Analysis: How much will this generation of privacy-enabled kids hurt Facebook’s revenues?
This generation of kids are growing up in a unique digital environment: defined by privacy laws which prevent usage of their personal data. This is an entirely new chapter for the Internet.
For the majority of adults, the practice of exchanging personal data (cookies, social, etc) in exchange for free content or services is considered perfectly normal. However with governments now legally preventing data capture on children, this is triggering a structural change in attitudes and behaviours.
TL;DR: this is going to cost the social companies tens of billions of dollars in lost revenue as these kids grow up. Scroll down for analysis and impact on Facebook.
Originally focused on under 13s in the US (COPPA), Europe has now expanded these same digital privacy protections to children under 16 (GDPR-K). This ‘zero-data’ trend shows no sign of stopping as California has just passed new laws that will effectively drag the rest of the US to the same age standard.
It’s impossible to ignore how similar this feels to the decline of the tobacco industry. We’re seeing the same pattern of health warnings, snowballing legislation and lawsuits around kids digital privacy which seems highly likely to have a similar effect.
My strong view is that the more that kids aren’t sharing (or forced to share) their personal data at a young age (and who understand the dangers), the less likely they will be to do so as they get older. To understand the potential revenue impact this will have on profile-data driven Internet companies, I looked at Facebook.
Summary: Facebook will suffer over $35B in lost revenue as kids data privacy laws remove them from the social network’s addressable audience. For context, this represents almost 10% of their market capitalisation today.
The workings are in the table below, but here are my core assumptions;
- It will take five years from now for digital privacy standards to be understood by kids as normal (helped by the kidtech sector). After this point we’ll see 75% of kids who are aging into FB (i.e. 13+) deliberately not sign up. Will the impact start to be felt sooner than that? Probably but I’m being conservative.
- This $35B estimate is only for the first ten years (it’s not discounted). This annual lost revenue obviously compounds, and by the end of this measurement period Facebook will be losing out on over $6.5B in annual revenue.
- ARPU for the US and EU users are taken from FB’s public financials. I’ve assumed a 5% growth in ARPU.
- I’ve taken a flat age of 13 across both the US and EU, even though GDPR-K is increasing this threshold to 16 across most of Europe. This definitely understates the true revenue impact on Facebook.
For the first time in the history of the Internet, there is global regulation of an audience type. It’s a point which continues to be overlooked. We simply haven’t seen this before. This generation of kids growing up in a privacy-focused environment are going to have different long-term behaviors which will materially impact the leading consumer Internet companies. Perhaps it’s time to look at the basis behind those revenue multiples…
