Yahoo Finance Facebook can’t be fixed
Facebook’s fundamental problem is not foreign interference, spam bots, trolls, or fame mongers. It’s the company’s core business model, and abandoning it is not an option.
Mark Zuckerberg has announced his annual “personal challenge,” which in the past has ranged from eating meat he personally kills to learning Mandarin.
This year, his personal challenge isn’t personal at all. It’s all business: He plans to fix Facebook.
(Editor’s note: Yesterday Zuckerberg announced changes to the News Feed product prioritizing content from friends and family over public pages. Read Quartz’s coverage here.)
In his short but impactful post, Zuckerberg notes that when he started doing personal challenges in 2009, Facebook did not have “a sustainable business model,” so his first pledge was to wear a tie all year, so as to focus himself on finding that model.
He sure as hell did find that model: data-driven audience-based advertising, but more on that in a minute. In his post, Zuckerberg notes that 2018 feels “a lot like that first year,” adding “Facebook has a lot of work to do — whether it’s protecting our community from abuse and hate, defending against interference by nation states, or making sure that time spent on Facebook is time well spent….My personal challenge for 2018 is to focus on fixing these important issues.”
The post is worthy of a doctoral dissertation. I’ve read it over and over, and would love, at some point, to break it down paragraph by paragraph. Maybe I’ll get to that someday, but first I want to emphatically state something it seems no one else is saying (at least not in mainstream press coverage of the post):
You cannot fix Facebook without completely gutting its advertising-driven business model.
And because he is required by Wall Street to put his shareholders above all else, there’s no way in hell Zuckerberg will do that.
Put another way, Facebook has gotten too big to pivot to a new, more “sustainable” business model. The company is on track to earn at least $16 billion in profits in 2017. Wherever the number lands (earnings for the year come out later this month), it’s at least 50% growth on the year before. As a stock, Facebook is breaking out in a massive way — it’s priced at roughly 36 times earnings — a healthy premium to the S&P’s average of around 25. Facebook’s financials from its first year through 2016 are in the opening image above. Here’s the stock price in 2017:
The stock is trading at $186 or so today; it began the year at roughly $120. As we all know, a stock price is the market’s estimate of future earnings. If Zuckerberg decides to really “fix” Facebook, well, that stock price will nosedive. And that will lead angry shareholders to sue the stuffing out of the company, and likely demand the CEO’s head on a pike.
If you’ve read “Lost Context,” you’ve already been exposed to my thinking on why the only way to “fix” Facebook is to utterly rethink its advertising model. It’s this model which has created nearly all the toxic externalities Zuckerberg is worried about: It’s the honeypot which drives the economics of spambots and fake news, it’s the at-scale algorithmic enabler which attracts information warriors from competing nation states, and it’s the reason the platform has become a dopamine-driven engagement trap where time is often not well spent.
To put it in Clintonese: It’s the advertising model, stupid.
We love to think our corporate heroes are somehow super human, capable of understanding what’s otherwise incomprehensible to mere mortals like the rest of us. But Facebook is simply too large an ecosystem for one person to fix. And anyway, his hands are tied from doing so. So instead, he’s doing what people (especially engineers) always do when the problem is so existential they can’t wrap their minds around it: He’s redefining the problem and breaking it into constituent parts.
Here are two scenarios for what might come of Zuckerberg’s 2018 quest:
1. Facebook identifies a set of issues (Abuse and Hate, Interference by Nation States, Time Well Spent) and convenes working groups with panels of experts and pundits. The press is duly impressed, the lobbyists make sure Congress is kept in the loop, and in the end, they come up with well-intentioned but feckless point solutions which are implemented with little to no effect. The stock keeps climbing.
2. Zuckerberg does the equivalent of dropping corporate acid and realizes the only way to fix Facebook is to make a massive, systemic change. He orders his team to redesign the entire Facebook product suite around a new True North: No longer will his company be driven by engagement and data collection, but rather by whether or not individual users report that they are happier after using the service. This leads to a massive rethink of the product and advertising platform, which after much debate shift from an audience model (deep data, specific to each individual) to a contextual model (not buying people, but buying the context in which those people are engaging). And given that most of an individual’s context on Facebook has to do with engaging with friends and family, well, ad inventory plunges. Maybe, just maybe, Facebook decides to charge a subscription fee, say, $10 a person per year. That alone could arguably bring in $20+ billion annually, but…let’s remember, I’m describing an acid trip.
Which do you think will happen?
Yeah, me too. If Zuckerberg picks #2, his business would shrink by tens of billions of dollars. It’d still be an awesome business, and he’d probably be a lock for Man of the Year. But it’d get his assed sued into oblivion by angry shareholders.
Then again….Zuckerberg is one of several tech founders who hold super majority shares that give him absolute control over the future of his company. The stated reason for this structure, popularized by Google founders Sergey Brin and Larry Page, was to ensure that the capitalistic vagaries of Wall St. don’t force visionary companies to hew to corporatist rationale as they mature. (Page and Brin actually name-checked the New York Times as their inspiration.)
Will Zuck drop acid? Let’s just say this: He certainly could.
This article was originally published on NewCo Shift. Learn how to write for Quartz Ideas. We welcome your comments at ideas@qz.com.
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