Opinion

Facebook at 15: Can Zuckerberg save his company from its own bureaucracy and investors?

As the social media giant turns 15, Mumbrella's Paul Wallbank says the company is as much as threat from its own bureaucrats and investors than from angry regulators, disillusioned advertisers and users.

Fifteen years ago yesterday an online version of the then-printed Harvard University student directory was launched. Within its first month, The Facebook, as it was then known, managed to get half the university’s students signed up.

Two years later the site had expanded to cover most US colleges, secured investment from an iconic Silicon Valley venture fund and had changed its name to Facebook. By the end of 2006, the service opened to the general public.

In those early days, it wasn’t clear how a university directory website would make money. Founder Mark Zuckerberg and the company’s earlier investors soon found the answer: advertising.

Today that university website has 2.3bn monthly users and reported over $16bn in revenue last quarter.

Like Google, the company seems untouchable. The two companies dominate the online ad market, taking 80% of online ad spending and accounting for 135% of new adtech revenues, according to Group M.

However, the next few years promise to be more challenging for Facebook’s managers.

Despite the most obvious threat to the business coming from governments after the company’s continued privacy scandals and allegations of electoral interference, the internal pressures on Facebook present far bigger challenges to its future.

At the core of Facebook’s problems is its status as a poster child for Silicon Valley’s venture capitalists, thanks to its early investors who recouped more than an hundred times their initial stakes in the business. When you’ve groomed investors to expect massive growth, management will put in place ever higher KPIs and executives will do what they can, however unethical, to meet those benchmarks.

Take the overstating of numbers, for example. While Facebook isn’t alone in posting ‘bullshit metrics’, as a panel at 2017’s Mumbrella360 discussed, the social media service has been notorious for claiming improbable audience figures.

As Melbourne Business School’s Mark Ritson pointed out on the panel: “There is enormous incentive for Facebook and Google to change, alter, obfuscate their data for their own interests. If I was running those companies I would do the same thing.”

Those demands go beyond overstating figures, as management remains under pressure to increase revenue and profits, giving rise to decisions such as data-sharing arrangements with companies like Cambridge Analytica, and the recent reported ‘friendly fraud’ scandal.

Facebook reportedly encouraged app developers to dupe kids and their parents out of cash. That the company’s executives allowed this to happen speaks volumes of the pressures they are under. That idea, and that of sharing data with the likes of Cambridge Analytica, were eventually dropped.

So what about plain old advertising? Users have shown that they don’t care about privacy as long as they are getting benefits from the platform.

However, when users feel they aren’t getting those benefits, or advertising and sponsored posts are becoming too intrusive, users will move elsewhere. The fate of MySpace, which reached its peak just as Facebook started its public rollout, is a heavy reminder of what can happen to a once-successful platform.

One of the key benefits of Facebook is that for most users, it’s where they find out what’s going on in the world, whether it’s news about their families and friends or from the media.

The sharing of media content though is getting harder as publishers make it more difficult to share content through paywalls and metered access, itself a result partly of Facebook’s reluctance to give content creators a fair share of advertising revenues.

Ultimately though, all of these challenges from hungry investors, skeptical advertisers, hostile regulators and fickle users are manageable, but balancing those demands requires a genuinely flexible workforce – and this may prove to be Facebook’s downfall.

Last year, Facebook’s staff numbers increased 42% year-over-year to 35,587.

US technology companies are notorious for building bloated bureaucracies. While they successfully paint themselves as dynamic, fast and lean organisations staffed by innovative hackers and funky hipsters, the sad truth is most of the Silicon Valley giants are stuffed with time-serving bureaucrats who know how to navigate their company’s stack ranking systems.

For those unacquainted with stack ranking, it’s the practice of forcing managers to rank all of their team members against each other, with those towards the bottom missing out on bonuses or even being fired. Facebook, like most of the Silicon Valley companies, denies using the system, despite no shortage of evidence to the contrary.

The challenges for Mark Zuckerberg, Sheryl Sandberg and whoever else is running Facebook over the next 15 years will be more about protecting the platform’s golden goose of advertising revenues from rapacious investors and the company’s own bureaucracy, rather than angry regulators and disillusioned users.

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