Facebook is the world’s number one social network today. Mark Zuckerberg, the co-founder of the social network of which he is currently the president and CEO, recently announced that he wanted to restore the primacy of messages published by family and friends in the news feed of users. But what is hiding behind this announcement through mergers and acquisitions services?
To fully understand the hidden side of this announcement, we must first look at the company’s business model. The latter brings together all of its activities on a single web platform called Facebook. On the consumer side, Facebook has moved towards a model of completely free services. To finance itself, the firm, therefore, monetizes its audience through advertising.
We must not forget that Facebook is above all a listed company and that it must satisfy its investors. This double dependence necessarily weakens the company in the short, medium, and long term, because it is subject to conflicting needs.
From a marketing point of view, it is easy to understand that owning a site where two billion Internet users connect and exchange views is quite simply a gold mine for advertisers! For a long time, the challenge for advertisers has been to target a specific clientele and to be able to quantify the results obtained. Facebook, by segmenting all user information, allows its advertisers to set up micro-targeted advertising campaigns in a few clicks.
In 2018, Facebook has 2.1 billion active users worldwide, i.e.:
- 1.86 billion monthly active users;
- 1.23 billion daily active users.
As for Messenger, that’s over 1 billion monthly active users, over a billion messages sent each month, and 17 billion photos.
To attract and satisfy advertisers, who buy advertising space, Facebook must be able to offer them an attractive return on their investment. Facebook’s profitability, therefore, depends on what its users offer for free through a daily presence on the platform, but also on the quality of the information that Facebook collects about them. This collection of data makes it possible to better segment its customers and offer them targeted advertising.
And here is where the shoe pinches! For the company, a user account has a monetary value that can vary over time, positively, but also negatively. The latest announcements made by the president on changes to the newsfeed are a response to certain alarming indicators for the company which could have direct repercussions on its short and medium-term revenues, thus affecting its profitability.
The question to ask is “What can make the value of a user account vary for the company?”
Here are some factors that can affect this value:
In its last annual report, Facebook announced that approximately 10% of the accounts opened on its platform were duplicate accounts, that is to say, accounts opened by a user who already had an account. I am one of those people with two Facebook accounts and I am active daily on both: my professional account and my account.
In addition, 3-4% of accounts are simply fake, intended for dishonest purposes. So that just means that of the 2.1 billion active users, about 210 million are accounts that wouldn’t have a lot of advertising potential. Fighting against the proliferation of fake accounts is a colossal task. These are therefore algorithms that attempt to identify abuse according to predefined criteria, but nothing is perfect.
Second, the quality of the accounts, therefore of the personal information provided is important. Yes, Facebook collects information about our posts, shares, likes, etc. Facebook even keeps things that we have deleted as soon as we open our account. This collection of personal data represents a fantastic opportunity for the company.
In addition to more traditional advanced statistical analyzes (e.g. age, studies, sex, etc.), information such as geolocation, areas of interest, or relationship networks allow Facebook to offer highly targeted offers to users and therefore meet the needs of advertisers. You have surely noticed that many users do not put their real information. This trend has implications for the business, as it could make it more difficult to target customers.
The time you spend on Facebook is also key because the more time you spend, the more advertising space you give to the company. The United States and Canada between 2016 and 2017, time spent decreased by 43%, mainly due to a decrease in the number of visits.
October 2017, on average, users spent 18 hours and 24 minutes on Facebook, in 173 visits of 6 minutes and 23 seconds.
September 2016, on average, users spent 32 hours and 43 minutes on Facebook, in 311 visits of 6 minutes and 18 seconds.
2016, Internet users consulted Facebook more than 10 times a day, while in 2017, the number of daily consultations fell to only 4 to 5 per day. This decline demonstrates a certain maturity of Internet users in the use of the tool because, even if the platform has launched many new features, such as job offers, stories, and Facebook Live optimization, users connect to it less than before. We could also link this drop in daily traffic to the poor quality of the news feed towards the end of 2017.
Only the behavior of the users is not responsible for the change of strategy of the company. So we have to look for other factors that can influence the company’s tactics. For example, Facebook’s revenues are proportionally dependent on the purchase of advertising, and therefore on the display space available on the platform. You must have noticed that in 2017 Facebook integrated advertising into Messenger.
This is a direct response to the lack of advertising space available on the site. Advertising on users’ newsfeeds had reached saturation point. Facebook has also launched advertising breaks on Live streaming for content publishers so that they monetize their Live, a bit like YouTube. To be eligible for this form of remuneration, a certain number of criteria must be met, for example, having a minimum of 300 simultaneous users.
Like YouTube, Facebook will offer 55% of the ad revenue generated to video creators. The difference will remain in the accounts of the company. The company will therefore always be looking for new advertising channels to increase its income. But it must respect a certain balance because too much advertising risks migrating its users to other social media. In parallel with this search for additional advertising space, the company, like all web giants. Is forced to wage a bitter battle against advertising blocking tools.
The last thing Facebook needs to watch out for is its reputation. As the company has faced a lot of criticism and controversy in the past. For example, the persuasion strategies, the fruit of the reflection of ergonomists. Designers, developers, and neuroscientists, deployed by Facebook to hold the attention of Internet users are regularly singled out.
Moreover, despite its content moderation policy, many hateful publications are not censored or are slow to be. Incitement to violence, racist and sexist insults, etc. This lack of control is also tainted by the censorship of breastfeeding photos and nude paintings. On the pretext that we see breasts in them. Content moderation is even more difficult with live videos where we have seen murders and suicides, without the company intervening.
Let us also mention the countless fake news circulating and which are often massively shared on social networks. The platform’s algorithms value publications with “likes” and share without verifying the veracity of the information. The most egregious example was the publication that falsely announced that the Pope supported Republican candidate Donald Trump. This was shared hundreds of thousands of times in a country known to be very religious. Facebook, by its passivity in the face of this flood of fake news, certainly had its part to play in the democratic process. Leading to the victory of the Republicans with the help of an M&A advisor.
In conclusion, a business model that attempts to bring together two groups of players with opposite needs. Namely users and advertisers, weakens the company and forces it to change strategy very quickly, sometimes abruptly. The last few days have confirmed the fragility of the company. The value of Facebook shares fell by 7% following revelations about the use of personal data by the British. Company Cambridge Analytica, which specializes in strategic communications.
These revelations also have repercussions at the user level, because a movement calling. On Internet users to unsubscribe from Facebook has become the rallying cry of data privacy advocates on the internet. Earthquakes can also originate at the heart of the enterprise. Remember that Chamath Palihapitiya. Former vice president in charge of the growth of the audience of the social network, who connected. A few years ago, during a discussion at the Stanford Graduate School of Business that. We have made tools that are ripping the social fabric apart.
To survive in the long term, the company will have no choice. It will have to review its practices. From a consumer and strategist’s point of view, I would direct innovation choices towards ethics. And respect for consumer expectations rather than simply innovating by developing numerous functionalities. Being a leader also means showing the way to other companies in the field by making ambitious choices. We must not forget that the fashion effect could quickly favor. A competitor or a new platform to the detriment of the giant Facebook. Let us recall in passing that many Facebook users are not active members. However, these users who change platforms ultimately become inactive and therefore no longer generate value for advertisers.