Facebook Crisis Calls For New Rules

Zuckerberg’s testimony to Congress has only increased public calls for more oversight of social media and how it uses customer data.

Friends no more? Facebook is wrestling with its worst enemy: a crisis of trust that could profoundly change how people use social platforms.

Founder and CEO Mark Zuckerberg testified before Congress this week following revelations that data from 87 million users were mined by a British professor in 2014 and sold to Cambridge Analytica, a consultancy which worked with the Trump presidential campaign.

Senators’ apparent ignorance of the modern technology they were considering generated much criticism on social media, yet Zuckerberg’s two-day testimony is unlikely to calm the growing storm over Facebook’s role during the 2016 election or thwart the growing political consensus that government must do more to regulate the activities of social media companies.

“Facebook is facing a crisis of confidence, on multiple fronts—the most obvious one with its user base,” says Scott Kessler, equity research director at CFRA Research. “And there are partners who want reassurances and investors who worry about the value of the stock.” Kessler and other analysts believe Facebook will successfully weather the storm, as it did in the run-up to its initial public offering in 2012, when its business model and Zuckerberg’s leadership were called into question amid concerns over mobile advertising weaknesses.

“Big companies tend to be better positioned to handle regulation,” says Kessler. “They’re incumbents, they’re leaders, they have significant staff and resources and they can manage accordingly.”

On March 21, Zuckerberg broke his silence on the Cambridge Analytica investigation to announce actions that include auditing suspicious apps, further restricting developers’ data access, and adding a tool to revoke apps’ unwanted permission to data.

“Facebook made some mistakes and plans to be proactive protecting user data going forward, giving us more confidence FB will be able to navigate these issues,” Cowen analyst John Blackledge says in a note.

The question is what regulatory changes will be made and how they will affect smaller technology companies relying on larger social platforms to sell services and attract customers. New rules are already planned in Europe, where the General Data Protection Regulation will impose important limits on the collection of consumer data, according to Hassan Metwalley, founder and CEO of Italian cybersecurity startup Ermes. “New regulation will have a strong impact especially on cybersecurity,” he says, adding that companies with inadequate protection will be forced to review their internal processes.