Facebook: Grappling with User Privacy

FacebookBalancing user privacy with the desire of advertisers to collect insightful user data is a challenge Facebook has faced since its inception. As evidenced by the company’s recent affirmation of its ad-driven business model, Facebook has no plans to alter its basic value proposition. However, recent industry events have once again brought the conflict between user privacy and advertiser demands to the attention of regulators in the US and in Europe.

By way of background, less than a year before its IPO, Facebook signed a consent decree with the US FTC, under which it agreed to settle charges without admitting or denying guilt that it had deceived consumers by telling them they could keep information private, but then sharing it repeatedly. In signing the consent decree, Facebook agreed that it must obtain consumers’ express consent before their information is shared beyond the privacy settings they create. As part of the settlement, Facebook agreed to audits conducted by independent third parties once every two years for the next 20 years to verify that its security procedures exceed the standards set by the FTC. The FTC is currently investigating whether Facebook has violated the consent decree, which could result in penalties of up to $40,000 per user per day.

Facebook maintains that the data harvested by a third party app utilized by the consultancy Cambridge Analytica was obtained and applied in violation of its policies, specifically procedures put in place in 2014 to prevent so-called “abusive apps” from gaining unauthorized data from Facebook users. The Cambridge Analytica imbroglio is particularly significant, in light of new privacy regulations that are being imposed by the European Union under the General Data Protection Regulation (GDPR), which goes into effect later this week. Under the new regulation, advertisers must be transparent about their use of customer data, and users must give their expressed consent to allow advertisers or other third parties to utilize their data. In response, Facebook and other internet advertisers are working to comply with European regulators, who could impose penalties of up to 20 million Euros, or up to four percent of annual revenue, whichever is greater. In the case of Facebook, a violation could result in a penalty of up to $1.6 billion.

The initial GDPR impact on Facebook is likely to be a decline in the rate of growth in its European user base, which currently stands at 282 million daily active users, or 19 percent of its user base. Beyond that, the impact is unclear. One school of thought suggests that Facebook could face declines in advertising revenue, based on a lower base of users reachable by advertisers. The counter argument is that users who give their consent will be more susceptible and receptive to ads that they are implicitly agreeing to view, thus making the remaining base of users even more valuable to advertisers.

In the mean-time Facebook is redoubling efforts to root out third party apps that violate its data privacy rules. Facebook has stated that it has more than 10,000 people working on security and safety issues now, with plans to double this number by the end of this year. Last week Facebook announced that it has already examined thousands of third party apps, and has suspended about 200, pending a thorough investigation into whether the apps misused user data. Any of the apps in question that are found to be in violation of Facebook’s policies will be banned from Facebook, and users of the app will be notified.

The recent Cambridge Analytica imbroglio, combined with the rollout of GDPR is likely to keep the spotlight on Facebook and other internet advertisers. By taking more proactive measures to ensure user privacy Facebook is likely to navigate the conflicting demands placed upon it by users, advertisers, and regulators.

Amazon.com: Eyeing the Home Robot Market?

amazon logoAccording to what appears to be a credible article in last week’s Bloomberg Technology, Amazon.com is proceeding with plans to create a home robot, through a product development effort that has been code-named Vesta, as part of its Lab126 consumer device division, based in Sunnyvale, California. Lab126, led by Greg Zehr, a former head of R&D for Palm, a pioneer in mobile computing, is credited with the introduction of Kindle e-book reader, and is responsible for the Amazon Echo, FireTV set top boxes, and Fire tablets. It is unclear what purpose an Amazon.com home robot would serve, but in general terms the speculation is that Amazon.com is looking to build on the success of the Amazon Alexa assistant and Echo home speaker product line by creating a roaming version of Alexa, perhaps with the ability to conduct basic house chores.

The authors of the article indicate that prototypes have been built with advanced cameras, and that Max Paley, a former Apple executive, is working on computer vision technologies for a home robot. The Bloomberg article suggests that Amazon.com plans to “seed” robots in homes by the end of this year, and could potentially launch a commercial robot sometime in calendar 2019. The article also indicated that based on Amazon’s prototypes and tests, it may choose not to enter the market.

Is Amazon.com’s Entry Plausible?

Despite its failure in the smart phone market, Amazon.com has emerged as a prolific consumer electronics product company, having made a number of successful bets, most notably having created the e-book market with the Kindle, and more recently creating the market for smart home assistants, via Alex and Echo. Importantly, Amazon has had its greatest success in categories that it creates. In the Kindle e-reader category, Amazon used to have some competition from the Nook, but not much anymore. Google, which is looking to parlay its success with Google Assistant into the Google Home product line, is playing a severe game of catch up to Amazon.com, as the Echo device family holds a more than two-to-one market share advantage against the Google Home product. Alphabet recently merged its Nest division, which provides, smart thermostats, smoke detectors, webcams, and home alarm systems, into its Google hardware division, suggesting that the Google assistant will be more tightly integrated into Google’s smart home offerings.

At this point it remains unclear what Amazon.com’s product and delivery plans are for the smart home, beyond continued updates to the Echo device family. Amazon.com has a growing base of talented engineers, and proven expertise in addressing the smart home, through the success of Alexa and Echo. Amazon also owns its own robotics company as a result of the $750 million acquisition of Kiva Systems back in 2012. Kiva has been focused on robots for warehouse fulfillment operations, and it is unclear whether the robotic R&D efforts of Kiva, based on the East Coast, and Lab123, are linked.

Our sense is that Amazon.com has many of the pieces in pace to create some type of consumer robot. The question we have is how long it would take Amazon to commercialize a product, and what tasks it would perform. Another key question is whether Amazon.com will choose to enter the market at all, given the large number of other product opportunities that it has under consideration.

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