If you were one of the unfortunate many to participate in the Facebook IPO, here is your chance to (partially) recoup your loss.  This week, Facebook agreed to a revised class-action settlement of $10 per “victim” of their sponsored stories.  The original law suit claimed that Facebook neither sufficiently informed users of their participation in sponsored stories nor gave them the ability to opt out of it.

So who are these “victims?”  Well, they come from a pool of users that at one time clicked the “Like” button for a product or a service with a Facebook page.  Afterwards, Facebook created “sponsored stories” on the news feeds of that user’s friends, showing that the user “liked” the page.  Of course, the retailer paid a marginal fee to make these stories appear.  In the end, over 125 million Facebook users fell “victim” to the scheme.

If this does not sound like a gross invasion of privacy to you, you’re probably not alone.  Most internet users understand that there is no such thing as a free lunch.  Instead, there is an unspoken agreement between services like Google or Facebook and their users.  The user receives free access to the online applications and search services.  In exchange, the user allows these companies to access its browsing and internet habits, in order to generate revenues.

This would seem to be the case with sponsored stories as well.  The irony, however, is that when a user “likes” something on Facebook, that story appears on the news feeds of friends anyway.  The user is already comfortable with that information being disseminated.  In fact, it is likely that the user “likes” the page so that other people know what they are interested in.  So why does it violate the user’s privacy when Facebook re-shares the “like” to those same friends?

The likely explanation is that this lawsuit did not evolve from a group of frustrated users, embarrassed about the over-sharing of their “likes.”  Instead, the class-action suit was likely initiated by attorneys and non-profit organizations who seek to gain the most from a settlement.  For example, in the original settlement agreement, attorneys and charities were awarded $10 million each, paling the amount awarded to those who suffered the harm.

In the revised settlement agreement, the pot of $20 million will be split amongst attorneys, charities, and affected users.  The $10 award per victim is the result is based on an estimated number of users who will go through the trouble to fill out the paperwork.  In fact, if every affected user applied for their share of the settlement, it would be less than $0.02 a person.  In that case, you may want to start looking elsewhere to recoup your IPO investment.

Sam Beutler

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3 Responses to Falling Victim to “Sponsored Stories”

  1. Will P. says:

    I agree Sam that it does seem a little unfair for someone to “like” something, which they would presumably do in order to show others that they like it, and then be upset when Facebook tells people that they like it. It just seems like a nonsense case. Maybe if it were actually litigated it could set some helpful precedent in the event that personal data was actually misused, but I guess we won’t even get that.

  2. Zachary Loney says:

    Using a print example to illustrate the process:
    Imagine a subscriber to a free magazine writes in a letter to the editor, explaining how much they love the product that was advertised in the magazine. The magazine prints the letter in their “Letters to the Editor” section, which seems both legally and morally right. Next, the magazine takes the letter and includes it in an advertisement that it sells to the maker of the beloved product. The advertisement runs in the magazine with a caption “X from Alberque loves this product!”.

    Legality aside, it seems imprudent to use these unsolicited testimonials without permission, even if they aren’t the true customers. If the advertisers are the end consumer and the intermediate users are merely the product being sold, it might be better to reconsider that product in terms of an investment. This seems like a short term gain at the expense of a long term detriment. While many believe that Facebook’s dominance in the market will remain unchallenged, there is always reason to worry about a death of a thousand cuts.

    As a side note, many Facebook pages require “liking” the page to enter promotional giveaways, etc. and the “likes” don’t necessarily carry the same endorsement that is implied by these advertisements. I’m not sure if this runs afoul of state or federal advertising misrepresentation laws, but I know several users which use secondary accounts solely to avoid having their “likes” linked back to their actual account. It would be interesting to see if Facebook’s strategy is driving users to fake accounts and if these false market segments are degrading the value of Facebook ads in general.

  3. Kevin Lumpkin says:

    Worth noting that the court has not yet approved the proposed settlement, although nothing suggests to me that it won’t be. I want my two cents/ten dollars!