Last Wednesday, The Intercept published an article that gave a thorough examination of the most disturbing National Security Agency hacking and technical infiltration tactics:
In some cases the NSA has masqueraded as a fake Facebook server, using the social media site as a launching pad to infect a target's computer and exfiltrate files from a hard drive.
The article also mentioned that spam emails "laced with malware" were used for the same purpose.
Allegedly, the NSA started its covert malware operation by targeting a few hundred computers of national interest to monitor communications that could not be accessed via "traditional wiretaps," but now the agency is launching initiatives to expand the program to infiltrate millions of computers worldwide to monitor groups as opposed to only certain individuals.
This is not only disturbing to Julian Assange of WikiLeaks and former-NSA-contractor-turned-leaker Edward Snowden -- both of whom spoke at this week's South by Southwest interactive conference -- but to the average Internet user and, even more so, Facebook (NASDAQ:FB).
Why Facebook should be concerned
This privacy and security issue presents a huge problem for Facebook users, whose concerns have inspired Wikipedia pages and academic reports dedicated to user privacy as it relates to government intrusion. Without happy and secure users, Facebook can't thrive.
If usership decreases due to privacy concerns, it will lead to a decline in advertiser interest. Advertising accounted for about 89% of Facebook's revenue in 2013, so the company cannot afford to lose much user interest due to further privacy and security issues.
A decrease in user and advertiser confidence will inevitably lead to a decrease in investor confidence, especially if EPS is affected by privacy concerns. In short, a new risk to social-media investors is privacy issues.
Facing the public
In an effort to conduct PR damage control last Thursday, Facebook CEO Mark Zuckerberg took to his mega platform and shared his feelings on the matter. The post focused on the Internet being shared space for users all over the world -- helping people connect to each other, creating opportunity, enabling learning, and allowing the public to have an active voice -- and, thus, needing to be safe and secure.
He laid out certain points pertaining to Facebook's security efforts, including encrypted communications, use of secure traffic protocols, multiple authentication factors, and assistance to fix issues found in other people's services.
Expressing confusion and frustration, Zuckerberg stated that engineers at Facebook work to protect users from criminals, as opposed to the government. He wrote of his concern with government transparency, stating, "They need to be much more transparent about what they're doing, or otherwise people will believe the worst."
Zuckerberg said he had called President Barack Obama on the issue, and ended his post with a final call to action: "Together, we can build a space that is greater and a more important part of the world than anything we have today, but is also safe and secure."
Will Zuckerberg's pledge to keep the Internet safe and secure build confidence among Facebook users?
Mainstream social media sites must set the bar on the importance of transparency and user data protection. Facebook and it's main rival, Twitter (NYSE:TWTR), have taken steps toward publicly reporting user data requests from, and cooperation with, governments worldwide.
In August 2013, Facebook released a transparency report, giving specifics of government requests for user data over the six months prior. The company plans to continue releasing these reports in the future.
After Twitter's 2012 encounter with the U.S. government over the data of an Occupy Wall Street protestor, Twitter released its own transparency report, shedding light on government requests to divulge user information and to withhold content, as well as Digital Millennium Copyright Act takedown notices received from copyright holders. Plans are in the works to make the second report more accessible to both users and investors.
For Facebook to successfully retain usership, advertisers, and increasing revenue, Zuckerberg must consider how he wants his company to improve privacy and security efforts in the best interest of its user base. Better encryption, more efforts to enforce privacy rules, setting the example on transparency, and following through on promises are just a few things that can keep Facebook relevant, well-used, and profitable.
Felicia Gooden has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.