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by Amédi De Klerk

Recently it came to light that Facebook wasn’t as bothered as it let on when it came to keeping their users’ data private. A political consulting company named Cambridge Analytica managed to obtain users’ data without those users actually providing their consent. By gaining access to only 270 000 Facebook accounts, Cambridge Analytica managed to obtain personal data of roughly 50 million Facebook users.

This meant that they could use this data in order to influence these Facebook users through targeted ads to act in a certain way. Their purpose was to elect Donald Trump, which as we all know, was successful.

There was a backlash from Facebook users and they started the #deletefacebook campaign which garnered international media attention. When this revelation came to light investors panicked and the Facebook share price fell by 14%.

Whereas the traditional form of advertising involved buying a newspaper ad for your product or service and hoping it reaches someone that might be interested, the internet has evolved two new advertising models.

The first is the Google / Amazon model. They pay attention to what the user searches for AND learn what advertisers care about. They then get the right users to see the right ads. In this model, the user’s behaviour and interests are held in secret by Google and the advertiser never gets access to it. It is critical to understand that the advertiser has no idea who cares about the product / service. All they know is that someone who Google thought would care about it, was shown an ad for the product / service and then clicked on it.  No user information leaves Google.

The new model which Facebook follows, is to build a place for everybody to share life events with friends and family. Over time they learn what you like and Facebook then sells access to this information to advertisers. It is more valuable than just having Google do an anonymous introduction. It means that the advertiser can learn about you and change its ads accordingly. User information leaves Facebook and goes to the advertiser.

Even though Facebook’s advertising model may be more valuable to advertisers, it is also less private and more intrusive to the users and potentially less sustainable. Investors view this as a risk and have accordingly assigned a higher value to Google’s advertising model:

Market Capitalisation Billion
Apple $        904
Microsoft $        740
Google $        748
Amazon $        728
Facebook $        490

* As at 18 April 2018.

The fact remains that just as clothing goes in and out of fashion, social media providers also go boom and bust, with MySpace being a prime example. Whether or not Facebook’s advertising model will be able to survive the current onslaught by US regulators in order to address privacy concerns remains to be seen. Fintax is an authorised financial services provider (www.fintaxgroup.com) FSP642.

 

Amedi
About Amedi
Amédi is the Investments Manager at Fintax. To find out more about Amédi, go to the Meet the Team page.

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