Facebook’s trials are just beginning

Facebook’s free ride is over. That will be the takeaway from Mark Zuckerberg’s appearances this week before Congress.

No longer will Facebook have the ability to cash in through unfettered commercialization of users’ data. Either Congress will move to regulate how the social media giant sells the information users post on its pages, or Facebook will be forced to take painstaking measures to better safeguard its platform.

{mosads}The latter is a better bet, since Congress rarely moves quickly and because figuring out how to regulate the social media giant will prove beyond its capability. Any increased oversight would almost surely have to extend to similar controls on Google and Amazon, both of which also trade in user information.

Few in Congress will have the appetite to take on such a formidable and complicated undertaking, especially in an election year.

Congress may initiate some cosmetic rulemaking, but the onus for reining in the invasion of privacy and misuse of the platform will fall on Facebook. Its efforts to prevent bad actors from misusing its site and to protect user privacy will not prove effective, as the volume of information flowing across Facebook’s platform is essentially uncontrollable. It will also be expensive.

Just recently, CEO Mark Zuckerberg told reporters on a call that “bad actors” may have accessed private information of all 2.1 billion Facebook users through hacking into the company’s “search” function. That bombshell only confirms: Facebook is in trouble. Trouble like that doesn’t get fixed overnight.

Whether the changes are imposed by Congress or generated from the C-suite, Facebook’s profitability will be under siege, and the company will never be the same.

In a recent interview, Chief Operating Officer Sheryl Sandberg acknowledged as much when she said that users might have to pay to guarantee real privacy. Her shocking suggestion bared the bones of Facebook’s business model for all to see.

Zuckerberg’s prepared testimony, delivered to the U.S. House Committee on Energy and Commerce in advance of his appearance, sent the same message. He declared that his company planned to “invest so much in security…that it will significantly impact our profitability going forward.”

That’s a big swallow for investors, especially when he added, “protecting our community is more important than maximizing profits.”

The only detail about that planned investment is Zuckerberg’s announcement that he will be adding more than 5,000 people working on security and content review over the next several months, on top of the 15,000 already on the payroll.

Those personnel additions are on top of a rapid build-up in employees over the past few years, a good many of whom are not producing revenues, but instead monitoring the site for troublesome content.

In May last year, in response to a series of violent acts that had been streamed across the platform, Zuckerberg announced he would hire 3,000 monitors for Facebook Live, on top of 4,500 already in place.

The post raised alarms among analysts, who noted that the company’s overall employee count had nearly tripled in three years and was beginning to approach revenue growth.

Most likely, the planned addition of 5,000 workers is just the beginning. As Facebook’s troubles have emerged, it has become obvious that the company is scrambling to get a handle on what has already happened, much less what it can prevent in the future.

Estimates of the number of people exposed to Russian propaganda during the 2016 election, for instance, or the number caught up in the Cambridge Analytica scandal, have constantly proved wrong, by a large factor.

Zuckerberg estimated that during the election, the Russian Internet Research Agency had reached 1.8 million users. One academic who studied the Russian posts has concluded the number might be as high as 10 million.

Consider the firm’s less-publicized problems in Myanmar, where civil rights organizations have criticized Facebook for allowing hate speech and fake news to spread on its platform, facilitating violence against Rohingya Muslims.

Activists recently demanded action from Zuckerberg, claiming an absence of oversight; Facebook’s CEO responded by saying the company had added “dozens of Burmese language content reviewers” and had also hired more people to focus on Myanmar’s issues.

At the end of last year, Facebook had roughly 25,000 employees, not counting contract workers. Do we really think it can oversee its activity in every country on the planet? At the end of last year, Facebook reported it had some 2.13 billion active monthly users; 1.4 billion people log on each day.

CNN has reported there are 83 million fake profiles. From another source we hear that 300 million photos are uploaded each day, and every minute, some 510,000 new posts appear. As the company continues to grow, monitoring this overwhelming stream will be all but impossible.

Facebook’s stock is down about 15 percent over the past three months. The company’s problems with Russian interference and Cambridge Analytica partly explain the slide. Perhaps more importantly, the number of active users in North America slipped in the fourth quarter, for the first time ever.

If Zuckerberg tells Congress that his “idealistic and optimistic” company will put conquering its privacy breaches ahead of making money, which he almost certainly will do, prepare for more pain.

The biggest problem for the stock? Of the 40 analysts monitored by CNBC, only one thinks the stock should be sold. Facebook isn’t the only organization behind the curve.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.

Disclaimer: Peek has invested in funds that hold Facebook stock.