Facebook privacy issues become real in Germany

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Germany is about to remind Facebook Inc. that the 2018 tribulations are not over yet. In fact, they are about to become even more real.

The federal cartel office in the country intends to prohibit Facebook from collecting user data from third parties, according to reports from the Bild am Sonntag newspaper. This will also prevent the sharing of data between WhatsApp and Instagram, which owns Facebook. Germany is worried about the fact that Facebook users did not know that they agreed to be tracked on the Internet when they signed up for the company's offers.

The regulator's move could be a major obstacle to the social networking giant's plans. With user growth and stagnation, Facebook is increasingly focusing on improving the value of what it offers advertisers. This means doing a better job by directing ads to individual users in order to generate a better return on investment for brands.

At this time, any website hosting a Facebook "Like" button or a "Share on Facebook" link sends a cookie to Menlo Park, a California-based company every time a browser visits that site . Because engagement on its main platform is mitigated, these cookies can help the social media company to create more complete user profiles. This in turn improves ad targeting.

The German measures will probably prohibit the sharing of those cookies, BamS reported. Significantly, if the case made by the regulator is convincing, it could follow a larger investigation by the European Union. Germany is very much a leader on the continent for countries that decide how to deal with regulation, and any major change could be the thin limit of the wedge.

All this seems to indicate that CEO Mark Zuckerberg could face a 2019 as difficult as in 2018. The company's shares fell by 26% last year when the consequences of the Cambridge Analytica scandal began to manifest. But so far, there has been very little real regulation. The decision in Germany will be one of the first steps to change it.

The German third-party data sharing survey began in March 2016, prior to the Cambridge Analytica story. Although skepticism about Facebook has always been strong in Germany, the consequences of the affair have spread dislike on a global level, making other nations more open to stricter rules.

It is still probable that it will take some time for the regulator's decision to force change. Facebook told BamS that it would appeal and follow-up investigations at European level would probably take at least a year. This could explain why, despite increasing regulatory obstacles, analysts remain remarkably bullish on Facebook's actions. Of the 53 analysts interviewed by Bloomberg, 41 recommend buying the stock. The average 12-month target price of $ 185.83 is still nearly 30% higher than Friday's closing price.

The probable regulation could be a big key in the works of the Facebook advertising machine. Investors would do well to note that regulatory battles are just beginning.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist dealing with technology, media and communications in Europe. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

© 2019 Bloomberg L.P.

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