Two Facebook users made international headlines just after the New Year when they announced that they were suing the social networking giant over privacy concerns. The lawsuit accuses Facebook of scanning messages that two users send between one another using the internal Facebook Messenger instant messaging system. During these scans, information that is potentially commercial in nature is harvested for the purposes of selling to data aggregators, marketers and various other types of Internet advertisers. If two users shared a private message about a film, for example, the Facebook users allege that the aforementioned information could be used in targeted ads in the future. The main issue is that Facebook allegedly engages in these practices without properly alerting users and obtaining their consent. These are just a few of the many implications that the lawsuit brings about.
Though Facebook is no stranger to lawsuits, this one is different for one major reason. The individuals bringing about the suit want to turn it into a class action case. By their own estimate, as many as 166 million users of the Facebook social networking site could be eligible to join in the United States alone. If Facebook settled even for just a few dollars per individual, they could be looking at a settlement in the hundreds of millions of dollars should the class action suit be allowed to proceed.
A lawsuit of this magnitude could have negative implications for a wide variety of different types of people. Facebook is a profitable website, make no mistake - but the social networking giant doesn’t make nearly as much money as a lot of people would assume. In the third quarter of 2013 the company pulled in $621 million dollars. A number of that size is certainly a significant amount of money, but it isn’t what one would expect from a service that boasts hundreds of millions of active users all over the world. If the class action lawsuit were allowed to proceed, the first negative effect that would be felt would certainly involve the company’s stock price. Though originally founded as a private company, Facebook became publicly traded in February of 2012. Losses of this size would almost certainly cause the stock price to fall an unforeseen amount, spelling huge losses for investors.
Another group of people that might have to worry if the class action lawsuit is allowed to proceed are Facebook’s loyal employees, some of whom have been there since the beginning. As with any company of its size, Facebook compensates certain employees by way of stock options in addition to their salaries. The decrease in share price would see these people incur great losses. Losing hundreds of millions of dollars in one fell swoop would also almost certainly both halt any plans that Facebook has for expansion (like the plans to open a new office in New York City) and cause an untold number of employees to be laid off.
The social media giant wouldn’t shut its doors due to one lawsuit of this size, but it would certainly need to make adjustments to stop the loss of cash in any way possible. This means that the people who would really be affected would be Facebook’s loyal team of employees.