Facebook CEO Mark Zuckerberg said the social media giant will make significant changes following its $5 billion settlement with the Federal and Trade Commission on Wednesday.
“Now we have a clearer path forward, not just in terms of product and business. But in terms of guidance and regulation,” he said during a call with analysts. This “sets clearer expectations and gives us a foundation to build on.”
Zuckerberg spun the additional regulatory oversight required in the costly agreement as “progress.” Meanwhile, critics said the agreement should have been tougher on Facebook, which had been accused of being repeatedly reckless with user data despite having previously promised to clean up its act.
As part of the FTC agreement, Facebook is creating a privacy committee on its board that will work with an independent auditor on the company’s privacy issues. The auditor will report to the committee as well as to the FTC.
Facebook is also appointing a chief privacy officer who will oversee its products. Michel Protti, the company’s vice president of product marketing, has been nominated for the position pending board committee approval.
Zuckerberg said Facebook is also building new tools to review how it uses data and will also closely monitor how developers’ access and the user data that Facebook collects. Finally, Zuckerberg and some other leaders must personally certify quarterly that Facebook has met all of the settlement’s privacy requirements. In theory, this put extra pressure on them to comply or face civil or criminal penalties.
The changes stem from Wednesday’s record settlement with the FTC, which for years had investigated how the company handled users data. Also on Wednesday, the Securities and Exchange Commission slapped Facebook with a $100 million fine for misleading disclosures about how it handles user data.
Meanwhile, the Department of Justice announced on Tuesday that it would begin an antitrust review of several major technology companies, likely including Facebook. On Wednesday, Facebook confirmed that it was a target of a similar inquiry by the FTC.
“Either the right regulations will get put in place or we expect frustration in our industry will continue to grow,” Zuckerberg said on Wednesday.
Wall Street reacted positively to the $5 billion fine—Facebook’s stock rose 1.1% in regular trading—out of relief that it only cost the company the equivalent of a month of revenue. But moving ahead, Facebook said it’s making a “major shift” to focus more on privacy, including features like ephemeral messaging, encryption, and data portability.
Those changes will come at a cost.
“These efforts will require significant investments in compliance processes, personnel, and technical infrastructure,” David Wehner, Facebook’s chief financial officer, warned investors. “In addition, these efforts will make some of our existing product development processes more difficult, time-consuming, and costly.”
Facebook said it expects its 2019 expenses to rise as much as 61% over last year, with the $5 billion FTC fine accounting for 16%. The company also told investors that it expected a “pronounced” deceleration of revenue in the fourth quarter and into 2020, partially driven by “ad-targeting-related headwinds and uncertainties.” It was unclear if the headwinds were directly tied to the company’s new privacy strategy.
In the second quarter, Facebook revenue rose 28% to $16.9 billion. Meanwhile, the number of daily and monthly active users rose 8%.
“We’re making significant investments in safety, security, and privacy, while continuing to grow our community and business,” said Sheryl Sandberg, Facebook’s chief operating officer. “We know we still have a lot of hard work ahead of us, but this quarter, once again, shows that we can do both.”
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