After the European Union’s General Data Protection Regulation (GDPR) was enforced on May 25, 2018, there is a remarkable drop in the number of daily active Facebook users in Europe. The users dropped by 3 million users from last quarter to just 279 million users this quarter. However, there was no significant change in the number of users in North America, which averaged at 185 million people.
There are two factors that influenced the drop of Facebook active users: the introduction of GDPR and the scrutiny from the Cambridge Analytica data breach. Facebook CEO Mark Zuckerberg made an official statement saying the GDPR was the reason for the decline in active users across Europe. But CMO of 4C and a Facebook marketing partner, Aaron Goldman, stated that investors felt uncertain about Facebook because of the nonstop privacy policies scrutiny due to the Cambridge Analytica scandal.
Cambridge Analytica is a third-party developer alleged of mishandling the data about 87 million Facebook users. The information was used for targeting ads for political campaigns in the U.K. and the U.S. Because of this incident, Facebook had to alter its playbook for working with app developers. Hundreds of developers were audited to explain the way it shared data in the past. Mr. Zuckerberg also had to meet with U.S. and U.K. lawmakers to show how Facebook is safeguarding user personal information. Facebook U.K. had to pay a $650,000 fine for the wrong handling of user data.
To comply with the GDPR, Facebook had to make changes in several operational procedures. Users within Europe had to be notified about the pending changes to Facebook’s privacy policies. Together with the notice, Facebook requested all users to give their consent to the platform’s data collection practices if they want to continue using Facebook.
Facebook lost revenue because of the drop in the number of active users. For the second quarter of the fiscal year, Facebook’s revenue is only $13.2 billion instead of Wall Street’s projection of $13.4 billion. The revenue on ad sales hit $13 billion for the second quarter, gaining 42% from the last 12 months. The value of Facebook shares also dropped as a result of these developments.