Last week, I closed my Facebook accounts. This seems to contradict the popularity of Facebook. It now has two billion users worldwide, of whom 1.4 billion are active daily users! While I understand the old rule that if you are not paying for a service, you are the product being sold, ultimately the privacy concerns overruled the insufficient reassurances from Facebook.
So, what do I lose? Yes, I will miss the birthdays of my friends. And seeing what is happening in their lives. But I suspect my close friends will remain in touch via richer connections. I was never a big user. Yet, I will save, on average, ten minutes a day. This may not seem like much but over a year, it is substantial. My worry observing people in public places on their mobile phones is that with all this social media, it is easy to feel that one is busy, lacks time, without using the time available most effectively.
Facebook is an unlimited growth platform
Undoubtedly, Facebook is an amazing platform for marketers. With 40 billion dollars in digital revenues, it only lags Google’s 72 billion dollars take in 2017. And, there is room for substantial growth as industries are increasingly abandoning traditional media. Digital advertising surpassed TV in 2016 for the first time.
For example, airlines used to run large campaigns on traditional media to build their brand image. You may recall Air India’s Maharaja, United’s Friendly Skies or Singapore Airlines ads featuring their stewardesses. However, airlines have moved almost completely to digital. Most of their advertising investment is now devoted to search engine optimization in order to serve advertisements when customers are actually searching and booking.
The ability to obtain an integrated view of the user’s online activities means that as soon as you search for a hotel in Budapest on Google, your Facebook feed will have advertisements for Budapest hotels. This data sharing is central to more effective marketing since unpersonalised advertisements on Facebook are about half as effective as customized ones.
On average, North American users generated 25 dollars of revenue for Facebook in 2017. Since this revenue is dependent on user click rates, Facebook’s incentive is not to protect data privacy for users but to maximize revenue per user through better targeting of ads.
Facebook CEO Mark Zuckerberg shows limited growth
The Cambridge Analytics breach whereby they managed to download the data of millions of Facebook users on to their own systems under false pretext of an academic study, was serious. The use of this data to influence US elections forced Zuckerberg to spend two days this week defending Facebook in front of the US Congress.
I watched parts of his testimony. The questions were not as probing as I would have liked. Clearly, the average age of legislators was showing, especially in the Senate. In the House of Representatives, the questions were sharper but because of the greater polarization there, much time was wasted in making political points like Obama also used Facebook. Yes, he did. But within the Facebook platform, without downloading and sharing the data with others.
Despite the above, one did get a measure of Mark Zuckerberg, the CEO. With a thirty-year career, I had the good fortune of observing the maturing of Bill Gates, Michael Dell, and Steve Jobs. What was exceptional about them, unlike most entrepreneurs who have to be eased out when their companies grow, was the continuous maturation they demonstrated (albeit in Jobs case with an absence) to keep filling the larger shoes.
In contrast, I found Zuckerberg to be wanting. Rather than rise to the occasion in an authentic manner, I found him over-rehearsed and evasive. The booster seat (he is relatively short), the suit which he otherwise never does, and his answers seemed to be highly coached. He made all the right noises of apologizing repeatedly and promising to do better in the future. But made few real promises of specific changes. It seemed he wanted to get away without having to do anything different.
This approach is consistent with Facebook downplaying the Russian involvement initially. Just before I left Facebook, I saw a post by Mark saying they had suspended 20 odd fake accounts. What, 20 is all they could find with two billion users! It is a joke. A couple of years ago, I had alerted Facebook that a male posing as female was contacting me (I gave them the name of the male too) but they never responded. Friends of mine who have had fake accounts set up in their name report similar apathy by Facebook. Tracking down and confronting fake accounts has never been a priority for Facebook.
The US regulators are sleeping
Facebook is a natural monopoly, in the sense, that everyone wants to be on the largest network. Moving to another network is only possible if all your friends move with you. But these friends would then need their friends to move too, and so on. All simultaneously. One of the most disappointing responses of Zuckerberg was not to acknowledge Facebook’s monopoly position, and instead argue on being queried, his people felt competition all the time. Once again, I found him lacking sincerity.
Traditionally, we break up monopolies to create competition ala airlines, AT&T, or train operators in UK. But with Facebook, break up for the reasons noted in the previous paragraph is not a potential solution. This leaves regulation as the only viable option.
New industries usually emerge in the absence of regulation. Before there were cars, there were no traffic laws or safety mandates. Only after the installed base starts growing do governments realize that we need to manage the industry for smoother functioning and to safeguard consumers. Facebook has scaled rapidly compared to any other innovation. It is now time to regulate it.
The European Union and Germany are leading in privacy and data sharing restrictions. They may set the standards for other countries to adopt. But the US has to be willing to follow. Unfortunately, the current administration shows no appetite for this.
More troubling is the anti-trust implications that are being ignored, not only with Facebook but also for Google and Amazon. Facebook is a natural monopoly because of network effects, while Amazon and Google have created monopolies. Beyond regulating them, one must ensure that they do not use their monopoly profits from their home industry to develop dominant positions in other industries. Otherwise, they will crowd out entrepreneurship and innovation in these categories. In addition, to foster competition, they cannot be allowed to control more than a single social platform. Facebook should be forced to divest Instagram and WhatsApp.