Facebook is unlikely to kill off the golden goose

Doubts have been raised over Mark Zuckerberg’s promised clampdown on the commercial use of people’s data.

Selling advertising is Facebook’s golden goose. Picture: AFP

Doubts have been raised over Facebook boss Mark Zuckerberg’s promised clampdown on the commercial use of people’s data on the social media platform because this is a fundamental part of the tech giant’s business model.

According to Director of Sydney Business Insights at the University of Sydney Business School SandraPeter, Facebook cannot change its core business model, which she says is based entirely on mining user data.

“If Facebook changed its business model, it would take a huge hit,” she said. “This is basically their entire business model; we’re talking a huge financial hit.”

As a model, it is very successful. At the end of last year, 98 per cent of Facebook’s global revenue of $US40.6 billion ($52.4bn) came from advertising, with payments and fees making up the remaining 2 per cent.

Not only did Facebook make a record $US39.9bn from ads in 2017, but the rate at which it makes that money is accelerating.

The social network’s advertising revenue in 2016 amounted to $US26.9bn, with the subsequent growth proof of how effective it has become in delivering targeted ads. Five years ago Facebook generated some $US7bn in ad revenue; in 2015, it made $US17bn.

Dr Peters said selling advertising was Facebook’s golden goose, and to sell that advertising as effectively as possible it has to collect user data.

“The more they know about you, the better they can sell to advertisers,” she said. “The more they know about you, the more they track you, and the more money they can make.”

Facebook not only has the basic information of where a user lives and what they like and dislike, but the company knows everything about the user’s friends, relatives and how they all interact. This web of information can be pieced together to create a comprehensive picture of every individual user.

Even if you are not on Facebook, it can use what your friends on Facebook have said about you to create a shadow profile.

All the data is crunched to categorise users and build profiles based on race, gender, interests, location and income. These profiles are the real currency for Facebook.

The Cambridge Analytica scandal may have shed light on what is under the hood at Facebook, but without explicit regulatory action there is no reason for it to change its business model, which is about extracting data from its users.

The blowback from the latest scandal may cost it users but that is unlikely to be a big headache for a company that on December 31 had 2.13 billion monthly users.

Facebook has so far acquired 66 companies, with the $US19bn buy of WhatsApp Messenger in 2015 its biggest deal to date. It also own Instagram, virtual reality outfit Oculus and many other business ranging from travel recommendation apps to file hosting and sharing. None is designed to help diversify the Facebook model but rather to further reinforce the platform’s capability.

“Everyone is outraged, but all of this is in Facebook’s terms and conditions. That is their mission and that’s how they make money,”Dr Peter said.