It won't be hard for Facebook to afford a $5 billion settlement with the FTC, but there may be other costs beyond money (FB)

Nick Bastone
Mark Zuckerberg

Getty


  • Facebook is facing a record penalty of about $5 billion from the Federal Trade Commission — but for the tech giant, that's only about as much as the revenue it generates in a month.
  • What could be more damaging to Facebook than the monetary costs of the settlement is the degree to which the government will get oversight of its business.
  • The New York Times reported that under the terms of the settlement, Facebook will be able to continue sharing data with third parties, but there will be more oversight into how it handles user data. 
  • Depending on how that oversight shakes up, it could cause headaches for Facebook, even long after that $5 billion bill is paid.
  • Visit Business Insider's homepage for more stories.

Facebook is facing a penalty of about $5 billion from the Federal Trade Commission for violating a privacy consent decree set in 2011. 

The multibillion-dollar penalty — which was first reported by The Wall Street Journal on Friday — is poised to be the largest of its kind against a tech company, eclipsing a $22 million settlement with Google. For Facebook, though, it looks to be an easy bill to pay, given the roughly $45 billion in cash it has on hand.

For Facebook, $5 billion is about 9% of its total revenue for 2018, which notched in at $55.83 billion. For a more recent figure to put it into context, Facebook generated about $15 billion in revenue in the first three months of 2019, averaging out to about $5 billion a month.

Indeed, earlier this year, Facebook announced that it had already set aside $3 billion to deal with any fine from the FTC, which it had already estimated would be around $5 billion.

Tweet Embed:
//twitter.com/mims/statuses/1149772169628381185?ref_src=twsrc%5Etfw
Ex-Facebooker to me just now: "that's like me getting a $10 fine for jaywalking"

The other thing

What could be more of a headache to Facebook than the monetary costs of the settlement is any oversight of its business going forward. The Wall Street Journal reported that terms of the settlement were "expected to include other government restrictions on how Facebook treats user privacy."

However, it's not immediately clear what such restrictions might entail, as The New York Times reported that the settlement didn't place any conditions on Facebook's ability to collect and share data with third parties, though it does have provisions for more "comprehensive oversight" of how the social network handles users' data. 

That's likely good news for Facebook's core advertising business. However, that oversight could still introduce more overhead to the company and put a damper on new products and plans — we've already seen skepticism from politicians such as President Donald Trump over Libra, Facebook's new cryptocurrency initiative. 

In other words, for a company made famous for moving fast and breaking things, this could force Facebook to slow down a little bit.

Read more: Trump blasts Bitcoin and says cryptocurrencies, including Facebook's Libra, should be 'subject to all banking regulations'

It also remains to be seen whether CEO Mark Zuckerberg will be held personally liable for future infringements on the FTC consent decree, an idea that has been previously floated but is considered unlikely to come to pass.

History lesson

The expected multibillion dollar penalty comes as a result of an FTC investigation into Facebook's Cambridge Analytica affair, in which the personal data for tens of millions of Facebook users was improperly accessed by the data firm.

The main question of the investigation was whether Facebook's handling of user data in the case violated a 2011 agreement with the agency — as part of the terms of a settlement at that time, Facebook agreed to take steps to protect user data. 

The $5 billion that goes into settling the inquiry may not have a tremendous influence on the company's bottom line. In fact, Facebook stock closed up 1.8% on Friday and climbed slightly higher in after-hours trading, even in the wake of the report of the settlement. 

However, depending on the additional terms of the settlement, this could have ripple effects on Facebook's business going forward. And if nothing else, remember that there's nothing stopping the FTC from opening another investigation, should circumstances warrant it.

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