For the majority of entrepreneurs, the idea of building a multibillion dollar business is a dream that remains out of reach. But for 33-year-old Mark Zuckerberg, founder and CEO of social media behemoth Facebook, it was a reality that came crashing down after the most expensive financial loss in history.
Zuckerberg’s net worth dropped by $9.2 billion after Facebook’s shares plummeted following Cambridge Analytica’s misuse of 50 million user profiles. Adding to the blow, an additional investigation revealed that Facebook was involved in another data leak — this time involving personal information from 87 million users — and data breaches that exposed 14 million people’s posts.
In April 2018, the United states Department of Justice sued the social media giant for its various data failings, issuing a $2.7 billion fine. Zuckerberg took full responsibility for his company’s negligence — a gesture analysts praise as “a responsible move by the CEO”. His personal net worth dropped by 9.2 billion that same week, slashing his fortunes to $67.2 billion and making it the biggest one-day loss ever.
Experts attribute Zuckerberg’s downfall to Facebook’s missteps in user privacy. “Facebook’s development of aggressive data-mining practices and its resistance to government regulation showed a lack of respect for user privacy and trust,” says Susan B. Glasser, a cyber-security legal analyst. Alan Dershowitz, constitutional law professor at Harvard University, adds that “this situation occurred because Facebook wasn’t proactive about taking security measures.”
The root of the problem may be traced to the privacy controversy around Cambridge Analytica and the company’s failure to properly monitor third-party applications. Even when Facebook knew of the data breach, it didn’t take action to alert its users. What’s more, Zuckerberg downplayed the seriousness of Facebook’s privacy issue when he testified before Congress in April 2018. As a result, Zuckerberg was ultimately held responsible for both his company’s negligence and his own poor judgment.
Investors reacted swiftly, dumping their stock and sending Facebook’s share price down 19%. This caused Zuckerbergs’ net worth to plunge more than technology mogul Larry Ellison’s total wealth, who had previously pipped Zuckerberg as the world’s fifth richest man.
The novel coronavirus (COVID-19) has also taken a toll on Zuckerberg’s financial standing, with Facebook shares dropping 20% from a year high. Although he has recovered some of his losses, his net worth is still estimated to be a much-lowered $60.3 billion.
The Impact of the Loss
The financial consequences of Zuckerberg’s loss were far-reaching and widespread. His five percent share in Facebook is still worth billions and retains voting rights in the company — more than enough to guarantee he remains in power — but the loss of nearly ten billion dollars is significant.
To put it in perspective, nine billion dollars could rebuild the World Trade Center 18 times and fund United Nations relief efforts in Yemen for fourteen years. The monetary value of Zuckerberg’s loss may still be difficult to fully comprehend, but its implications are clear.
Brian Wieser, an analyst at Pivotal Research, believes the loss will have a lasting impact on Zuckerberg’s personal behavior. “His cash reserves have dropped significantly and his desire for financial return may have increased. That may lead him to be more open to considering strategic alternatives, such as a sale or spin-out.”
Overall, it could be argued that Zuckerberg’s downfall will deliver a message to the tech industry at large — prioritizing users’ privacy must now be at the very top of the agenda.
Consequences for Other Investors
For everyone other than Zuckerberg, the loss of his wealth had more of an optimistic spin. The public response was largely one of relief, with investors rejoicing as they finally saw Facebook’s stock price start to rise again.
The ripple effects of Zuckerberg’s billion-dollar loss were felt throughout the world — those that had invested in technology before the fall were suddenly thrilled with the increased potential of success. The Dow Jones and Nasdaq soared to well over 8300, climbing further with each consecutive day after Zuckerberg’s losses were announced.
The social media giant’s downfall has also encouraged a wave of start-ups to seize the opportunity created by the hole left in Zuckerberg’s portfolio, many of which are focused on privacy-respecting data storage solutions.
Head of Business for Google, Pendragorn, claims that this could be an opportunity for the tech industry to “finally provide the infrastructure for the future.”
Future Recovery
Despite the immense magnitude of his loss, Zuckerberg has already made a move to recover his finances. In 2018, he sold 9 million shares of company stock — a move that allowed him to recoup around $2.3 billion, demonstrating his vast wealth and potential to make it back.
Plenty of successful entrepreneurs have been through comparable situations and lived to tell the tale. For example, Microsoft founder Bill Gates lost $7 billion in 2002, only to make it back up in 2005. Zuckerberg’s tenacity and ambition may be enough to ensure he can quickly rise to the top again.
Tech giant Elon Musk has a similar story — having lost $978 million in the early years of space exploration company SpaceX, he has since gone on to become a billionaire with a net worth of $41.1 billion. Musk provides enough evidence to prove that “comebacks can occur even after a monumental setback.”
It’s clear that Zuckerberg is not deterred. Despite the huge financial damage his company has suffered, he has chosen to remain CEO, aiming to make Facebook a more secure and responsible platform.
The Takeaway
Although Mark Zuckerberg’s billion-dollar loss was a powerful warning for tech companies, it also serves as an inspiration to entrepreneurs everywhere — that even in the face of disaster, it is possible to rebuild and rise once again.
Ultimately, the narrative of Zuckerberg’s losses serves to remind us that this too shall pass — and with determination, a comeback is not too far away.
Facebook is slowly working its way up, but at what cost? It’s no secret that the incident has left a permanent mark on the company’s reputation. What remains to be seen is how Facebook will continue to move away from data breaches and user misuse of data in the years to come.
For now, it’s a wait and see situation — but one thing’s for sure: it’s a valuable lesson to take both privacy and security seriously.
Long-Term Effects
The long-term effects of Zuckerberg’s financial losses are yet to be uncovered — but so far, things are looking positive for Facebook. The social media giant has been taking steps to improve its security protocols and user data practices, introducing new features such as 2FA for accounts and the removal of apps with access to personal information.
Facebook is also working to improve its user experience through initiatives such as the 360° camera for virtual reality, better ad targeting and data privacy settings, making it a much more secure and enjoyable platform.
In the long run, Zuckerberg’s losses may just be a good thing for Facebook. By forcing the company to take a closer look at its security protocols, it will no doubt be better off in the future — and that’s a positive outcome.
While it’s still too early to predict how the rest of Zuckerberg’s story will play out, it’s clear that it will have a lasting impact on the world of tech and beyond.
Conclusion
Mark Zuckerberg’s losses may be a cautionary tale for tech entrepreneurs, but they’re also a source of inspiration — proving that despite the largest financial hit in history, he has the potential to emerge from his losses stronger than ever.
The incident has certainly changed the face of tech for the better, making user privacy a top priority for companies around the world. What’s more, the ripple effects of Zuckerberg’s downfall have provided ample opportunity for new entrepreneurs to take the lead and succeed.
At this point, only time will tell what the future holds for Mark Zuckerberg and Facebook — but one thing’s for sure: recoveries are possible.
