As you may have read, the Congress critters were clueless and Mark Zuckerberg gave, well, sort-of-answers. Okay, here’s the real story.
FB, Google, Youtube, Instagram, Twitter, etc. (BTW, there are at least 61 social media sites) all make their income via advertising. Google made $100B in 2017 (about 85% came through advertising, per Bloomberg). FB made $40B in 2017.
To make money, they give demographic information to advertisers. This lets advertisers show ads to (e.g.) women, age 18-24, living in Dallas, college-educated, like jogging, etc. There are around 1,500 criteria that allow advertisers to precisely define their audience so ads can be targeted specifically those people.
This is also why FB/Google/etc. are wildly more successful than any newspaper or magazine. No newspaper could possibly create 5,000 versions of their newspaper to reach all sorts of audiences. Web-based ad-driven companies can easily do that. There is not “one Amazon”; Amazon has 310m customers; every customer gets her own personalized Amazon page that shows precisely the products that appeal to her. There are 310m Amazons.
How many Facebooks are there? 2B, or one for each user with ads targeted just for that user.
How BIG is Facebook? FB itself has about 2.13B members and growing at about 3% per quarter (64m new members per quarter). FB also owns Instagram (800m and growing +12% per quarter, or about 100m new members per quarter), WhatsApp (1.5B users, +13% per quarter, which is 200m new members per quarter), Messenger (1.2B, growing 17% yearly, or about 200m users per year) all numbers for Q4/17). There’s overlap in many of these users: Many Facebook users also use Messenger and Instagram. So the total is perhaps 3B? No, it’s more than that. If a webpage has a Facebook button on it, the button is collecting data and sending it back to Facebook. Hundreds of millions of page have these buttons and they’re tracking you, even if you aren’t a member of any of Facebook’s tools. Both FB and Google (and many other social sites) are collecting vast amounts of data.
The NYT’s total revenues for 2017 are a pitiful $1.7B. Their profits were $100m. I know people who personally earn more than that. To put it bluntly, the NYT could disappear and FB/Gooogle wouldn’t even notice.
So there weren’t “hacks” or “breaches” at FB. This precisely what FB/Google/etc. are designed to do: offer user information to advertisers. Or, to say it correctly, offer the tools to allow advertisers to pick the relevant audience. Ford doesn’t “get” the user information: Ford creates an ideal user and FB delivers the Ford ad to those users (BTW, this is what I do in digital marketing for my clients.)
If G/FB continue to sell ads, they MUST offer detailed user information. That’s what makes it useful to advertisers.
Solution? No more ads. G+FB+etc switch to freemium. Free baby version to users who won’t pay; Subscriber version with extra features to subscribers; and Corporate version for business users. Thus very little need to collect 1,500 criteria on the users and no need whatsoever to share user information with advertisers because there would be no ads.
Many Silicon Valley companies use the freemium model. On average, about 5% of users pay for service.
Let’s say FB charges $5/mo for subscriptions. Of 2B users, only 100m (5%) may pay. $5/month X 100m = $6B. FB’s $40B revenues would drop 85% and revenue growth would be low single digits. Their stock valuation would collapse from $480B to… well, way less. Investors would flee. (The actual numbers will be much lower in India, Southeast Asia, Africa, where many users are unable to pay $100 per year).
The same for Google. How many would actually pay to use Google/Gmaps/Gmail etc.? 5%? Less?
The switch to non-ads could be done. But it’d shatter the Silicon Valley billion-dollar companies.
Will this Actually Happen?
Who else depends on FB/Google data? The US Government and politicians. The government uses this data for surveillance. Politicians all use FB/Google for election campaigns. They are not going to shoot the Golden Goose.