What realistically happens next to Facebook following whistleblower revelations

Key Points
  • Facebook's investors and advertisers didn't run away after whistleblower Frances Haugen testified that the company harms teen girls' mental health and profits from outrage.
  • Facebook made $29 billion in the second quarter of 2021, up 56% from the year prior, with a net profit of more than $10 billion, and advertisers can't get enough of the company's targeting and scale.
  • But the wave of criticism may encourage more people to opt-out of tracking in iOS, push European regulators to press for regulation, and make it difficult for Facebook to recruit good people.

In this article

Former Facebook employee and whistleblower Frances Haugen testifies during a Senate Committee on Commerce, Science, and Transportation hearing entitled 'Protecting Kids Online: Testimony from a Facebook Whistleblower' on Capitol Hill, October 05, 2021 in Washington, DC.
Jabin Botsford | Getty Images

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The question of whether this round of scandal would do immediate, direct damage to Facebook seemed settled soon after the Senate adjourned its Tuesday hearing. Facebook's two most important stakeholders — investors and advertisers — didn't run away after whistleblower Frances Haugen testified that it harms teen girls' mental health and profits from outrage. They already knew the drill.

"This is gonna effectively be a storm that comes through," Jeffries analyst Brent Thill told CNBC Wednesday morning. "And in past storms, this has been a great buying opportunity." 

Facebook scandals tend to run hot and cool down quickly. About once a year, something startling comes out about the social network: A campaign illicitly uses its data to psychologically profile voters; the company lies to advertisers and publishers about crucial metrics; its own researchers find it's dividing a society it hopes to bring together. Then, after a round of outrage from U.S. lawmakers, everything returns mostly to normal. The scandal moves on like a passing storm.

For all of Facebook's pitfalls, advertisers — its actual customers — can't get enough of its targeting and scale. Facebook made $29 billion in the second quarter of 2021, up 56% from the year prior, with a net profit of more than $10 billion. The company's ad system works so well that advertisers didn't even bother to feign a boycott after the Facebook Files dropped. They're hooked. "I've been trying to find an advertiser - any advertiser - to let me know they're pulling spend," Insider Intelligence director Jeremy Goldman said. "I still haven't found any." 

With such loyal customers, Facebook has commanded Wall Street's loyalty. Though the company's stock is down 12% this month (and trading at a discount compared to Google), it's outpacing the S&P 500 this year, up 23% compared to the S&P's 19%. Facebook stock reliably pops after each stretch of difficulty, so Thill and his counterparts are directing their clients to buy. "How do investors make money?" Thill said. "In times like this, usually when the stock gets hit, that's when you make a lot of money." 

As the money pours in, Facebook floods Washington with cash to deter lawmakers from taking a hard stance. Dark money pours into "associations," or third-party groups who will sometimes disclose — but would rather not — that Big Tech funds them. 

Sen. Richard Blumenthal, who led this week's hearing with Haugen, is aware this money is working to stop him from taking concrete action. "Big Tech's big money & army of lobbyists are arrayed against us," he said on Thursday. But it's unclear how he plans to counteract it. Sen. Blumenthal's office declined to elaborate or make him available for an interview. And so the status quo prevails.

What might change

Even if advertisers, users, Washington, and Wall Street don't take action, this scandal might exacerbate some of Facebook's existing problems. 

For Facebook, the most concerning part of this wave of criticism is it might encourage more people to opt-out of its tracking in iOS. Facebook already gave guidance that it expects to take a revenue hit this quarter after loads of people stopped it from tracking them across the web, making life more difficult for its advertisers. Facebook has earned those "ask not to track" designations after years of privacy scandals, and this moment isn't likely to help. 

Facebook could also further struggle to recruit good people after taking yet another hit to its brand. In her testimony, Haugen said, "Facebook is stuck in a cycle where it struggles to hire — that causes it to understaff projects, which causes scandals, which then makes it harder to hire." Facebook is still considered a "prestige" brand among many tech workers, but it's difficult for recruiters to make calls when the company is on blast before Congress.

Finally, European regulators seem likely to press for regulation, and Haugen is already working with the European Union to get something done. Should the EU enact something, it could have a material impact on Facebook's business. But that's only if the rules don't end up unintentionally harming Facebook's competition, which is not a given

From the moment the Wall Street Journal published its first Facebook Files story, the company has responded defiantly, some might say recklessly, without a hint of introspection. This might be because it genuinely believes it's in the right. But it's also likely that Facebook is responding to the incentives. The company has seen few consequences for its actions up until now. So it's thus adopting an ascending mantra among those facing criticism today: Never apologize and press on. 

This post previously ran in Alex Kantrowitz's Big Technology newsletter.