Facebook’s Cambridge Analytica Debacle: Why This Data-Privacy Storm Is Different, And What’s Next

The scandal, which portends new regulations, has wiped out nearly $75 billion of the social giant's market value

Cambridge Analytica's sign at offices in

Facebook has been at the center of multiple swirling controversies in recent years. Those include charges that it failed to thwart Russia’s social-media gambit to manipulate the 2016 U.S. election; its role in disseminating “fake news”; a spate of shocking live-streaming video of murders and suicides; and general criticism of its immense market and societal power.

So what has made the Cambridge Analytica brouhaha register on such a different scale?

The company was expecting a Category 1 hurricane rather than the howler that has wiped out nearly $75 billion of the company’s market capitalization in one week. Facebook’s stock declined again Friday, closing down 3.3%. Shares have slumped 13.9% since the scandal broke.

Three key points have stood out to explain why users, legislators and investors have had such a strong reaction to the case, in which data on 50 million Facebook users remained in the possession of a political consulting firm without Facebook or the users themselves realizing it.

  • Facebook in 2015 Knew Cambridge Analytica Had the Data — But Didn’t Disclose It. The fact that the social giant did not reveal the misappropriation of the information fueled the perception that Facebook can’t be trusted to govern itself, and that it doesn’t take user privacy seriously.
  • The Prospect of New Regulations Looms. Facebook has been able to deflect heavy-handed government oversight, but the Cambridge Analytica scandal has changed the landscape. Most observers, including Facebook itself, now see some kind of new rules governing business practices as they relate to user data as inevitable. And if that means Facebook won’t be allowed to track or retain data the way it has heretofore, that would hamper its core business: using that data to hyper-target advertising on the platform.
  • The Trump Connection. Already in hot water for the Russia meddling on Facebook, the revelation that illicitly procured data from Facebook was used for Donald Trump’s 2016 campaign targeting kicked this football squarely onto the D.C. field. Both Facebook and Cambridge Analytica have denied the data was used to help Trump’s team; however, the New York Times and the Guardian both carried stories over the weekend citing Christopher Wylie, who helped form Cambridge Analytica, as asserting the firm did use the purloined Facebook information for the Trump campaign.

Among the most recent developments in the ongoing crisis: Tech billionaire Elon Musk on Friday deleted Facebook pages for two of the companies he heads, Tesla and SpaceX. Also Friday, the House Energy and Commerce Committee formally called for Facebook CEO Mark Zuckerberg to testify at an upcoming hearing on the Cambridge Analytica issue. Meanwhile, Cambridge Analytica announced that it was commissioning a third-party audit, after Tuesday suspending CEO Alexander Nix over comments he made in a Channel 4 undercover documentary boasting about the firm’s work for Trump.

It has become clear that Facebook didn’t expect the Cambridge Analytica story to make landfall with such severe consequences.

“We’ve been caught flat-footed,” Facebook’s head of news partnerships Campbell Brown admitted Thursday, speaking at the FT’s Future of News conference. She suggested that Facebook has been “focused too much on the positive” and not the negative aspects of the platform.

It’s also apparent Facebook didn’t really know how to respond — witness Zuckerberg’s delayed response to the crisis. The CEO proffered up the expected mea culpas and promises to do better. Facebook also has tried to emphasize that these are past sins that it’s addressing, and has changed its policies that led Cambridge Analytica to obtain the user data in question several years ago.

What’s next? Facebook is facing an FTC probe into whether it violated a 2011 consent decree requiring user consent for sharing data. It’s also the target of at least four lawsuits by shareholders and users over the unauthorized data leak. In the past week, there have been more than 100,000 Twitter posts with the hashtag #DeleteFacebook.

Those are, more or less, costs of doing business. The bigger potential threat — and what has spooked investors — is that the U.S. and other governments will respond with laws that restrict Facebook’s ability to harvest and retain such user data.

Zuckerberg and the rest of the Facebook’s leadership team have seen the writing on the wall. The company’s lobbying efforts from here will be to try to ensure whatever laws result don’t hamstring Facebook.

“I’m not sure we shouldn’t be regulated,” Zuckerberg said in an interview Wednesday with CNN. “I actually think the question is more ‘What is the right regulation?’ rather than ‘Yes or no, should it be regulated?'” He also said Facebook supports ad-transparency tools that would provide the kinds of disclosures that would be required in pending bills in the U.S. Senate.

Most Wall Street analysts remain assured Facebook will emerge from the scandal without lasting  damage. In the CNN interview, Zuckerberg “struck the right tone, directly addressing the recent controversy… also stating that sites such as FB may need regulation around transparency,” Cowen & Co. analyst John Blackledge wrote in a research note Thursday. The analyst has maintained his “outperform” rating on the stock.

The upshot is that the conversation has shifted to what the appropriate government controls on the likes of Facebook and Google should be.

“We can declare it’s time for communication platforms to be recognized as essential utilities for modern society; and like other such utilities, they should be regulated, subject to robust public scrutiny and accountability,” Bruce Shapiro, executive director of the Dart Center for Journalism and Trauma, wrote in an op-ed in the Nation published Thursday.

The tech industry “is built on the idea that an individual’s data is a commodity to be mined, without regulation, like bauxite or titanium,” Shaprio wrote. The Cambridge Analytica crisis may have finally put an end to that school of thought.