LONDON — Meta suffered a major defeat
on Wednesday that could severely undercut its Facebook and Instagram
advertising business after European Union regulators found it had illegally
forced users to effectively accept personalized ads.
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The decision, including a fine of 390
million euros ($414 million), has the potential to require Meta to make costly
changes to its advertising-based business in the EU, one of its largest
markets.
The ruling is one of the most consequential
judgments since the 27-nation bloc, home to roughly 450 million people, enacted
a landmark data-privacy law aimed at restricting the ability of Facebook and
other companies from collecting information about users without their prior
consent. The law took effect in 2018.
The case hinges on how
Meta receives legal
permission from users to collect their data for personalized advertising. The
company includes language in its terms of service agreement, the very lengthy
statement that users must accept before accessing services like Facebook,
Instagram, and WhatsApp, that effectively means users must allow their data to
be used for personalized ads or stop using Meta’s social media services
altogether.
Ireland’s data privacy board, which serves
as
Meta’s main regulator in the EU because the company’s European headquarters
are in Dublin, said EU authorities determined that placing the legal consent
within the terms of service essentially forced users to accept personalized
ads, violating the European law known as the General Data Protection
Regulation, or GDPR.
Major revenues at riskMeta has three months to outline how it
will comply with the ruling. The decision does not specify what the company
must do, but it could result in Meta allowing users to choose whether they want
their data used for such targeted promotions.
If a large number of users choose not to
share their data, it would cut off one of the most valuable parts of Meta’s
business. Information about a user’s digital history — such as what videos on
Instagram prompt a person to stop scrolling, or what types of links a person
clicks when browsing their Facebook feeds — is used by marketers to get ads in
front of people who are the most likely to buy. The practices helped
Meta generate $118 billion in revenue in 2021.
The judgment puts 5 percent to 7 percent of
Meta’s overall advertising revenue at risk, according to Dan Ives, an analyst
at Wedbush Securities. “This could be a major gut punch,” he said.
The penalty contrasts with regulations in
the US, where there is no federal data privacy law and only a few states such
as California have taken steps to create rules similar to those in the EU. But
any changes that Meta makes as a result of the ruling could affect users in the
US. Many tech companies apply EU rules globally because that is easier to
implement than limiting them to Europe.
The EU judgment is the latest business
headwind
facing Meta, which was already grappling with a major drop in
advertising revenue because of a change made by Apple in 2021 that gave iPhone
users the ability to choose whether advertisers could track them. Meta said
last year that Apple’s changes would cost it about $10 billion in 2022, with
consumer surveys suggesting that a clear majority of users have blocked
tracking.
Meta’s struggles come as it is attempting
to diversify its business from social media to the virtual reality world known
as the metaverse. The company’s stock price has plummeted more than 60 percent
in the past year, and it has laid off thousands of employees.
‘Lack of regulatory clarity’Wednesday’s announcement relates to two
complaints filed
against Meta in 2018. Meta said it will appeal the decision,
setting up what could be a prolonged legal fight that will test the power of
the GDPR and how aggressively regulators use the law to force companies to
change their business practices.
“We strongly believe our approach respects
GDPR, and we’re therefore disappointed by these decisions,”
Facebook said in a
statement.
The judgment puts 5 percent to 7 percent of Meta’s overall advertising revenue at risk, according to Dan Ives, an analyst at Wedbush Securities. “This could be a major gut punch,” he said.
The result was hailed by privacy groups as
a long-overdue response to companies gobbling up as much data as possible about
people online in order to deliver personalized ads. But the more than four
years it took to reach a decision was also seen by critics as a sign that
enforcement of the GDPR is weak and slow.
“European enforcement has not yet delivered
on the promise of the GDPR,” said Johnny Ryan, a privacy rights activist who is
a senior fellow at the Irish Council for Civil Liberties. The judgment signals
that “Big Tech may be in for a far bumpier ride.”
Within the EU, there has been disagreement
about how to enforce the GDPR. Irish authorities said they initially ruled that
Meta’s use of terms of service for permission was legally sufficient to comply
with the law, but they were overruled by a board made of up representatives
from all EU countries.
“There has been a lack of regulatory
clarity on this issue, and the debate among regulators and policymakers around
which legal basis is most appropriate in a given situation has been ongoing for
some time,” Meta said in its statement.
Helen Dixon, the head of Ireland’s Data
Protection Commission, said regulators must be an “honest broker” and not give
in to demands from privacy activists who are pushing for rulings that will not
stand up to legal challenges.
“We won’t achieve results by simply seeking
to rewrite the GDPR as we would have liked to have seen it written,” Dixon said
in an interview.
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