5 key trends from the $15B Facebook class action lawsuit

Here are five takeaways from the ongoing USD 15 billion class lawuit against Facebook, which is accused of violating its users’ privacy online.

Over the last few weeks, news on Facebook has been dominated by its Initial Public Offer (IPO) on the NASDAQ Exchange; the controversy surrounding its first day of trading; and the company’s subsequent lacklustre performance in the stock market. However, while Facebook made history at its 18 May IPO – by raising USD 16 billion (the third largest in US history) and achieving a market value of approximately USD 104 million – on that same day, a class action lawsuit was being filed against the company for which the claimants are seeking USD 15 billion in damages.

This lawsuit, which combines 21 separate cases filed against Facebook across a number of US states, accuse the social networking site of violating its users’ privacy by tracking them online. Those familiar with Facebook may recall that the website regularly comes under fire for changes it makes to its Privacy Policy and Terms of Use. A recent example of this was its intention to share users’ personal data with applications developers, but that move was quickly scrapped due to public outcry and criticism. However, in the current court case, the claimants allege that Facebook has been tracking its users’ activity even when they are not on that website, and such actions contravene a number of laws, such as the Computer Fraud and Abuse Act and the Stored Communications Act:

… The class action asserts federal statutory and California State causes of action related to the revelation in September 2011 that Facebook was improperly tracking the internet use of its members even after they logged out of their accounts. The action consolidates 21 related cases filed in more than a dozen states in 2011 and early 2012… (Source: Stewarts Law)

To be clear: websites attempting to track their users’ activities online is not new – this is what most tracking cookies do. Moreover, there has been a growing trend, particularly by social networking sites, such as Twitter, and websites that offer personalised recommendations, such as Google, to try to learn as much about their users’ activity across the web, to better inform their suggestions. However, while Twitter and Google, for example, have introduced facilities to track their users’ online, both announced their new policies and provided on opt-out option. In the case of Twitter, persons can select “Do Not Track”, and with Google, which is now consolidating user data across all of its services and applications, persons can choose to not have their Google web history collected.

As expected, Facebook intends to contest the lawsuit. However, here are five takeaways from such a significant turn of events.

1.  Facebook still has an uneasy relationship with its users

As indicated above, many of the changes Facebook has introduced to its website and to its Terms of Use and Privacy Policies, are frequently subject to intense scrutiny and criticism. On its part, however, many of those changes have been unannounced, and there can be a sense that the website is trying to hoodwink its users by sneaking in provisions or activities that it suspects might not be welcomed. Although Google’s recent privacy policy changes received considerable attention and examination, it has not resulted in a class action suit, which may betray, to some degree, that people might be more sceptical about Facebook’s integrity than other websites.

2.  Even websites as large and powerful as Facebook are still trying to figure out how to become profitable businesses

As at May 2012, Facebook reportedly had over 900 million subscribers, which means that if it were a country, it would be the third largest, behind China and India. However, although Facebook is a large, powerful and highly valued social networking website, its revenue has been comparatively small – USD 3.71 billion in 2011 (Source: Securities Exchange Commission).

Much of Facebook revenue is generated from paid advertising. However, a number of industry publications have been reporting that

…Facebook generally has a lower clickthrough rate (CTR) for advertisements than most major Web sites. According to BusinessWeek.com, banner advertisements on Facebook have generally received one-fifth the number of clicks compared to those on the Web as a whole, although specific comparisons can reveal a much larger disparity… (Source: Wikipedia)

Moreover, earlier this week Reuters published the findings on it recent online poll on Facebook, which revealed that “[f]our out of five Facebook Inc users have never bought a product or service as a result of advertising or comments on the social network site… “. Hence Facebook’s paid advertising model appears to have relatively little influence among huge customer base, which was emphasized in General Motors’ recent decision to stop advertising through the site.

3.  The shift toward ultra-personalisation is continuing

Bolstered by the recommendations models that websites such as Google and Amazon have perfected, many businesses aim to offer personalised recommendations to their customers. However, as reported from the e-G8 Forum held in May 2011, there has been a growing trend towards ultra-personalisation of services, i.e. taking personalisation of services to nth degree. This shift could be a major contributing factor to businesses not being satisfied to track their customers activity on their own websites only, but to also collect as much information as possible on their interests and behaviour from a range of other sources.

Although we might scoff at the ultra-personalisation trend, we as users often welcome the recommendations made, and even expect websites, in particular, to offer suggestions consistent with our tastes and those of others who might have made similar selections. Hence into the future, ultra-personalisation may become a competitive and distinguishing feature that customers consider when choosing one business over another.

4.  Online users are still grappling with privacy issues

Without a doubt, we Internet users are keen to have our cake and eat it. Many of us want to have broad, and possibly unfettered, access websites and their content, whilst simultaneously trying to protect our privacy online. Among other things, we try to read the Terms of Use and Privacy Polices; endeavour to be aware of what we are sharing online, and how that information might be used. However, increasingly, many websites are being designed to capture key user details from the outset or to otherwise lock them in, for example, by having them register or connect to site via a social network account in order to access content from those websites. Hence most of us are still trying to figure out how much personal information we are confortable sharing online, whilst the environment, with Facebook prominently featured, is trying to get the most out of our interest/engagement.

5.  With growing data, specialist skills will be in demand

Finally, data will continue to be big business. By 2106, it is anticipated that 22 ZettaBytes of data (1 ZettaBytes = 1 trillion GigaBytes) will exist globally, from 5.3 ZettaBytes in 2011 (Source: Fortinet). This exponential growth in data means that in the coming years, there will be even greater need for systems and personnel who can manage and process the wealth of information that is being generated and stored. Hence persons versed in subjects such as, statistics, modelling, analytics and operational research, will become increasingly in demand into the foreseeable future.

Image credits:  Facebook logo, Wikipedia; images, FreeDigitalPhotos.net

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