Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Facebook Keeps Investors Happy; Everyone Else, Not So Much


Investors see an advertising business that's growing nicely, and a consumer side that looks invincible. It's hard to be confident in that equation, though, when so much is changing.

Facebook (NASDAQ:FB) users got coal in their stockings earlier this month when the social giant announced a few major changes. Henceforth, News Feed will prioritize "high quality content," or links to outside news articles. The message to users: If you'd like anyone to see your next status update, you may want to include a shout-out to one of Facebook's media partners. The network also said it would "bump" stories that generate discussion – so best stick with something controversial.

Meanwhile, marketers were given an offer they couldn't refuse. In November, Facebook told them that it expects "organic distribution of an individual page's posts to gradually decline over time as we continually work to make sure people have a meaningful experience on the site." In other words, those "likes" that everyone has spent the last few years accumulating will soon be useless. In the future, reaching out to followers will involve reaching for your wallet.

We might generously call this a bait-and-switch; less politely, a shakedown.

Monetization is changing social media, and these changes extend far beyond the advertisements that pop up on the home screen. Facebook and Twitter (NYSE:TWTR) are actively encouraging users to discuss commercially relevant topics like television or, in this case, Web publishing. It may be difficult to herd cats, but herding people is all too easy. You simply reorder the search results.

This is essentially what Facebook has done, by adding an invisible filter to News Feed that prioritizes link bait over more personal content. The saddest part of all is Facebook's justification for the move: User surveys supported it.

The loss of "organic" – i.e. unpaid – distribution is more serious, because this is what drove Facebook's early success and made it more "social" than existing options like email or Web blackboards. Bands used the network to advertise shows and banter with fans. Student organizations used it to announce their existence, and attract new faces. It was a way for everyone to interact with a community that included not just individuals, but a kaleidoscope of overlapping social groups. These small but important relationships were what made Facebook so attractive to advertisers in the first place, and losing them is bad news for everyone.

Even before the paywall it was getting difficult to hear anything over the noise. Facebook has consistently removed any barriers to entry for new users, and friend lists have grown larger and more heterogeneous over time. Arbitron and Edison Research puts the average network at 303 friends today, up from 262 a year ago. Experience will tell you what percentage of those users is discrete, but here's some entertaining data: According to, 88% of young parents subject their social networks to baby talk, and more than one-third of those polled admit to having spoiled the ending of a movie or TV show. Mobile devices and Instagram have made it easier to share any momentary triviality, adding to the general cacophony. Social media now ranks second-to-last on the American Consumer Satisfaction Index, worse that airlines and cable TV providers.

So there's no reason to doubt Facebook's survey results. Web addicts wouldn't be the first to discover that "hell is other people."

But where does that leave social media? If user content has become a liability rather than an asset – if the party has gotten so large, and so out of control that no one's having a good time – then it seems silly to talk about network effects, or to claim as Wikipedia does that social networks become "more useful as more users join." At some point we need to acknowledge the trade-off between size and intimacy; between the quality of conversation, and the number of people talking; between knowing a lot of people, and knowing a lot about a person.

And what about Facebook's targeted ad model? If noise and privacy concerns cause users to say less, or change what they say – or if they combine to kill those quiet conversations and social interactions that reveal so much – then advertisers are left with targets they can't see, much less hit. Facebook claims that the point of News Feed is "to show the right content to the right people at the right time." Why, then, the retreat to an arbitrary definition of "high quality content"? What does the need for surveys say about the usefulness of all this data? If Facebook can't keep itself personally relevant, then what chance do advertisers have?

In the long run, momentum may shift toward smaller social networks like Path, or more focused platforms like Fitocracy. For now, though, the big boys continue to get all the attention. Facebook is now worth $110 billion, and not without reason. Investors see an advertising business that's growing nicely, and a consumer side that looks invincible. It's hard to be confident in that equation, though, when so much is changing. Social media is proving to be a fickle thing. Users know it, advertisers know it, and it may be just a matter of time before investors discover it, too.

See also:

AT&T's Answer to Google Fiber Is Absolutely Ludicrous
< Previous
  • 1
Next >
No positions in stocks mentioned.
Featured Videos