If you’re selling a product, it helps if you can target your intended consumer base. That’s where social media comes in. The information we inadvertently – or wilfully – give up on these online channels is routinely used to create individual consumer profiles. This enables advertisers to micro-target potential punters based on their geographic location, previous product preferences and the psychological triggers that influence purchase decisions, be they linked to lifestyle, opinions or social status.
Psychographic segmentation, as it’s known, may be a highly efficient way to shift goods and services, but it also provides a more efficient way for advertisers to carry out post-mortems on their campaigns; pure sales figures, though central to the health of any business, can only tell you so much.
Unfortunately, the algorithmic processes involved stretch way beyond the manipulation of conventional demographics, giving rise to stealth marketing tactics. By now, everyone would have experienced the feeling that they’re being surveilled by advertisers – and they would be justified in their suspicions.
But it isn’t just that digitalised marketing seems overly invasive. As we witnessed with the Cambridge Analytica affair, there are genuine concerns over how personal data amassed by social media companies is tracked and shared, or whether adequate safeguards are in place to avoid security breaches. The latter point was in evidence during the scandal, as the data of 87m Facebook (US:FB) users were acquired by Cambridge Analytica through a third-party app called This Is Your Digital Life. The app gave access to information on users' friends network, the majority of whom had not given explicit permission for the data harvesting that followed. In a sense, we shouldn’t be too surprised when incidents like this take place, although they have drawn increased ire from regulators and politicians alike. It could be argued, however, that the motivation for the latter group is open to question.
Facebook has again been making the headlines, unfortunately for all the wrong reasons. A former employee of the company, Frances Haugen, testified before the US Congress on how Facebook and its stablemate Instagram are causing harm to users, particularly young users, even though the related psychological impact was allegedly already known by the company due to earlier research it had commissioned. Apparently, the company could have gagged Haugen for breaking a nondisclosure agreement, but turning a whistleblower into a martyr might have simply attracted more bad publicity. In the event, the company put the development of an Instagram service for children on ice.
It may not be too fanciful to suggest that there could be a political angle to all this. Haugen criticised her former employer because it scrapped some of its safeguards against misinformation after the 2020 election, but 'misinformation' on Capitol Hill often translates into anything that is antithetical to the government’s policy agenda. A crackdown on Facebook’s stewardship of its online community could simply act as a trojan horse for those elements within the ruling Democratic Party who want to limit the scope of political discourse.
Aside from accusations of angst-inducing content (body-shaming etc) aimed at teenage girls, investors in Facebook also had to contend with a major outage on 4 October, raising doubts over the robustness of the site’s technical infrastructure.
None of this would have played well with advertisers. Let’s face it: the principle rationale for investing in social media companies is their ability to harvest and exploit ‘big data’ – any threat to that arrangement is a threat to revenue and cash flows. And a technological innovation linked to Apple’s (US:AAPL) iOS 14.5 update earlier this year threatens to do just that. Admittedly, the efficacy of the tech giant’s App Tracking Transparency (ATT) feature has been the subject of debate. Indeed, two ex-Apple engineers recently released a report stating that ATT “made no difference in the total number of active third-party trackers”. By their own admission, the engineers have spent the past four years creating open-source privacy software, so you’re left wondering what their motives might be in denigrating the app. But if effective as some industry-watchers believe, it poses a direct threat to data harvesting and, by extension, online advertising budgets. When engaged, the app requests the permission of users before tracking their activity across other apps and websites. Predictably, there are plenty of iPhone users who are fed up with being tracked by Facebook (and other platforms) and the danger exists that variations of the ATT tech will emerge among other smartphone and tablet manufacturers. If so, investors, along with parents of angsty teenagers, may have to appraise any exposure to the social media companies.
