Facebook’s Stumbles – SAGE Business Researcher

Will its “dorm-room defense” wear thin?

Executive Summary

Facebook, one of the world’s most valuable companies, is struggling to recover from a series of incidents that have damaged the social media giant’s reputation. Russian groups and individuals bought millions of ads on Facebook targeting swing-state voters in an illegal effort to help Donald Trump’s 2016 presidential campaign, federal prosecutors have charged. And a British firm, Cambridge Analytica, gained access to the personal data of tens of millions of Facebook users without their consent and then used the information in its work for the Trump campaign. Facebook CEO Mark Zuckerberg has portrayed the company as a victim and said it has taken robust steps to prevent any repetition. But critics say the wounds are mostly self-inflicted. The company’s business model centers on monetizing its vast audience by selling access to users’ data to advertisers. The critics argue that this model worked all too well, creating vulnerabilities that could be exploited. The media storm over the incidents led to a loud campaign urging users to drop Facebook, but initial evidence indicates usage has not declined.

Key takeaways include:

Facebook’s market valuation has grown through the power of “network effects,” in which the addition of new users multiplies the reach and worth of the overall network because each new user is connected to many others.
Facebook prevailed over its early competitors by skillfully adapting its site to meet users’ changing preferences.
The fallout from the Russian and Cambridge Analytica incidents has led to greater scrutiny of Facebook by regulators and lawmakers in the United States and United Kingdom.
Click here to listen to an interview with author David Milstead or click here for the transcript.

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Resources for Further Study

Bibliography

Books

Kirkpatrick, David, “The Facebook Effect: The Inside Story of the Company That Is Connecting the World,” Simon & Schuster, 2010. A former editor at Fortune magazine produced an early history of the corporation.

Simanowski, Roberto, “Facebook Society: Losing Ourselves in Sharing Ourselves,” Columbia University Press, 2018. A professor at Pontifical Catholic University of Rio de Janeiro and frequent author on digital media and society outlines how social media has the power to change human perception.

Articles

Dance, Gabriel J.X., Nicholas Confessore and Michael LaForgia, “Facebook Gave Device Makers Deep Access to Data on Users and Friends,” The New York Times, June 3, 2018, http://tinyurl.com/y93uj4nb. New York Times reporters reveal the extent of Facebook’s partnerships with device makers that allowed their use of user data.

Fisher, Mike, “Ain’t Misbehavin’: How Encouraging Product ‘Misuse’ Helped Facebook Beat Friendster,” Openview Labs blog, Aug. 1, 2013, http://tinyurl.com/y83w72al. The author says Facebook triumphed over competitors because it closely watched what itts users wanted to do, even if it they violated the site’s terms of service, and changed or added new features in response.

Lapowsky, Issie, “How Russian Facebook Ads Divided and Targeted US Voters before the 2016 election,” Wired, April 16, 2018, http://tinyurl.com/y8yyauxh. The article details an academic study that lays bare the Russian use of Facebook in the 2016 election.

Majewski, Brigitte, Erna Alfred Liousas and Jessica Liu, “Facebook Fumbles Its Own Brand Crisis,” Forbes, April 20, 2018, http://tinyurl.com/yblufgh5. Researchers and analysts from Forrester Research dissect Facebook’s response to its public-relations crisis.

McKenna, Francine, “The uncomfortable question Zuckerberg kept facing: Is Facebook a monopoly?” MarketWatch, April 11, 2018, http://tinyurl.com/y7cvp4co. A reporter examines Mark Zuckerberg’s Capitol Hill testimony in the context of whether the company has too much market power.

Staley, Oliver, “Why is Facebook Failing to Follow the Basic Rules of Crisis Management?” Quartz, March 20, 2018, http://tinyurl.com/y7n4a87o. A management-and-workplace reporter details the history of corporate crisis response and how Facebook has deviated from it.

Tiku, Nitasha, “Europe’s New Privacy Law Will Change the Web, and More,” Wired, March 19, 2018, http://tinyurl.com/y97ms47a. The magazine surveys the European Union’s new General Data Protection Regulation and what it will mean across the world, including the United States.

Weissman, Cale Guthrie, “Maybe It’s Time To Treat Facebook Like A Public Utility,” Fast Company, May 1, 2017, http://tinyurl.com/y94ebabo. The author argues that “just like other services that have become vital parts of Americans’ everyday lives – such as electricity, water and, increasingly, broadband internet services – maybe Facebook itself is too important to be left unregulated.”

Reports and Studies

“Transcript of Mark Zuckerberg’s Senate hearing,” Bloomberg Government/The Washington Post, April 10, 2018, http://tinyurl.com/yddejohf. The Facebook founder testifies before two Senate committees about issues of data privacy and how Russian groups exploited his platform during the 2016 election.

Shakya, Holly B., and Nicholas A. Christakis, “Association of Facebook Use With Compromised Well-Being: A Longitudinal Study,” American Journal of Epidemiology, Volume 185, Issue 3, Feb. 1, 2017, http://tinyurl.com/y7v7jbkk. Two researchers argue their study of Facebook users showed that while face-to-face social networks were positively associated with overall well-being, the use of Facebook was negatively associated with overall well-being, particularly in regard to mental health.

The Next Step

Personal Data

Fazzini, Kate, and Christina Farr, “Facebook recently closed a loophole that allowed third parties to discover the names of people in private, ‘closed’ Facebook groups,” CNBC, July 12, 2018, http://tinyurl.com/y9xhnuw4. Facebook shut down a Google Chrome browser extension that had allowed third parties to collect personal data from members of closed Facebook groups.

O’Sullivan, Donie, “Facebook suspends another data analytics firm,” CNNTech, July 20, 2018, http://tinyurl.com/y8qahm8o. Facebook has suspended its contract with Crimson Hexagon, a data analytics firm that does work for several U.S. government agencies – and a Russian nonprofit.

Wakefield, Jane, “Facebook scandal: Who is selling your personal data?” BBC, July 11, 2018, https://tinyurl.com/y8jj82j8. Facebook is not alone in selling users’ personal data to brokers, even though it has attracted more attention than other social media companies for the practice.

Spam Bots

Bromwich, Jonah Engel, “Bots of the Internet, Reveal Yourselves!” The New York Times, July 16, 2018, https://tinyurl.com/ya36qumz. A California state senator has introduced a bill that would require automated social media accounts to disclose themselves as “non-persons.”

Castillo, Michelle, “Armies of bots are still gathering social media info even as platforms tighten privacy rules,” CNBC, April 27, 2018, https://tinyurl.com/y78aah3c. As Facebook, Instagram and other social media platforms tighten data privacy restrictions, companies are employing vast numbers of bots to collect user information.

Wagner, Kurt, and Rani Molla, “Facebook has disabled almost 1.3 billion fake accounts over the past six months,” Recode, May 15, 2018, https://tinyurl.com/ybg38l2m. Despite Facebook’s efforts to close down fake accounts, the company estimates that such accounts make up 3 to 4 percent of its active monthly users, an increase from last year.

Organizations

American Enterprise Institute
1150 17th St., N.W., Washington, DC 20036
1-202-862-5800
www.aei.org
@aei
Conservative pro-markets think tank that analyzes technology, privacy and regulation.

Center for Democracy & Technology
1401 K St., N.W., Suite 200, Washington, DC 20005
1-202-637-9800
www.cdt.org
@CenDemTech
An advocacy group that supports laws, corporate policies and technology tools that protect the privacy of internet users and advocates for stronger legal controls on government surveillance.

Facebook
1601 Willow Road, Menlo Park, CA 94025
1-650-543-4800
https://newsroom.fb.com/news/category/hard-questions/
The social media giant has a blog that addresses its customer-protection and privacy challenges.

Forrester Research Inc.
60 Acorn Park Drive, Cambridge, MA 02140
1-617-613-5730
www.forrester.com
@forrester
Research and advisory firm that has done extensive work on the technology industry, some of it shared for free on the company’s blog.

Harris Insights & Analytics
1 World Trade Center, Floor 63, New York, NY 10007
1-585-272-8400
www.theharrispoll.com
Polling company that conducts an annual “Reputation Quotient” survey to track public attitudes about the 100 “most visible companies.”

The International Fact-Checking Network
801 Third St., S., St. Petersburg, FL 33701
1-727-821-9494
https://www.poynter.org/channels/fact-checking
A unit of the journalism group Poynter Institute, dedicated to bringing together fact-checkers worldwide.

Open Technology Institute at New America
740 15th St., N.W., Suite 900, Washington, DC 20005
1-202-986-2700
www.newamerica.org
@newamerica
A research and advocacy group backed by several tech companies and leaders that says it wants to help “realize our nation’s highest ideals, honestly confronting the challenges caused by rapid technological and social change.”

Stanford Center for Internet and Society
c/o Stanford Law School, Crown Quadrangle, 559 Nathan Abbott Way, Stanford, CA 94305-8610
1-650-723-2465
http://cyberlaw.stanford.edu/
A law and policy group, part of the Law, Science and Technology Program at Stanford Law School, that studies the interaction of new technologies and the law.

DOI: 10.1177/237455680423.n1