Reputation Crisis? The Case of Facebook Cambridge Analytica Reputation Crisis? The Case of Facebook – Cambridge Analytica Introduction On May 6, 2020, Facebook announced the first members of its Oversight Board – a new system for content governance and enforcement. These members, coming from different countries and backgrounds, would exercise independent judgments over Facebook’s most important content decisions.1 The establishment of the Oversight Board followed vehement criticism over Facebook’s data handling, especially in connection with the 2016 U.S. election and the Brexit. In both cases, Facebook had allegedly colluded with the political advertising firm Cambridge Analytica to manipulate and influence voters. Even more so, many of political ads published on Facebook were not fact-checked, which enabled companies such as Cambridge Analytica to produce ads that were based on untruthful information – fake news – and target them to people who they researched it would resonate with the most. The exposure of the scandal led to an uproar online as well as offline. For the first time in history, governments and the public started to seriously examine the issue of data privacy and take measures to protect it. The scandal also shook up the tech industry. In October 2019, Twitter banned all political ads altogether, and in the following month, Google limited targeting of political ads to broad categories only, such as sex, age, or postal code. Facebook, on the contrary, announced in January 2020 – in defense of free speech – that it would not ban political ads on its platform nor limit how such ads could be targeted to specific groups of people, nor fact-check them.2 Facebook declared that it aimed to balance the commitment to free expression with values of privacy, authenticity, safety, and dignity.3 Its stance was, at the very least, deemed controversial. Critics alleged that Facebook’s effort might “serve a troubling purpose: to cover up the need for meaning reform with a high-priced fig leaf.”4 Could Facebook really achieve a balance between free expression and privacy protection with the Oversight Board? What else could the company do to be socially more responsible? Could it regain reputation and become a respectable company again like before the scandal? This teaching case was prepared by Tao Yue (managing editor) and Raminta Beraite (student assistant) at the Rotterdam School of Management (RSM) Case Development Centre, Erasmus University Rotterdam, under the supervision of Dr. Vidhi Chaudhri, Assistant Professor at the Erasmus School of History, Culture and Communication Department of Media and Communication, Erasmus University Rotterdam. This case is based on published sources. It is written to provide material for class discussion rather than to illustrate either effective or ineffective handling of a management situation. Copyright © 2020 RSM Case Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner. Please address all correspondence to [email protected]. 2 Reputation Crisis? The Case of Facebook – Cambridge Analytica About Facebook The Rise of Facebook Founded in 2004 by Mark Zuckerberg and his four college roommates, Facebook is a social media platform operated on the premise of connecting people. After rapidly gaining momentum on the Harvard University campus where it first started, Facebook expanded to other Ivy League universities. Only two years after its inception, Facebook was opened to anyone over the age of 13, and quickly overtook MySpace as the most popular social network in the world.5, 6 In 2012, Facebook acquired Instagram, the mobile photo sharing app and one of Facebook’s key competitor, for US$1 billion. After a few weeks, Facebook went public, and became one of the largest companies in the world with the highest-valued IPO for an internet company until that time.6 In 2014, Facebook reached an agreement to buy WhatsApp for US$16 billion, a highly influential instant messaging app – and therefore a direct competitor to Facebook – that had almost 1 billion users at the time. As of 2019, Facebook’s revenue was US$70.7 billion with a net income of nearly US$18.5 billion.7 Facebook’s success was largely contingent on its business model. On Facebook, users registered for free and share messages, photos, and other multimedia. They could also join common-interest groups, sell and buy goods at the marketplace, play virtual games, and more. Each action – from “likes” and comments, to the time users spend on certain videos – was closely monitored and stored in the database, and this information was later used for optimizing paid advertisements posted on Facebook. Advertising was Facebook’s core revenue stream.8 In 2019, US$69.66 billion of its revenue came from advertising – over 98% of its total revenue. Facebook not only collected data directly from users’ activity on its platform, but also combined it with data from other websites that were either using its advertising pixel, or using features linked back to Facebook, for instance the “like” or “share” buttons, which tracked what people were browsing on sites that would normally be outside Facebook’s reach.9, 10 In 2020, Facebook was able to collect massive data from its 2.6 billion monthly active users worldwide.11, 7 “Move fast and break things” As Facebook’s popularity grew, so did that of its CEO, Mark Zuckerberg. Having come from a middle-class family and achieved great success in his career, Zuckerberg was looked up to by many, and was announced as the person of the year by Times magazine in 2010. Facebook’s culture was largely influenced by its co-founder, Mark Zuckerberg, who had been no stranger to controversial innovations since the very start of his career. Around a year before releasing Facebook (then “the facebook”), Zuckerberg hacked Harvard’s system to take students’ photos and created Facemash, a website were students would rate each other based on their attractiveness. Harvard University accused Zuckerberg with breaching security and violating students’ privacy rights, and some students were upset that their photos were used without their consent, which made him shut down the site. However, by then, Facemash had already become a campus sensation, which signaled to Zuckerberg how popular the concept of a similar social media networking site could potentially be.6 3 Reputation Crisis? The Case of Facebook – Cambridge Analytica With the release of Facebook a year after, the company’s college atmosphere was soaked in enthusiasm, not being afraid of making mistakes, and preparedness to put in the time needed to turn their innovative ideas into reality, all reflected in the motto: “Move Fast and Break Things”. Some of the vastly popular additions to the social network, such as the “like” button, were a result of the regular hackathons, during which employees would gather for all-nighters and would brainstorm and try to develop ideas that they would not spend time in their day-to-day work.10, 6 The motto was also reflected in the company’s mergers and acquisitions (M&As). Having secured a number of acquisition deals, such as with Instagram, Facebook once again strengthened its reputation in the technology world as the place to work at for the best talent. As Facebook’s former director of global business marketing wrote in Becoming Facebook: And therein lies the priceless value of the Instagram story: proof of existence that Zuckerberg can turn visions of growth and impact into reality without undue meddling, […] a clear message to the best builders in the world that if you want to play truly big, come work with Facebook.12 The culture that enabled Facebook to grow rapidly was not overlooked by Facebook’s competitors. In 2006, Yahoo offered to buy Facebook for US$1 billion, which was turned down by Zuckerberg. It was followed by MTV’s offer of US$1.5 billion, which was also rejected by Facebook. In 2020, Facebook was still majority-owned by Zuckerberg, its longtime chairman and CEO1, who managed to retain the control of the company despite gaining a number of high-profile, influential investors.6, 13 While proceeding with his successful business and career, Zuckerberg also made sure to give back to the community. For example, he was one of the billionaires, alongside such people as Bill Gates and Warren Buffet, who had signed “The Giving Pledge,” which indicated that they would be giving at least half of their fortune to charities. In 2015, Zuckerberg and his wife Chan donated over US$1.6 billion to various causes (San Francisco General Hospital, one of the recipients, even named the hospital after Zuckerberg), and promised to transfer 99% of their Facebook shares, worth about US$45 billion at the time, to the Zuckerberg Chan Initiative that focused on health and education.14 How Facebook Met Cambridge Analytica Harnessing Data The user data collected on Facebook were immensely powerful in predicting user behaviors. A study conducted in 2015 had shown that with only ten likes, a computer could predict a person’s behavior more accurately than that person’s colleague; with 150 likes, more accurately than a family member; and with 300 likes, better than that person’s spouse.8 1 All other four co-founders had left Facebook to work on other projects before Facebook went public in 2012. As of 2020, they were all still among the shareholders of Facebook (stakes ranging from 1% to 7.6%). 4 Reputation Crisis? The Case of Facebook – Cambridge Analytica Such potential of Facebook data did not go unnoticed by the researchers. In 2013, Cambridge University researchers published a paper, explaining that Facebook likes were a powerful tool in predicting people’s personalities, warning that such information could “pose a threat to an individual’s well-being, freedom, or even life.”15 At the time, Facebook data was freely accessible to third-party app developers, as Facebook saw this as a great opportunity to attract high-quality application creators who would link their games, quizzes, and other engaging content on Facebook, and in return would receive access to a pool of potential consumers and their data.