Data scandal puts Facebook's business on trial

The outcry surrounding the Cambridge Analytica data scandal is putting Facebook’s business model on trial, with critics calling into question its targeted advertising practices and effect on user privacy.

The company’s most recognizable leaders, Chief Executive Officer Mark ZuckerbergMark Elliot ZuckerbergFacebook apologizes to Myanmar rights groupsFacebook's appearance before Congress is great, but where's Google?Zuckerberg announces support for regulating political ads on social mediaMORE and Chief Operating Officer Sheryl Sandberg, have been on a media blitz apologizing for the leak and promising to approach data privacy with a renewed sense of urgency.

"We didn’t take a broad enough view of what our responsibility is and that was a huge mistake,” Zuckerberg told reporters on Wednesday.

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The company has announced a series of reforms in recent weeks aimed at cracking down on third-party access to user data and increasing transparency around what they do with that data.

Zuckerberg will also testify before two Congressional panels in the coming week.

But the scandal has many questioning the propriety of Facebook’s business model, which relies heavily on tailoring ads to users based on their personal information.

And some critics say Facebook’s campaign to reassure the public fails to include the systemic changes they want to see.

“The two of them are trying to do the best they can to save the business,” John Simpson, who runs the privacy and technology program at Consumer Watchdog, said of Zuckerberg and Sandberg.

“The problem right now is people are just beginning to understand the amount of personal data that the Facebooks and Googles and Amazons are gathering about us,” Simpson said. “The whole business model is designed to not be explicit about what they're gathering on you and what they're going to do with it.”

The scrutiny comes as Facebook is dealing with the revelation that Cambridge Analytica, a political consultancy that worked for President TrumpDonald John TrumpMattis approves sending 4,000 National Guard troops to borderTrump meets with Pruitt amid growing calls for resignationOversight chairman probes Pruitt's -a-night condo dealMORE’s 2016 campaign, obtained personal information on millions of users without their knowledge. Facebook said this week that 87 million people were affected by the leak, up from the previous estimate of 50 million.

But despite the show of contrition on Facebook’s part and the promise of reforms, Zuckerberg and Sandberg insist the problem is not the social media platform’s underlying business model.

More than 98 percent of Facebook’s revenue in 2017 came from advertising, according to the company’s financial statements, and the data the company collects from users makes the targeted ads more valuable.

The company argues the system is a benefit for consumers looking for services relevant to them and to businesses looking for specific customers.

“You know, people tell us that if they’re going to see ads, they want the ads to be good,” Zuckerberg said in his call with reporters this week. “And the way the ads are good is by making it so that when someone tells us that they have an interest ... the ads are actually relevant to what they care about.”

Sandberg has repeatedly pointed out that the company does not hand over personal information to its advertising partners.

“We don't sell data ever, we do not give personal data to advertisers,” she told NBC’s “Today.” “People come onto Facebook, they want to do targeted ads and that's really important for small business but people want to show ads, we take those ads, we show them, and then we don't pass any individual information back to the advertiser.”

But that’s unlikely to appease Facebook’s loudest critics or skeptical regulators. Facebook and other internet companies are scrambling to bring themselves in line with an impending EU law called the General Data Protection Regulation (GDPR), which will require websites to offer greater transparency on their data practices and give users more control over their own information.

“I would like to speak with Ms Sandberg about how they intend to ensure transparency and respect the rules of our democratic debate and how they plan to change once the #GDPR is in place,” Věra Jourová, the EU commissioner on consumer protection, tweeted Friday.

‏The company is also facing an investigation from the Federal Trade Commission.

Even those who see value in Facebook’s ad model think the company has failed to make a good case for it. Brian Wieser, a digital media analyst with Pivotal Research Group, said that the entire digital advertising system is now at a greater risk of regulation.

“I don't think they ever properly secured sufficient consent to do what the industry has done,” Wieser said. “And that doesn't mean [targeted advertising] wrong or bad.”

Wieser thinks Facebook’s leadership will have an uphill battle to make the case for their business model following the uproar over Cambridge Analytica, and that he’s not sure they’re up to it.

“It’s not clear to me that they understand what they need to do to,” he added.

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