Business Problem-Solving Case Facebook Privacy: Your Life for Sale

Facebook has quickly morphed from a small, niche networking site for mostly Ivy League college students into a publicly traded company with a market worth of $434 billion in 2017. Facebook boasts that it is free to

join and always will be, so where’s the money coming from to service 1.9 billion worldwide subscribers? Just like its fellow tech titan and rival Google, Facebook’s revenue comes almost entirely from advertising. All

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Facebook has to sell is your personal information and the information of hundreds of millions of others with Facebook accounts.

Advertisers have long understood the value of Facebook’s unprecedented trove of personal information. They can serve ads using highly specific details such as relationship status, location, employment status,

favorite books, movies, or TV shows and a host of other categories. For example, an Atlanta woman who posts that she has become engaged might be offered an ad for a wedding photographer on her Facebook

page. When advertisements are served to finely targeted subsets of users, the response is much more successful than traditional types of advertising.

In 2016 Facebook generated $27.6 billion in revenue, 97 percent of which ($26.7 billion) was from selling

ads and the remaining 3 percent from selling games and virtual goods. Facebook’s revenues in 2016 grew by 54 percent over the previous year, driven mostly by adding new users and showing 40 percent more ads

than a year earlier. A major contributor to revenue growth in 2016 was ads sold in the mobile news feed.

That was good news for Facebook, but is it good news for you, the Facebook user? More than ever,

companies such as Facebook and Google, which made approximately $90 billion in advertising revenue in 2016, are using your online activity to develop a frighteningly accurate digital picture of your life. Facebook’s

goal is to serve advertisements that are more relevant to you than anywhere else on the web, but the personal information it gathers about you both with and without your consent can also be used against you

in other ways.

Facebook has a diverse array of compelling and useful features. Facebook’s partnership with the

Department of Labor helps connect job seekers and employers; Facebook has helped families find lost pets; Facebook allows active-duty soldiers to stay in touch with their families; it gives smaller companies a chance

to further their e-commerce efforts and larger companies a chance to solidify their brands; and, perhaps most obviously, Facebook allows you to keep in touch with your friends, relatives, local restaurants, and, in

short, just about all things you are interested in more easily. These are the reasons so many people use Facebook—it provides value to users.

However, Facebook’s goal is to get its users to share as much data as possible because the more Facebook knows about you, the more accurately it can serve relevant advertisements to you. Critics of Facebook are

concerned that the existence of a repository of personal data of the size that Facebook has amassed requires protections and privacy controls that extend far beyond those that Facebook currently offers.

Facebook wanting to make more money is understandable, but the company has a checkered past of privacy violations and missteps that raise doubts about whether it should be responsible for the personal

data of billions of people. There are no laws in the United States that give consumers the right to know what

 

 

data companies like Facebook have compiled. You can challenge information in credit reports, but you can’t

even see what data Facebook has gathered about you. It’s different in Europe: you can request Facebook to turn over a report of all the information it has about you.

Think you own your face? Not on Facebook, thanks to its facial recognition software for photo tagging of

users. This “tag suggestions” feature is automatically on when you sign up, and there is no user consent. A federal court in 2016 allowed a lawsuit to go forward contesting Facebook’s right to photo tag without user

consent. This feature is in violation of several state laws that seek to secure the privacy of biometric data.

A recent Consumer Reports study found that of 150 million Americans on Facebook, every day, at least 4.8 million are willingly sharing information that could be used against them in some way. That includes plans to travel on a particular day, which burglars could use to time robberies, or Liking a page about a particular

health condition or treatment, which might prompt insurers to deny coverage. Credit card companies and similar organizations have begun engaging in weblining, taken from the term redlining, by altering their treatment of you based on the actions of other people with profiles similar to yours. Employers can assess your personality and behavior by using your Facebook Likes. Thirteen million users have never adjusted

Facebook’s privacy controls, which allow friends using Facebook applications to transfer your data unwittingly to a third party without your knowledge.

Why, then, do so many people share sensitive details of their life on Facebook? Often it’s because users do not realize that their data are being collected and transmitted in this way. A Facebook user’s friends are not

notified if information about them is collected by that user’s applications. Many of Facebook’s features and services are enabled by default when they are launched without notifying users, and a study by Siegel+Gale

found that Facebook’s privacy policy is more difficult to comprehend than government notices or typical bank credit card agreements, which are notoriously dense. Did you know that whenever you log into a website

using Facebook, Facebook shares some personal information with that site and can track your movements in that site? Next time you visit Facebook, click Privacy Settings and see whether you can understand your

options.

Facebook’s value and growth potential are determined by how effectively it can leverage the personal data it

aggregates about its users to attract advertisers. Facebook thus stands to gain from managing and avoiding the privacy concerns its users and government regulators raise. However, there are some signs that

Facebook might become more responsible with its data collection processes, whether by its own volition or because it is forced to do so. As a publicly traded company, Facebook now invites more scrutiny from

investors and regulators because, unlike in the past, its balance sheets, assets, and financial reporting documents are readily available.

In August 2012, Facebook settled a lawsuit with the Federal Trade Commission (FTC) in which it was barred from misrepresenting the privacy or security of users’ personal information. Facebook was charged with

deceiving its users by telling them they could keep their information on Facebook private but then repeatedly allowing it to be shared and made public. Facebook agreed to obtain user consent before making any

change to that user’s privacy preferences and to submit to biannual privacy audits by an independent firm for the next 20 years.

 

 

Privacy advocate groups such as the Electronic Privacy Information Center (EPIC) want Facebook to restore

its more robust privacy settings from 2009 as well as to offer complete access to all data it keeps about its users. Facebook has also come under fire from EPIC for collecting information about users who are not

even logged on to Facebook or may not even have accounts on Facebook. Facebook keeps track of activity on other sites that have Like buttons or recommendations widgets and records the time of your visit and

your IP address when you visit a site with those features, regardless of whether you click them.

Although U.S. Facebook users have little recourse to access data that Facebook has collected on them, users from other countries have done better. In Europe, over 100,000 Facebook users have already

requested their data, and European law requires Facebook to respond to these requests within 40 days. Government privacy regulators from France, Spain, Italy, Germany, Belgium, and the Netherlands have

been actively investigating Facebook’s privacy controls as the European Union pursues more stringent privacy protection legislation, In June 2015, Belgium’s data-protection watchdog sued Facebook over

privacy practices such as how Facebook tracks users across the web through Like and Share buttons on external websites. In 2016 European privacy authorities ordered Facebook to stop harvesting personal data

from users of its texting platform WhatsApp, and in 2017 Facebook was fined $122 million for harvesting WhatsApp user data without permission.

In January 2014, Facebook shut down its Sponsored Stories feature, which served advertisements in the user’s news feed highlighting products and businesses that Facebook friends were using. Sponsored Stories

had been one of the most effective forms of advertising on Facebook because they don’t seem like advertisements at all to most users. However, this feature triggered many lawsuits, attempted settlements,

and criticism from privacy groups, the FTC, and annoyed parents whose children’s photos were being used throughout Facebook to sell products.

Although Facebook has shut down one of its more egregious privacy-invading features, the company’s data use policies make it very clear that, as a condition of using the service, users grant the company wide

latitude in using their personal information in advertising. This includes a person’s name, photo, comments, and social advertising. by which your personal information is broadcast to your friends and, indeed, the

entire Facebook service if the company sees fit. Although users can limit some uses, an advanced degree in Facebook data features is required. Facebook shows you ads not only on Facebook but across the web

through its Facebook Audience Network, which keeps track of what users do on other websites and then targets ads to those users on those websites. Ad-based firms like Facebook and hundreds of others,

including Google, justify their collection of personal information by arguing that consumers, by virtue of using the service, implicitly know about the data collection efforts and the role of advertisers in paying for the

service and must, therefore, believe they are receiving real economic value from ads. This line of reasoning received a blow when in June 2015, researchers at the Annenberg School of Communication at the

University of Pennsylvania found that 65 percent of Americans feel they have lost control over their information to advertisers, 84 percent want to control their information, and 91 percent do not believe it is fair

for companies to offer discounts or coupons in exchange for their personal information without their knowledge.

 

 

Critics have asked Facebook why it doesn’t offer an ad-free service—like music streaming sites—for a

monthly fee. Others wanted to know why Facebook does not allow users just to opt out of tracking. But these kinds of changes would be very difficult for Facebook because its business model depends entirely on

the unfettered use of its users’ personal private information, just like it declares in its data use policy. That policy declares very openly that if you use Facebook, you don’t have any privacy with respect to any data

you provide to it.

Sources: Aria Bendix, “EU Fines Facebook $122 Million,” The Atlantic, May 18, 2017; Mark Scottmay, “E.U. Fines Facebook $122 Million over Disclosures in WhatsApp

Deal,” New York Times, May 18, 2017; Samuel Gibbs, “Facebook Facing Privacy Actions Across Europe as France Fines Firm €150k,” The Guardian, May 16, 2017;

Facebook, Inc., SEC Form 10K filed with the Securities and Exchange Commission for the fiscal year ending December 31, 2016, January 29, 2017; “‘Privacy Shield,’

the New Deal Governing How Europe’s User Data Is Sent to the US,” Reuters, February 29, 2016; Katie Collins, “Facebook’s Newest Privacy Problem: ‘Faceprint’

Data,” CNET, May 16, 2016; United States District Court Northern District of California in Re Facebook Biometric Information Privacy Litigation. Case No. 15-cv-03747-

JD Order Re Motion to Dismiss and Summary Judgment, May 6, 2016; Jessica Guynn, “Facebook to Face Privacy Lawsuit over Photo Tagging,” USA Today, May 6,

2016; Natasha Singer, “Sharing Data, but Not Happily,” New York Times, June 4, 2015; 2015; Zeynep Tufecki, “Let Me Pay for Facebook,” New York Times, June, 4,

2015; Lisa Fleisher, “Admitting Tracking Bug, Facebook Defends European Privacy Practices,” Wall Street Journal, April 9, 2015; and Natasha Singer, “Didn’t Read

Those Terms of Service? Here’s What You Agreed to Give Up,” New York Times, April 28, 2014.

Case Study Questions

MyLab MIS

Go to the Assignments section of MyLab MIS to complete these writing exercises.

4-13 Perform an ethical analysis of Facebook. What is the ethical dilemma presented by this case?

4-14 What is the relationship of privacy to Facebook’s business model? 4-15 Describe the weaknesses of Facebook’s privacy policies and features. What people,

organization, and technology factors have contributed to those weaknesses? 4-16 Will Facebook be able to have a successful business model without invading privacy? Explain

your answer. Could Facebook take any measures to make this possible?

4-17 What are the five principles of Fair Information Practices? For each principle, describe a business situation in which the principle comes into play and how you think managers should

react. 4-18 What are five digital technology trends in business today that raise ethical issues for

business firms and managers? Provide an example from business or personal experience when an ethical issue resulted from each of these trends.

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