The Costly Lesson From Facebook’s Latest Scandal

Matthew Carr
by Matthew Carr, Emerging Trends Strategist, The Oxford Club
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I see the posts in my Facebook (Nasdaq: FB) timeline and cringe...

Jane took the quiz and got “Grumpy!” Find out which of Snow White’s seven dwarves you are!

What’s your elf name? Comment below using the first letter of your first name and your birthday month!

Find out which Pokémon you most resemble by uploading your profile picture!

These little tests and quizzes seem harmless... but they’re not.

Many ask to access your personal information through your Facebook profile. And just like any virus, they can easily spread from one person to the next.

Silly, stupid quizzes are just as effective as any phishing scam. They’re dangerous and make you give up access to a lot of information for an insignificant payout. Did you really need third-party confirmation to know your profile picture most resembles Sleepy or Snorlax?

For years, social media users have feverishly taken these quizzes. I have one friend who seems to take a new one every day.

Police departments even warned that these quizzes could steal your personal data.

But nobody listened.

Until now...

Suddenly, the Cambridge Analytica incident has brought this back out into the open. As many as 50 million people had their profile data misused by the U.K. firm.

And millions of users and businesses are deleting their Facebook accounts in protest.

I listened to a commentator on television this morning express outrage over how much data Facebook collects and how much data these quizzes have access to.

They obviously didn’t read the user agreements.

But this backlash has sent shares of the tech giant careening lower...

And I do believe this will begin the march toward regulation of social media companies... in some form or another.

But this goes back to a problem I’ve discussed here before - people are ultimately the biggest threat to their own security.

As computers and the digital world have become a more integral part of our everyday lives, they’ve caused us to take a step backward.

We’ve devolved.

We’re in an age of complacency, and seemingly no amount of security breaches will change our behavior.

And instead of being skeptical or protective of our personal data, we’re willy-nilly with what information we expose, where we broadcast it - and how.

That should frighten you.

Because there are industries - like social media - built on accessing our digital breadcrumbs and selling them.

Every moment of every day, you’re emitting a constant stream of data. The technical term for this is “data exhaust.”

As you move through both the real and digital world, you leave this trail of information particulate in your wake.

This includes text messages, social media posts and alerts, check-ins at various locations, and simple GPS “pings” from your smartphone and other mobile devices. Popular apps like Uber, Lyft and even Facebook can access your location.

It’s the byproduct of our modern world.

And here’s the deal... Data exhaust is even bigger than “big data.” More importantly, this is part of the reason why the massive amount of data humans produce is increasing so rapidly.

I mean, consider for a moment that from the dawn of human existence to 2005, humans created 130 exabytes (EB) of data.

That’s every book, song, piece of art, etc., produced by humans up to that point - the sum of all human history. There are great, beautiful things in that clump of data. Works that have endured for thousands of years.

But the last decade has been dominated by something much different. Between 2005 and 2010, humans created 1,070 EB of data.

That’s right. We created nearly 10 times the amount of data produced over several thousand years... in just a five-year span. (As a reminder, 1 EB equals 1 billion gigabytes.)

And that’s just the tip of the iceberg...

From 2010 to 2015, humans created another 6,700 EB of data. That’s more than six times the amount created in the previous five-year span.

And by 2020, humans will add another 33,000 EB of data.

How is this all possible? Because we’re no longer dealing in quality. It’s pure quantity. I’ve referred to it before as the “new pollution.”

But it doesn’t mean it’s all garbage.

All of this is rounded up and stored in “data lakes” until someone finds a way to monetize it.

Google’s parent company, Alphabet (Nasdaq: GOOG), is a perfect example of a company that’s a master of this. It’s collecting every digital breadcrumb about you and applying it to marketing purposes. There’s a reason the ads you see are targeted so specifically to you... and why revenue for these companies continues to explode higher.

Unfortunately, I believe the fallout Facebook is currently experiencing will be short-lived. There’ll be something new to garner the public’s outrage. And focus will shift there.

But your data is valuable not only to you but to many companies as well. And you should treat it as such.

Don’t simply hand your data over so easily - and cheaply - just to find out which character you are from M*A*S*H.

Good investing,

Matthew

Thoughts on this article? Leave a comment below.

What the Dell?

You may be saying to yourself, "I didn't know Dell was a publicly traded company again." And you'd be right - it's not. But there's a way to invest in some of Dell's activities.

You see, Dell has a 72% stake in VMware (NYSE: VMW), a global leader in cloud infrastructure. Its interest is reflected in Dell Technologies Class V (NYSE: DVMT), a stock that tracks VMware's value and performance. Because the tracking stock is trading at a significant discount to VMware's market price, Chief Investment Strategist Alexander Green strongly recommends it in his True Value Alert...

Based in Palo Alto, VMware (NYSE: VMW) is a global leader in one of the hottest sectors of the technology industry, cloud infrastructure.

The company has more than a quarter-million customers worldwide, including 100% of the world's 100 largest companies and 96% of the Fortune 1000.

VMware pioneered the cloud infrastructure. Today, it's the industry leader and the market's default standard with nearly an 80% market share.

However, it would be tough to call this a value play. VMware currently trades at 22 times prospective earnings.

But what if you could buy it at a 43% discount to the current market price?

In fact, you can.

VMware is controlled by privately held Dell Technologies. (As you may recall, founder Michael Dell engineered a leveraged buyout of Dell in 2013.)

However... Dell's 72% interest in VMware is reflected in a tracking stock that doesn't offer direct ownership of VMware but reflects its economic value and financial performance.

It's called Dell Technologies Class V (NYSE: DVMT).

In early February, Dell confirmed that it was exploring an IPO or "business combination" with VMware. In return, the board of VMware said it was committed to protecting and creating value for shareholders.

On the heels of this innocuous-sounding development, VMware plunged 18% - and the tracking stock fell 14%.

Why? Because the market hates uncertainty. And the announcement created plenty of it.

Assuming Dell goes ahead with a straightforward merger, VMware would be subsumed into Dell almost certainly at a significant premium to the current market price.

Another possibility is a Dell IPO. That would give Dell the financial resources to buy out holders of the tracker stock - again, at a substantial premium.

In any event, holders of the tracker stock are likely to be treated well. Michael Dell has fought five years of expensive and time-consuming litigation from shareholders who claimed he shortchanged them in the leveraged buyout of his namesake company in 2013.

Regulators, shareholders and VMware board members will be hyper-alert to make sure the final price for VMware is fair.

We recently saw a double-digit gain in the tracking stock. And at a current 38% discount to the market price of VMware, it remains a bargain that offers excellent trading potential.

- Donna DiVenuto-Ball with Alexander Green

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