Following common wisdom, Facebook got out in front of bad news—$3 billion to $5 billion worth.
Facebook says it is preparing to pay a hefty fine to the Federal Trade Commission for privacy violations stemming from the Cambridge Analytica scandal.
The company made the announcement coinciding with a positive earnings report where the company demonstrated revenue growth and promised to continue its structural reorganization towards privacy. The company says it is setting aside $3 billion in advance of what it assumes will be a penalty as high as $5 billion.
Though the penalty will be the largest ever for data privacy violations, some critics say the amount pales compared with fines levied in other cases.
Facebook said on Wednesday that it expected to be fined up to $5 billion by the Federal Trade Commission for privacy violations. The penalty would be a record by the agency against a technology company and a sign that the United States was willing to punish big tech companies.
The social network disclosed the amount in its quarterly financial results, saying it estimated a one-time charge of $3 billion to $5 billion in connection with an “ongoing inquiry” by the F.T.C. Facebook added that “the matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”
Facebook has been in negotiations with the regulator for months over a financial penalty for claims that the company violated a 2011 privacy consent decree. That year, the social network promised a series of measures to protect its users’ privacy after an investigation found that its handling of data had harmed consumers.
As for investors, Wall Street was unfazed by the news:
Facebook: We expect to be hit with a $3 to $5 billion FTC fine
Wall Street: Fantastic! pic.twitter.com/FeIOD57rl8
— Alex Kantrowitz (@Kantrowitz) April 24, 2019
The fine is breaking U.S. records, but it falls short of what European regulators have been willing to dish out for such violations.
Facebook and the FTC are still negotiating what the final settlement will look like in order to end the regulator’s investigation into the company’s privacy and data fumbles, but even if the final amount of the fine is at the low end of the anticipated $3-$5 billion range, it more than 100 times larger than what is currently the most expensive levied against a tech company. As the Washington Post notes, the fine of that size effectively “resets the baseline for future privacy investigations.” It also puts the U.S. closer to its European counterparts who have so far proven far more willing to hold American tech companies to account for brazen behavior with consumer privacy and data.
In The Information, Ashley Gold compares a potential $3 billion fine to some of the other big speeding tickets issued against tech companies. It would be exponentially bigger than the biggest fine issued by the FTC to date — $22.5 million, against Google in 2012. But it would be smaller than European actions against Big Tech. The EU issued a $15.3 billion fine against Apple in 2016, for tax evasion; and a $5 billion fine against Google last year, for antitrust issues. And it would pale next to fines levied against banks — such as the $16.7 billion fine the Justice Department issued against Bank of America in 2014 for defrauding consumers during the financial crisis
Some suggest the headlines benefit both the platform and the federal agency. Whatever the outcome, the dollar amount is likely to matter less than public perception.
On the surface, a $3 billion fine looks like a win to both the FTC and Facebook. For the agency, the move will inspire a round of headlines about its “largest fine ever,” and allow it to push back on the idea that it’s an office full of empty suits. For Facebook, those same headlines will convey a welcome sense that the company is being held accountable for its past misdeeds, while simultaneously costing it a meaningless amount of money.
It’s also possible that the fine could come with new restrictions on how Facebook collects or uses data, but I would be surprised if any of them required the company to change how it does business. The 2011 consent decree was, in essence, a pinky promise that the company would do better to protect our privacy. And then predictive technology got so good that companies can now infer our behavior while knowing almost nothing about us, rendering many 2011-era privacy concerns quaint.
In such a world, a trivial fine over what is essentially a moot point can’t help but look a little ridiculous. Some day, tech companies may face accountability for real. In the meantime, what they’re facing looks a lot like theater.
Facebook has promised to change how it does business, with Mark Zuckerberg touting a platform-wide shift from advertising products to private communication solutions. That means leaving behind a lucrative advertising business that has built an unparalleled digital empire.
However, some industry insiders suggest significant change is the only way Facebook can grow.
Still, Facebook is reaching saturation in its most lucrative advertising markets, the U.S. and Europe, while faster growth is coming from developing countries that aren’t as profitable. The company’s sales gains are increasingly being driven by photo-sharing app Instagram and advertising in its ephemeral Stories feature. Facebook also recently started testing an e-commerce product called Checkout, allowing people to buy products within Instagram, another potential source of revenue via the fast-growing app.
“Advertisers love Stories ads, because they are engaging and fun, and because they can cost less than in-feed advertising,” eMarketer analyst Debra Aho Williamson wrote in a note before earnings. “Advertisers say they are concerned about Facebook’s many problems, but that concern hasn’t led to a drop in ad spending.”
On social media, some downplayed the size of the fine:
This is a slap on the wrist—a fraction of the profits Facebook makes in a year. Facebook is a repeat offender & fines like this won’t stop them from breaking the law & violating our privacy again. It's going to take big, structural change. #BreakUpBigTech https://t.co/yXjj6F8RWR
— Elizabeth Warren (@ewarren) April 25, 2019
Facebook made $15B in the last three months – $3B for violating an FTC order & a decade of privacy violations would be a mere slap on the wrist. FTC must pursue strong structural remedies & impose managerial accountability. Facebook won’t listen otherwise. https://t.co/MLnrzvujg5
— Richard Blumenthal (@SenBlumenthal) April 25, 2019
Every insider I've spoken to said any FTC fine on Facebook under $10 billion would be seen as a massive win, showing firm won't face serious consequences for privacy violations. Wall St. seems to agree in response to news of $3-$5b settlement pic.twitter.com/11RtNVQgzH
— Lee Fang (@lhfang) April 24, 2019
Big picture: An FTC fine less than $50 billion is a joke given that Facebook aided and abetted the unlawful political profiling of all US registered voters on UK soil in violation of their laws. pic.twitter.com/SlFJt0KeKB
— David Carroll 🦅 (@profcarroll) April 24, 2019
Others noted that the amount is the biggest ever levied by the FTC:
NEW: Facebook expects it could be fined as much as $3-$5 billion as a result of the FTC investigation following the Cambridge Analytica scandal.
That would be the largest fine ever imposed by the FTC. https://t.co/en3Ds0m9Nh
— Caroline Orr (@RVAwonk) April 24, 2019
For now at least, users don’t seem ready to break up with Facebook.
Meanwhile, the total number of daily users of Facebook’s entire “family of apps” has grown to 2.1 billion, up from 2 billion, while monthly active users has held steady at 2.7 billion. The company has previously said that at some point it will stop disclosing its daily and monthly active users for the core Facebook app, replacing it instead only with this “family of apps” figure.
Such a move would help disguise any drop-off in users in the core Facebook app, that has borne the brunt of the company’s scandals and is increasingly overshadowed by buzzy sister app Instagram. But data released by Facebook on Wednesday shows that (for now, at least) the social network continues to hold broadly steady, and has continued to slowly grow its European userbase again after roughly flatlining for the past year.
Given the opportunities the platform still offers, it seems unlikely marketers will bail out.