A cool change is on the horizon for Facebook
Despite years of continued market growth, Facebook's recent updates might finally signal there's trouble in tech paradise, writes inkl's Gautam Mishra.
One of the defining characteristics of early-stage companies (particularly of highly scalable tech companies) is that their share prices and market value grow far more rapidly than the actual underlying earnings do.
This is of course in recognition of the companies’ growth and future earnings potential. Eventually, however, all companies get to a point where investor sentiment cools off, and even though the company continues to grow, its value in the market starts to lag that growth.
Despite releasing a glowing set of earnings figures from Q4, 2017, a similar cool change may be on the horizon for Facebook.
Last week Facebook reported that profits for the last three months of the year rose 20%, coming in at a handsome US$4.27b. It was a much-needed salve for both CEO Mark Zuckerberg and the company itself after a bruising 2017. Yet investors equivocated and Facebook shares dropped 4% in value.
There’s more to it than slowing user growth as the company reaches maturity.
The fall-out from the 2016 presidential election keeps landing on Facebook HQ. Last year company executives were hauled before congressional committees and panels to explain how the platform was so easily manipulated. Facebook has been playing whack-a-mole against state-based actors and fake-news factories ever since. Something had to change.
Keen to rehabilitate his company’s name, Zuckerberg set about implementing all kinds of changes to how Facebook sorts, judges and disseminates news content. Many of them failed, prompting a new approach.
First, a change was made to the algorithm to down-rank news stories, meaning we see more of our friends’ photos and less BuzzFeed. The second part of this strategy is to ensure that the news it does show you is trustworthy (by asking users to rank or rate the news pages they visit through Facebook).
In his quarterly results update, Zuckerberg dropped the bombshell that the algorithm changes shaved off 50 million user hours per day. That’s a 5% drop in average time spent per day as a result of these changes. But when the average user spends a whopping 50 minutes on the social media platforms owned by Facebook, it’s hardly a revolution.
In the long blog post, Zuckerberg framed the changes as a pursuit of what is “good for people’s well-being and for society”. Facebook’s share price dropped because investors can see through Zuckerberg’s public facing comments. Less content means a lower refresh rate which means fewer advertising dollars.
It also won’t work. Reducing the literally eye-watering amount of screen-time we all get is a good thing, but the mechanism is arbitrary, flawed and frankly, a cop out.
To qualify this: it’s an extremely good thing that Facebook arrived at the idea that they shouldn’t be the arbiters and gatekeepers of news content. Their earlier efforts to use human editors was as ineffectual as it was unrealistic; even a company as wealthy as Facebook can’t afford to sift through the news and pull out the fake stuff.
For Facebook to then pass the burden onto its users is unbelievably short-sighted. Like all algorithms, it’s just another inflexible system to be gamed by motivated people. You don’t have to be a clairvoyant to see a some of the less reputable (but strongly-followed) news organisations instructing its readers to upvote it while downvoting, say, The Washington Post.
So here we have another half-hearted attempt to manage an unmanageable problem. The concerns of the media industry are now being echoed by regulators and Facebook’s own investors.
Until Facebook jettisons news entirely from the platform; this problem will continue to fester and confidence will fall. No amount of advertising dollars can change that.
Gautam Mishra is the founder and CEO of inkl.
Facebook remains as addictive as ever but it’s so unsatisfying now: all the posts are from people you hardly know.
It’s ripe to be usurped by the next big thing and the investors will go MENTAL when the returns fall.
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