Settlement Calls for Facebook To Allow User Opt-Out for Ads
More details have been released in Facebook's proposed settlement of a lawsuit over including users' headshots in "Sponsored Stories" advertisements, and it appears to be much more costly than the first-reported $10 million donation to charity.
In addition to the donation and another $10 million in legal costs, Facebook must revise its privacy policies, warn parents about how the social network uses photos and give those parents more control over their use, and allow users to opt out of annoying or potentially embarrassing ads.
The U.S. District Court in San Jose, Calif., that would approve the class-action settlement released its terms Wednesday. And while the $20 million hit may seem inconsequential for a company valued at $104 billion in its initial public offering, the more substantial hit could be years down the road.
More Control of Interactions
"Facebook will create an easily accessible mechanism that enables users to view the subset of their interactions and other content that have been displayed in Sponsored Stories," the proposed settlement says.
"Facebook will further engineer settings to enable users, upon viewing the interactions and other content that have been used in Sponsored Stories, to control which of these interactions and other content are eligible to appear in additional Sponsored Stories."
Income from the highly lucrative advertisements featuring photos of Facebook users could begin to slow down as potentially millions of users opt out. Facebook founder and CEO Mark Zuckerberg has reportedly referred to the ads as "the holy grail of advertisers."
Reuters reported that an economist hired by the plaintiffs estimated the company could lose $103 million in ad revenue over two years when people start opting out.
Facebook seems to have settled the class-action suit brought by five users in order to keep other plaintiffs from joining the suit, which could have exposed the social media behemoth to much higher damage or settlement costs. Most important to Facebook, it did not have to agree to stop Sponsored Stories, which means millions of people who do not pay attention to privacy issues could still be used in the advertisements.
Ignorance Is Bliss
"There is a significant downside to Facebook's revenue if a wave of people opt out," technology consultant Rob Enderle told us. "But a relatively small number of us really care. If that continues, Facebook is in pretty good shape."
An awareness campaign, however, such as the one Google recently launched to polish its image by calling attention to privacy issues, could change that.
"If someone markets this -- a competitor or a politician running for office or any number of folks -- that could motivate more people to opt out, but for now that seems unlikely," Enderle said.
At the time of publication, there was no information about the suit on the company's newsroom page.
We asked the Facebook media team for a statement on the settlement and an opinion whether they envision possible advertising models in the future, in which users can share in revenue if their faces are used. Unfortunately no additional insight was available, as the company declined comment, per Andrew Noyes, Facebook's manager of public policy communications.
The Minor Matter
The plaintiffs included two minors. According to the settlement agreement, Facebook will make a greater effort to ensure that minors are not used in sponsored ads by adding an "easily understandable description of how advertising works on Facebook to its Family Safety Center" and finding ways to ensure that parents of minors receive the information.
The Family Safety Center will include a link to tools that allow parents to keep their children out of sponsored ads unless they give permission. If possible, Facebook will enable parents to control their children's settings from the parents' own accounts.
The agreement also allows the plaintiffs' lawyers to petition the court to require a third-party audit of Facebook's compliance with the settlement. If approved, Facebook would have to pay for one such audit every two years.