Facebook shares are down more than 11% this week, after reports have accused the company of failing prevent the surreptitious misuse of data drawn from upwards of 50 million Facebook profiles by Cambridge Analytics, the political communications firm that helped deliver Donald Trump the White House.
The latest scandal coming from Facebook has elicited vigorous responses by elected officials and regulators in the U.S. and U.K., with the Bloomberg reporting Tuesday that the FTC is investigating whether Facebook has broken the terms of a 2011 consent decree, which was imposed following revelations that Facebook was sharing data with advertisers without user permission.
Many analysts are arguing that the market is overreacting to the news, and that the sharp decline in Facebook’s share price the perfect buying opportunity. ““Facebook and Google still very much enjoy an advertising duopoly, and although engagement is arguably at risk, there are no real alternatives of scale,” James Cakmak, an analyst at Monness Crespi Hardt and Co., writes in a note. Daniel Ives of GBH insight was similarly sanguine, writing that the news “does not overly concern us,” because it’s unlikely to cause advertisers to jump ship.
Camak and Ives are right that the scandal likely poses no significant, short-term risk to the company’s bottom line. But the incident also illustrates just how powerful Facebook’s technology can be for influencing people’s behavior, and that this technology is only becoming more powerful as it has more user data at its disposal. According to the New York Times, Cambridge Analytica was drawn to Facebook as a means to collect data to complete psychological profiles of users and then “using personality profiling to shift America’s culture and rewire its politics.”
It’s impossible to say whether these psychological profiles were a decisive factor in the 2016 presidential elections, it is clear that manufacturers of consumer technology and social media are getting better at using the sciences of psychology and persuasion to manipulate users of their products to spend more and more time on their platforms. As media becomes more engrossing and the weaknesses of the human mind become better understood, the power these companies, and those who purchase their services, have over the typical user will grow commensurately.
There remains hope in Silicon Valley that companies in the attention economy can reform their products so that they maximize “time well spent” for users rather than maximizing the engagement and sharing of data that paying advertisers covet. But this would require a root-and-branch reform of business models of these companies and the algorithms that make up their products. Even if one or two enlightened founders undertakes serious reform, the fact remains that this technology is out there, users find it very seductive, and they show no inclination to voluntarily give up these technologies in order to protect themselves from manipulation.
These are the same dynamics that over the past century have made the financial services industry so ripe for aggressive regulation. At its heart, financial regulation is about evening the power disparities between individual investors and large companies and financial institution that result from uneven distribution of information. Companies are required to disclose information about their businesses to investors if they want to sell shares publicly, while certain financial services practitioners are barred from selling products they know will be a bad deal for their customers.
Wall Street regulators are increasingly insisting that financial services professionals maintain a fiduciary duty to their clients, as the evidence of the past century has shown that the average investor isn’t equipped to overcome the informational disadvantages he faces when bargaining over the price of investment advice. And this is the fate that will likely befall Facebook and others who profit from collecting information about their users and selling that information and user attention to advertisers. There are even proposals that regulation take the form of the imposition of an “information fiduciary” standard on companies like Facebook, which would enable users to sue the company deployed this information for purposes against the user’s interest.
Whatever the form tighter regulation takes, it’s clear now that the Facebook’s problem is that its technology has become so good at helping its paying customers change our behavior that people inside the business community and government are wondering whether the company poses a threat to society and democracy. Meanwhile, Panic over Facebook’s power is bipartisan, with Democrats ideologically inclined to fear the ability of large corporations to take advantage of the public for financial gain, and the Republican Party worried that this power is in the hands of the cosmopolitan liberals who dominate Silicon Valley C-Suites.
These political dynamics aren’t going away anytime soon, nor is the drive toward better and more engrossing social media. Mark Zuckerberg can promise reform all he wants, but there are more powerful forces than even The Zuck himself that are putting Silicon Valley on a crash course with Washington.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.