Facebook Blackout, Whistleblower Revelations and the Impact on Stock

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Facebook has faced many crises before. But the whistleblower revelations are perhaps the most threatening scandal in Facebook’s history. The whistleblower leaked documents to Wall Street Journal that proved that company prioritised “growth over safety.” The pressure increased on October 5, 2021, when Haugen testified before the Senate. She went into detail to prove that the company sows division, harms children, and weakens the democracy in pursuit of growth and profits.

Facebook Blackout Whistleblower Revelations and the Impact on Stock

Past controversies like the company’s lax handling of user data or Russian attempt to influence the 2016 elections rocked Facebook and led to internal reforms. But the fury set in motion by Frances’s revelations might have a significant impact on the company’s future.

Whistleblower Revealed

Frances Haugen is a 37 years old data scientist from Iowa with a computer engineering degree. She also has a master’s degree in business from Harvard. Over the last 15 years, Haugen has worked with several big companies like Google, Yelp, and Pinterest.

At Facebook, she was a product manager on civil integrity. Haugen studied how Facebook’s algorithm amplified misinformation, which foreign adversaries leveraged.

In May, she quit the company. But before she left, Frances copied thousands of confidential documents. The files showed that the company lied to the public and investors about making progress against misinformation, hate speech, and violence.

Haugen shared the files with The Wall Street Journal. The publication released the information in batches showing the company knew the harmful effect its Instagram app posed to underage users, but it was more focused on profits.

Also, Frances shared the research with lawmakers who are on the Senate subcommittee of Data Security, Consumer Protection, and Product Safety. The lawmakers include Senator Marsha Blackburn and Senator Richard Blumenthal. Additionally, Frances filed a complaint with the SEC(Securities and Exchange Commission).

The Whistleblower identity came to light when Haugen unmasked herself on Sunday’s CBS 60 Minutes show. In an interview, she revealed that Facebook repeatedly came across conflicts between user safety and its profit.

Every time Facebook resolved the conflicts in favour of its profits. This has resulted in an organisation that amplifies polarisation, extremism, and division. Therefore, undermining societies around the globe.

Whistleblower Frances Haugen

What Leaked from The Documents?

Facebook Knew Instagram Was Toxic to Teens

One significant revelation from Facebook Files and Tuesday’s hearing was the impact Instagram had on teenagers. According to Haugen, Facebook had conducted detailed research on how Instagram affected children. However, it didn’t share its finding with the public, even though they concluded the platform was toxic for youngsters.

The study conducted by the company found out that 13.5% of UK teenage girls become more suicidal after joining Instagram. Another research showed that 17% of girls on Instagram developed serious eating disorders. That’s not all! Also, nearly 32% of teenage girls on Instagram felt about their bodies, and the platform worsened this feeling. This is according to a report published by The Wall Street Journal.

On Tuesday, the lawmakers accused the social media giant of targeting kids who were under 13 years with addictive products even though the platform requires its users to be 13 years and above.

In response, Facebook said other research showed teenagers on Instagram feel better about their well-being and connected to their peers.

After WSJ published the report, Facebook paused the development of “Instagram for Kids,” a platform designed for kids under the age of 13.

Huge Lawsuit from Shareholders

Another thing that leaked was the complex lawsuit Facebook is facing from its own shareholders.

According to the shareholders, the $5bn payment the company paid to the US Federal Trade Commission to address the Cambridge Analytica scandal shielded Mark Zuckerberg from personal liability. That’s why it was too high.

Facebook responded, saying it had nothing to say about the legal matter.

From Outrage to Outrage

Haugen’s testimony came after Facebook, WhatsApp, and Instagram blackout on Monday. The company was also under scrutiny over its power and data privacy practices.

During the senate hearing, Frances said she didn’t know what caused the Facebook blackout. But what’s for sure, during the 6 hours Facebook was down, the company didn’t destabilise democracies, deepen divides or make teenage girls and women feel worse about their bodies.

The blackout meant that millions of small business owners and organisations could not reach their customers. Also, remote workers could not contact their bosses, and users could not connect to their loved ones.

Facebook has the potential to change the world. But that’s if they can stop tearing apart democracies, sowing ethnic violence across the world, and risking the health of kids. Hauge’s goal in speaking out about the dark sides of Facebook was not to bring the company down but to save it.

The diagram of Facebook outage cause

The Effect on Facebook Stock

Following Monday’s outage, Sunday’s Whistleblower Interview on CBS “60 Minutes” show, and Haugen’s testimony before the Senate on Tuesday, Facebook shares fell by about 5%. However, it went up on Tuesday by about 2.5% after the company fully restored its services.

The outage resulted from a faulty configuration change to the backbone routers. Therefore, there was no coordination between network traffic and data centres.

Furthermore, Frances had filed eight compliant with the Securities and Exchange Commission. Allegedly, Facebook was hiding research inadequacies from the public and investors. According to her lawyer, Haugen also shared the internal document with attorney generals of Vermont, Tennessee, and California.

According to Keith Fitz-Gerald, the company’s stock this time might not be as resilient as it has been amid other scandals.

The whistleblower exposed serious problems about the company. One problem, in particular, is the issue where the company deliberately misled investors. And if the litigations materialise further, then the company might be in serious trouble, and advertisers might grow wary.

Based on the documents and Haugen’s testimony, it was clear that the company prioritises profit over its users. This resulted in investors growing warier of other tech companies.

That explains why the tech market was broadly down on Monday. The tech-heavy Nasdaq Composite fell by over 2%. The decline affected not only Facebook but also other social media stocks. Snap, Pinterest, and Twitter shares fell by more than 5%.

Facebook shares dropped by 4.9% to close at $326.23 on Monday. This drop hived over $6 billion from Mark Zuckerberg’s personal wealth. However, it bounced back on Tuesday to 332.75. Overall, Facebook’s stock is still up by 19% this year.

What’s Next?

Tech companies today are taking action against hurtful misinformation and hate messages. They’re deleting fake accounts that spread information that divides or shames people.

However, there’s a need to do more. They need to reduce how fast information spreads and stop automated sharing and liking. This way, they can minimise manipulation opportunities. Less information means that individuals can pay closer attention to what’s posted and make informed decisions.

Social media gurus should re-design their algorithms to depend more on quality indicators rather than on likes and shares so as to serve the users with the right content. Also, they need to be more transparent with their research.

They should focus more on helping and protecting their users rather than on profits. Let’s hope Frances Haugen’s revelation will act as an eye-opener, and the company will make the necessary changes.

References

Written by The Original PC Doctor on 14/10/2021.

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