see how Cambridge Analytica’s failure to delete user data (that it had acquired through a loophole) when asked to do so by Facebook is Facebook’s responsibility.
• The real problem here is that the general public and their governments do not really understand the nature of the Internet and their slow awakening to this reality is largely responsible for the outrage and furore sweeping public discourse.
• I suspect that users would have been far more wary about exposing their entire lives on Facebook had they been fully aware of this reality, but this is what needs to be made clear now.
• Consequently, something along the lines of: “We are able to provide this service to you by selling using your data for targeted advertising. If you would like us not to do this, we can offer you a subscription for $X per month.” will be needed to ensure that the relationship is clear.
• This is where business on the Internet is likely to go and I think that once the choice to pay with cash or personal data is clearly understood, then the problem will have mostly been solved.
• However, in the meantime, the short-term outlook for Facebook remains bleak as its valuation looks far too high for a business that will see falling margins (and possibly profits (see here)) in the medium term.
• There will be a better time to pick this one up.