Please ensure Javascript is enabled for purposes of website accessibility

Facebook Thought About Creating Its Own "Firehose" Business

By Evan Niu, CFA – Nov 29, 2018 at 4:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Once upon a time, the largest social networking company in the world contemplated selling user data.

Twitter (TWTR) has always had a smaller -- albeit consistently profitable and growing -- business in data licensing. Once affectionately known as its "firehose," since it represents a full stream of all unfiltered tweets, Twitter now simply refers to this business as its data-licensing segment, where it offers developers tools and APIs that allow third-party companies to analyze tweets. It has provided financial stability at times when the core ad segment was suffering, and has brought in nearly $400 million in revenue over the past year.

Facebook (META 0.85%) has seriously considered creating a similar type of business.

Example of a person's Facebook profile on a smartphone

Image source: Facebook.

But the emails

Despite adamantly declaring that Facebook does not sell user data -- including in CEO Mark Zuckerberg's testimony to Congress earlier this year -- The Wall Street Journal (subscription required) reports that Facebook absolutely thought about doing exactly that as recently as 2014. Emails viewed by the Journal show that Facebook workers debated selling companies access to user data, or alternatively, offering advertisers greater access if they spent more on ads.

The revelations come from court documents in a legal fight that Facebook is currently waging with Six4Three, which had previously developed an invasive app called Pikinis that would search for pictures of a user's Facebook friends in bikinis and bathing suits. The app was forced to shut down in 2015 when Facebook changed its policies, removing developers' access to friend data. It's worth noting that this is the exact same API that Cambridge Analytica abused to access data on nearly 90 million Facebook users in a separate scandal.

The emails go back to 2012, when Facebook went public and was grappling with investor concerns surrounding its transition to mobile platforms, which had yet to begin in earnest. Facebook was not directly monetizing this developer access in any way, and the social networking giant was desperate to come up with a strategy. "We were trying to figure out how to build a sustainable business," a Facebook spokeswoman told WSJ.

To be clear, Facebook opted not to sell user data, and these days acts as a middleman between advertisers and users, using the data to target ads on advertisers' behalf. But the report is still troubling given all that investors have learned regarding the company's nonchalant approach to user privacy.

Users expect more privacy on Facebook

The big difference between Twitter's data-licensing business and Facebook contemplating selling user data is that tweets are mostly public, whereas Facebook users expect a greater level of privacy. Furthermore, Twitter simply doesn't collect as much detailed data, and in fact most information (such as a user's followers, who they are following, profile information, likes, uploaded photos, etc.) are all public (unless the user blocks another specific user from viewing information).

Facebook users provide the company -- voluntarily, no less -- with troves of personal data and information about personal relationships, but then trust Facebook to keep that data safe. It's a small comfort that the company realized that selling the data would have been absolutely the wrong strategy, but what will investors find out next?

Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.