Facebook founder and CEO Mark Zuckerberg has recently announced plans to shut down Facebook operations in Europe by the end of 2023. This drastic decision has shocked many and raised a lot of questions as to why Zuckerberg would decide to pull the plug on Facebook’s second largest market after the United States.
Background
Facebook has faced increased scrutiny in Europe in recent years over its data practices, privacy policies, and the spread of misinformation on its platforms. Some key events that have put pressure on Facebook in Europe include:
- The implementation of the General Data Protection Regulation (GDPR) in 2018 – this imposed strict new data protection and privacy rules that Facebook has struggled to comply with.
- Multiple data breach scandals such as Cambridge Analytica that undermined trust in Facebook’s ability to protect user data.
- Fines totaling over $400 million from European regulators related to data practices and privacy violations.
- Concerns around election interference and the spread of fake news on Facebook related to Brexit and other European elections.
Additionally, an increasing number of European users have been deleting Facebook or reducing their use of the platform amidst privacy concerns. Europe also has stronger competition in the social media space from platforms like Telegram, WhatsApp, and Snapchat. So Facebook likely sees limited future growth potential in the European market when faced with increased costs of compliance.
Main Reasons for Shut Down
While many factors have put pressure on Facebook in Europe, two main reasons stand out as motivations for Zuckerberg’s decision to close up shop in the region.
Impact of GDPR
The EU’s General Data Protection Regulation introduced strict new standards for how tech companies collect, store, use, and share personal data of EU citizens. GDPR requirements include:
- Requiring clear consent from users for data collection and use.
- Limiting companies’ ability to connect user data across services and platforms.
- Requiring companies to allow users to access, correct, and delete their personal data.
- Requiring companies to clearly disclose data collection practices and uses.
- Requiring companies to implement strong cybersecurity and data protection measures.
For a company like Facebook that relies heavily on collecting user data for ad targeting, GDPR represents a major challenge. Despite spending over $100 million to get GDPR compliant, Facebook has run into multiple enforcement actions from European regulators related to GDPR violations:
| Date | Regulator | Violation | Fine |
|---|---|---|---|
| September 2021 | Irish DPC | Data scraping | 265 million EUR |
| July 2019 | FTC | Cambridge Analytica | 5 billion USD |
| January 2019 | CNIL | Transparency | 30 million EUR |
The heavy fines, operational costs, and burden of complying with GDPR appear to simply be too much in Zuckerberg’s analysis. Shutting down completely avoids the massive costs and risks of non-compliance.
Political Pressure
In addition to regulator action, Facebook has faced growing calls from European politicians and leaders to break up or heavily regulate the company:
- In 2019, German regulators ordered Facebook to restrict data collection from subsidiary apps like WhatsApp and Instagram.
- Multiple European countries have proposed legislation to hold social media companies liable for illegal content posted by users.
- In 2020, the EU proposed the Digital Services Act which threatens major new operating restrictions and requirements for platforms like Facebook.
Zuckerberg likely sees the writing on the wall in terms of increasing political hostility and regulation aimed at Facebook in Europe. Rather than face a future of restrictive legislation, fines, and operational uncertainty, he has decided to simply exit the market entirely.
Impact of Facebook’s Departure
Facebook’s decision to shut down in Europe will have major impacts, including:
Loss of European Revenue
Facebook earned over $17 billion in revenue from Europe in 2021, representing around 25% of the company’s total revenue. Walking away represents a huge revenue loss, but Zuckerberg likely determined the mounting costs and risks outweighed the earnings potential moving forward.
Job Losses
Facebook employs over 10,000 people in high paying tech and sales jobs across Europe. Dublin, Ireland is Facebook’s international headquarters. Shutting down operations will mean mass layoffs and loss of talent.
Reduced Connectivity
Over 250 million Europeans use Facebook regularly to stay connected with friends, family, groups, and causes. Facebook’s departure will significantly reduce connectivity and engagement in the region.
Less Competition
Facebook’s departure takes out one of the largest competitors in the European social media and tech space. This could allow alternative platforms like Snapchat, Telegram, and TikTok to gain market share.
Economic Impacts
Thousands of small businesses across Europe utilize Facebook for marketing, sales, and customer engagement. Losing this platform will harm many businesses financially. Facebook’s large payroll and office footprint also brought significant economic benefits to European cities that will disappear.
What’s Next for Facebook?
While shutting down Facebook operations in Europe represents a major strategic shift, the company will continue its focus on growth in other key markets, including:
- United States – Facebook’s most lucrative market, earning over $85 billion in ad revenue in 2021.
- Asia – Major growth potential as internet access and social media use continues to rise across the continent.
- Africa – An emerging market for Facebook with a youthful, tech-savvy population.
- Latin America – Strong existing user base across Central and South America.
Facebook will also continue investing heavily in its other platforms like Instagram, WhatsApp, Messenger, and virtual reality. And the company is pouring billions into developing the metaverse – an immersive digital world Zuckerberg sees as the next frontier. So while Facebook the app will flicker out across Europe, the broader company will continue forging ahead in other markets.
Conclusion
Facebook’s planned shutdown in Europe can be chalked up to unsustainable costs and uncertainty around compliance with regulations like GDPR. Unable to fully leverage user data due to privacy rules, and facing massive fines along with political hostility, Zuckerberg appears to have decided the European market is more trouble than it’s worth. For over 250 million Europeans though, the loss of connectivity and economic opportunities when Facebook pulls the plug will sting.