Check out our new book, Badvertising! Learn how to ascertain the integrity of your agency.

Is Citron's report on Shopify's "Big Facebook Problem" Legit?

By Ryan Markman, COO, Metric Digital

Recent advertising scandals are forcing consumers to realize and reckon with one major issue:

How much data is any given internet company collecting on you?

And, if your company uses digital marketing channels like paid advertising to drive growth revenue, then you must reckon with this reality too. Because there is the potential for real change here.

But.

Citron Research's Andrew Left using the recent Facebook news as a way to fuel his crusade against Shopify is, in my opinion, a bridge too far.

So, here’s quick recap of this month’s controversial events. (Skip to the next section if you've been following!)

It all started when Cambridge Analytica gained access to private information on more than 50 million Facebook users. This data leak allowed the company to exploit people’s private social media activity, which caused public outrage and volatile Facebook stock prices.

Second, Facebook responded by sending an email to advertisers (like our agency) about their implemented changes that impact how agencies use their platform. These changes now apply to every advertiser on Facebook, regardless of their integration or budget. Specifically, around the issue of custom audiences, but also other issues that have an impact on campaign planning.

Then, Facebook announced they would limit how much data it made available to advertisers buying hyper-targeted ads on the social network. Zuckerberg said that they will stop using data from third-party data aggregators like Experian and Acxiom to help supplement its own data set for ad targeting.

And lastly, infamous short-seller Andrew Left of Citron Research used this information to fuel his onslaught on ecommerce platform Shopify. Left published a damning report on Shopify, the ecommerce solution provider, and their Facebook practices, claiming that the organization is overvalued and unethical.

This slamming of Shopify is not legitimate.

As a short-seller incentivized to drive Shopify's stock down, Citron is preying on three key things:

  1. Facebook’s bad press
  2. The public's lack of understanding of this issue
  3. Facebook’s importance for ecomm advertising (and all industries) and thus, the Shopify ecosystem.

But the reality is, there is nothing wrong (or particularly unique) with the practices Citron is laying out. What they're talking about here isn't a problem. 

Facebook is a profoundly powerful advertising tool for all industries, including growth stage ecommerce brands (who are Shopify's core customers), and Shopify encourages their customers to take advantage of that.

Whereas the issue with Cambridge Analytica is that of an individual researcher breaking Facebook’s terms and conditions to illegally harvest personally identifiable information.

Now, to be fair, you could definitely argue that Facebook should have had better controls in place to prevent this from happening. But Citron is accusing Shopify of using sketchy access to targeting data via Facebook. Which may sound similar, but the core of what Left is talking about here is completely different.

Citron is saying:

"The horror! The horror! Shopify encourages their merchants to target on Facebook by interest, behavior, life events, and even track you on the internet, etc."

And yet, this type of targeting is exactly why Facebook targeting is so powerful. There's nothing shady about that. Facebook’s terms outline that they have the ability to use this data. In fact, most digital advertising platforms allow you to target based on this type of information (e.g. Google).

It does not allow Facebook advertisers to access personally identifiable information for individuals, i.e., what are their political views, travel schedule, or purchase history.

Furthermore, Shopify is simply encouraging companies to advertise on Facebook effectively, rather than giving them access to a nefarious secret data set.

Which brings us back to the consumer. As people realize and reckon with how much data any internet company is collecting on them, there will be effects.

Medium to long term, there's a risk for Facebook, Google, and other advertising platforms whose regulations and consumer preferences will limit what they can track and use for advertising purposes. The aforementioned Experian/Acxiom story is very much in line with this consumer shift. This is the real story that will impact the platforms.

But likely, this would move more towards the types of regulations like the EU is implementing with General Data Protection Regular. And by the way, Facebook advertising will still be incredibly powerful under those GDPR regulations.

Okay, one last thing to keep in mind.

These issues that affect Facebook advertising hurt Shopify primarily as a second order effect, not a direct effect. From what we hear, direct paid advertising on Facebook is not a primary source of new customer acquisition for Shopify itself.

If, for example, the Cambridge analytica story leads to Facebook changing its policies in a way that makes their advertising less effective, this is going to hurt every advertiser on the platform, including Shopify’s customers.

This is worse news for Shopify’s customers than Shopify itself, and is less of an issue for Shopify than Fortune 1000 consumer brands that rely heavily on Facebook Advertising.

Ultimately, these recent new stories are not isolated incidents. If you're a digital marketer, this is a real trend that you should keep your eye on. 

But using these recent developments to single out and crucify Shopify's relationship with Facebook? It does not make sense.

Get our tips straight to your inbox, and start driving revenue today.

Thanks!

Ryan Markman Chief Operating Officer, Metric Digital The Metric Digital Blog A Blog on All Things Digital Marketing