uploads///Facebook Cambridge Analytica

Costly Mistake: Cambridge Analytica Continues to Drain Facebook


Oct. 30 2019, Updated 1:21 p.m. ET

Cambridge Analytica, the British consultancy that used data from tens of millions of Facebook (FB) users for allegedly questionable political operations, shut down last year. However, the scandal continues to haunt Facebook.

Facebook is to pay a $640,000 fine to the British government in connection with the Cambridge Analytica data scandal. And in a settlement with the FTC (US Federal Trade Commission) in July, Facebook agreed to pay $5.0 billion and committed to making costly changes in how it operates. The FTC fine arose from the agency concluding that Facebook had broken America’s data privacy laws by leaking data to Cambridge Analytica.

Altogether, the Cambridge Analytica scandal has already wiped more than $5.6 billion from Facebook’s bank account. And the company continues to face legal challenges over the scandal.

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Cambridge Analytica-related fines are a big deal to Facebook

As Facebook continues to lose money in privacy settlements with regulators, its cash needs are increasing. Facebook’s heavy dependence on advertising has become problematic. Advertising sales contribute over 99% of the company’s revenue, and increasing competition in the space is threatening Facebook’s market share and financial base.

To reduce its overreliance on the ad market, Facebook is investing in new businesses to diversify its revenue. For example, the company has ventured into making hardware products, including virtual reality headsets and smart speakers. It has also launched a subscription service, Workplace, aimed at business users.

Facebook’s new ventures might need huge investments before they start paying back

Facebook’s non-advertising businesses contribute only 1.0% of its revenue. Therefore, it might take years and huge investments before these businesses contribute meaningfully to Facebook’s financial results. Unfortunately for Facebook, its privacy mistakes are cutting into its cash reserve. The resulting funding shortages for some of its development projects could derail its business diversification efforts. Facebook also remains the subject of multiple antitrust investigations that could result in costly settlements or fines.


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