Facebook: Fall from grace

Silicon-valley industry folklore has it that way back in the summer of 2002, Google refused an offer from Yahoo—the then leader in search—because the offer at $3 billion was some two billion short of Google’s asking of $5 billion. Ironically some fifteen years later in 2017, Yahoo was acquired by Verizon at just under $5 billion when Google was commanding $850 billion-plus valuation.

Facebook has been the raison d'être of the world for the past 15 years giving rise to a “me-conomy”—of community sharing, of giving birth to rising concerns of privacy and of leaving its mark on politics. On the one hand, like an unruly adolescent, Facebook just seems to be going through growth pangs. While on the other hand, Facebook enjoys an enviable valuation of a $500 plus billion while serving as a platform for 35% of the world’s population that gives it the power to affect the moods of billions of people with a simple change in algorithm.

Will Facebook survive to still be around 10 years later? The world is divided on this question. With more numbers of naysayers amongst analysts, there are huge outcries from suggestions to ‘break it up’—for social networks are a natural monopoly—to ‘#deletefacebook’ calls. It is difficult to make a balanced analysis as the world is dwarfed by so much hyperbole around the ill-effects of social media and its poster-child Facebook.

Facebook’s ills are nothing new. Mark Zuckerberg, its founder, has been used to the idea of ‘breach-apologise-repeat’ all his life with his procrastination-and-prevarication strategy of ‘delay, deny, deflect’, right from the ‘hot-or-not’ Facemash college side-project in his early Harvard days to the recent Senate hearings. How a humble, fun social network came to be a challenger of democracy is what makes today’s situation rather peculiar.

Facebook has braved it all in the last two years—fake accounts, fake news, brand safety concerns, filter bubbles, controversies, misjudgments, missteps, inauthentic ads, data leaks, falsified metrics and more. Analyst firms are however now sounding out a major shakeup coming for Facebook advertising. This is not surprising considering that a Pew Research Center survey found a marked decline in Facebook user engagement.

A different future?

Will social media addicts become privacy sensitive or simply go back to old habits? As an attention and persuasion optimisation platform, will Facebook continue to lead the advertising revenues market with its successful bundling of massive reach, algorithmic amplification and advertising options across a platform of platforms? Or will it embrace a paid-for service model for a new generation of privacy-obsessed users who still value the social network’s intrinsic qualities? Only a response from society to ever-inquisitive and ethically challenged media giants will persuade them to change their narratives.

A media giant

Facebook wants the world to believe that it is a tech company though 98% of its revenues come from advertising. It is high time Facebook took responsibility for the content that gets published on its platform. But, to be fair, every new medium including traditional media and the Internet has been a subject of bashing at various stages of their evolution. Social media in general and Facebook, in particular, is no exception. And the world is perhaps a little unkind in not granting the benefits from Facebook that are real—connections, relationships, convenience, entertainment, and more. For all its success however, Facebook’s glory may be overstated. One needs to appreciate rising penetration of smartphones and the Internet as the key technology development making social media ubiquitous and all-pervasive.

Force for good or not

Whether Facebook has been good or bad is a question which may not be answered even a couple of years from now. There are enough powerful arguments not only for its good side but also for its dark side. Facebook cannot close its eyes to the moral responsibility while creating, capturing and extracting only economic value.

Transparency is going to be the key to surviving and growing in an increasingly aware and a more vigilant world. And therein lies the power of collective human wisdom to sift the wheat from the chaff in making the benefits count more than the costs.

That Facebook created something novel and powerful, that it moved at lightning speed, that it broke rules—these are all undisputed.

Lessons not learnt

In the latest privacy-focussed 3,000-word manifesto of Zuckerberg, however, there is a shift in the narrative from keeping breaking the walls down for an open ‘townsquare’ platform to an acknowledgement of how humans like smaller ‘living room’ groups.

The big question remains: Has Facebook learnt the lessons and can Zuckerberg ‘fix Facebook’ and transform it in so much time before a new tech obsession takes over human and societal imagination in the attention economy currently defined by ‘to be is to share’?

The comparison with Yahoo is sometimes unmistakable—high top executive turnover being one of the major ones. While the metaphorical comparison with Yahoo is enticing, Yahoo’s playbook faced unprecedented competition from a very worthy force called Google. With the most powerful suite of social media offerings under its belt—Facebook, Instagram and WhatsApp—Facebook’s undoing may come ironically from its own user base than its competitors.

Will Facebook end up becoming the once-iconic company that came out of nowhere to become so big so fast and finally only remembered as a fossilized dinosaur that vanished… so fast!

Startups can become giants

And giants too can fall. Rome burnt. The British Empire came to an end. The USSR. Kodak. Yahoo... The list goes on. When the icons crumble, isn’t that ‘moving fast and breaking things’ too? And wouldn’t that qualify for disruption too?

Social media: A tool for domination

Tim Berners-Lee, the inventor of the World Wide Web, talks of today’s anthropogenic platforms: “As we’re designing the system, we’re designing society.”

In her book The Age of Surveillance Capitalism, Harvard Business School Professor Shoshana Zuboff cautions us against the ills of using human life as raw material where our everyday experiences are reduced to data and then used to predict and mould behaviour.

To the extent that the manipulating power of behaviour creeps in, is social media really a tool for connection, liberation, and empowerment or one for domination?

Well, big tech is no different from big pharma, big tobacco, big oil and the rest. They all follow the same playbook.

Consumers and regulators are waking up

And even as regulation needs to get its act right as regards the policy framework, it is users who have to wake up to stop outsourcing their privacy in the trust they may have reposed as naive digital tech adopters. As Walt Kelly, creator of the cartoon character Pogo, said, “We have met the enemy and he is us”. If advertisers are willing to pay Facebook for insights into our preferences and behaviours, should consumer as owners of their data not have the right to extract rents from the value of personal information that is captured, stored, mined, packaged and marketed by social media companies?

And, should governments not develop better frameworks to tax wealth created from their citizens by Facebook and the like? Their value—and hence the wealth of shareholders—lies not just in today’s cash flows but in intangible assets (people and social networks) that will help generate monopolistic revenue streams garnered from insights derived from attitudes and spending habits of loyal (or media-addicted) users.

Digital advertising and marketing profits often end up in low-tax jurisdictions. While Facebook has a huge user base in India and makes profits by selling information on Internet advertising to this user base, India receives only a minute portion of already low taxes.

Should taxes be paid where the product (or content, in the case of the digital market) is developed, or where the product (content) is distributed—or both? Unfortunately, for governments and citizens, things that are digital are like water. They can take any shape and slip right through the fingers.

The reality is that the European Commission is waking up, the US is understandably protective. But most others appear to neither know nor care.

As for Facebook, it will do well to take heed of the most important proverbial lesson: those who cannot remember the past are condemned to repeat it.

Piyush Sharma, executive-in-residence at the Indian School of Business (ISB), is a global CEO coach and a C-Suite + Start-up advisor. Rajendra Srivastava is the dean of the Indian School of Business (ISB) and the Novartis Professor of marketing strategy and innovation.