Social Media

Up to $2 billion of Facebook's revenue may be at risk after data leak scandal

Lynette Lau
Key Points
  • Daniel Ives of GBH Insights says Facebook could see a hit to its advertising money because of the Cambridge Analytica data leak scandal.
  • Facebook generates "substantially all" of its revenue from advertising.
Facebook wants to ensure its ad revenue model stays intact: Strategist

About 3 percent of Facebook's annual advertising revenue could be at stake because of the scandal involving its handling of user data, according to a widely followed tech analyst.

The social media giant may feel that lost revenue, which could range from $1 billion to $2 billion, as a result of the public revelations about Cambridge Analytica, according to Daniel Ives, the chief strategy officer at GBH Insights.

According to GBH's Tech Tracker user survey that monitors the public's sentiments toward Facebook, the company has not suffered overwhelming reputation damage: "About 15 percent of users" have decided to disengage from the platform due to the scandal, Ives said.

That survey finding, Ives said, is what led to his firm's estimate of Facebook's potential revenue loss. As of now, GBH Insights considers that damage to be "contained," he said.

Facebook CEO Mark Zuckerberg, himself, shared the importance of advertisements to the company's business model during a grilling on Capitol Hill. In reply to U.S. Senator Orrin Hatch's question on how Facebook's online platform was sustained when "users don't pay for your services," Zuckerberg answered: "We run ads."

In its annual report filed earlier this year, Facebook said: "We generate substantially all of our revenue from selling advertising placements to marketers."

According to the CEO, it is integral that Facebook is affordable for everyone so it can meet its mission of trying "to help connect everyone around the world, and to bring the world closer together."

Facebook CEO Mark Zuckerberg testifies before a House Energy and Commerce Committee hearing regarding the company’s use and protection of user data on Capitol Hill in Washington, April 11, 2018.
Leah Millis | Reuters

Facebook Chief Operating Officer Sheryl Sandberg told NBC News last week that users could have to pay to completely opt out of their data being used to target them with advertising.

Zuckerberg clarified this, saying that "there will always be a version of Facebook that is free." The CEO explained that an ad-supported model is "most aligned with our mission of trying to connect everyone in the world, because we want to offer a free service that everyone can afford."

While paid subscriptions to Facebook services could hypothetically mean more privacy for users' data, they could also hurt the entire "concept of the Facebook model," Ives said. Keeping Facebook's strategy "intact" through the coming months will be crucial for the company, he added.

Ives said he anticipates a broad industry change in the wake of the Cambridge Analytica scandal: "We ultimately think it's going to be some self-regulation to quasi-regulation" he said.

More self-regulation and calls for advertising transparency may be incoming among other social media platforms, he said.

Additionally, Ives said "heavy-handed" regulation, if applied, would bring about many unintended consequences. Distinguishing "heavy-handed" regulation from the more favorable "slight-to-moderate" change, Ives warned that too much rule making on "an industry that's never seen regulation" would be like opening "a Pandora's Box."

Still, GBH Insights maintains its confidence in Facebook, with a "highly attractive" rating.

—CNBC's Arjun Kharpal contributed to this report.