Ad experts break down what sweeping privacy changes could mean for Facebook’s $55 billion advertising business

Reuters

Ad experts said the FTC’s sweeping settlement with Facebook won’t impact its advertising business.
The FTC just hit Facebook with a $5 billion fine and enacted limits on its data-collecting abilities.
But experts said the requirements just reinforce Facebook’s existing policies, with one analyst even calling it "a win for Facebook."
Click here for more BI Prime stories.

Today’s Federal Trade Commission settlement with Facebook involves the agency’s biggest fine for a tech company, but experts said it won’t necessarily impact Facebook’s $55 billion ad business.

The FTC imposed a $5 billion fine and six new privacy requirements on Facebook, including a ban on taking users’ phone numbers given for security purposes and using them for advertising; and getting users’ consent for using facial recognition.

Facebook’s ad business has been largely unimpacted by its string of scandals because the advertising works, and analysts have predicted that will continue unless Facebook loses a significant part of its targeting advantage.

Analysts and advertiser sources shrugged off the requirements.

"There aren’t any hard restrictions placed on how they can use data," said Mark Zgutowicz, managing director at Rosenblatt Securities. "Obviously, there’s oversight, but it’s just reinforcing the new data privacy policies they’ve already put in place. It strengthens not only the company but the stock by reducing future concerns."

Bottom line, he called the settlement "a win for Facebook."

As for today’s FTC’s privacy restrictions on Facebook, there are so many targeting variables that advertisers use in their ad campaigns that it’s hard to say how a handful will have in impact.

"My gut is, they have 400 to 500 things you can overtly target," said Michael Levine, senior research analyst at Pivotal Research Group. "So when you yank things out, what does it mean for ROIs?"

Alex Proujansky, director of social marketplace, product, and operations at Horizon Media, said he didn’t see the requirements significantly limiting advertisers’ ability to target people on Facebook. Advertisers can still use primary phone numbers to identify users for ad targeting purposes, and he was unaware of any ad product that uses facial recognition, for example.

"As long as privacy wasn’t violated and as long as the Facebook advertising continues to deliver results, the fine is ultimately going to be a month’s worth of advertising revenue for Facebook," Proujansky said.

Other factors could cause Facebook’s ad business to decline.

Brian Wieser, global president of business intelligence at GroupM, said the settlement revolved around past practices that Facebook has already abandoned, but on the horizon, Facebook faces potential crackdowns that regulators in the US and EU have in the works or have hinted at.

Facebook’s ad business faces other risks

Another risk to Facebook’s ad effectiveness are Stories, its disappearing photo and video sharing feature. Facebook has been pushing Stories on advertisers, but Levine said the feature underperforms other core Facebook ad products. In his survey of advertisers, 43% said Stories performed worse, 38% said they performed the same, and 19% said better.

Facebook is also planning to roll out a tool that lets people clear their Facebook history. The "clear history" tool will limit the amount of targeting advertisers can do by preventing them from using data Facebook collects on people’s off-Facebook activities to build ad campaigns. Heavy user adoption — and even that’s a big "if" — could dent advertisers’ targeting abilities.

But even then, the effectiveness would have to decline a lot.

"The ROIs that Facebook is offering today far exceeds most competition, so even if it were to come down a bit due to reduced data capture, it wouldn’t have a big impact on their advertising business," Zgutowicz said.

NOW WATCH: This Facebook exec cofounded and then got fired from Pets.com. Here’s why she is no longer hiding from this failure.

Source: Business Insider – lmoses@businessinsider.com (Lucia Moses)