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Facebook Plays Defense, Says Users Are Not the Product

By Evan Niu, CFA – Updated Apr 24, 2018 at 2:52PM

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Literally, they aren't. But effectively, they are.

Facebook (META 5.37%) has been on the defensive for nearly two years, after the social networking giant was unwittingly used as a subversive misinformation tool in the 2016 U.S. presidential election. In what promised to be an epic grilling, CEO Mark Zuckerberg testified to Congress recently, but the episode wasn't all that fruitful since most lawmakers lack a basic understanding of how Facebook -- or the internet -- really works.

Despite those softball questions, Facebook is still very much on the defensive.

A hand holding a smartphone with the Facebook app open.

Image source: Facebook.

But at what cost?

Apple CEO Tim Cook was one of the first prominent tech leaders to popularize the notion that users are the product for advertising businesses, arguing in 2014 that users are not the customer. "A few years ago, users of Internet services began to realize that when an online service is free, you're not the customer. You're the product," Cook wrote at the time while laying out the Mac maker's stance on privacy.

Of course, the actual customers to any advertising business are the ones who purchase ads: advertisers. In a blog post published today, Facebook Vice President of Ads Rob Goldman played defense, arguing that Facebook's product is not its users.

If I'm not paying for Facebook, am I the product? 

No. Our product is social media – the ability to connect with the people that matter to you, wherever they are in the world. It's the same with a free search engine, website or newspaper. The core product is reading the news or finding information – and the ads exist to fund that experience.

Goldman says that Facebook's product is social media, which isn't entirely true either. Users provide most of the "media" that others consume, at least if you don't include the original video content that the company is funding to get its video platform off the ground. The executive then compares Facebook to TV and radio, in addition to newspapers. But these superficial comparisons are incredibly misleading, since historical mediums haven't had remotely comparable levels of access to user data, which requires an enormous level of responsibility.

Facebook's greatest value proposition to advertisers is its unique ability to target users to staggering precision, whether the intended purpose is to coax users into thinking they can achieve those killer abs or to sway the results of a democratic election. While it's true that Facebook doesn't technically sell user data to advertisers, it absolutely monetizes that data for itself through ad targeting, which includes its salesforce actively wooing the shadiest advertisers on the internet. No TV channel or newspaper could ever replicate Facebook's results.

This is all because users have voluntarily sacrificed their most personal data to His Zuckness, and we're all paying the privacy costs now.

Evan Niu, CFA owns shares of Apple and Facebook. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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