Shortcuts / 23 July 2020
Facebook is the biggest social media platform in the world, so inevitably, it’s in the news a lot. In this episode we take a look at how Facebook makes money, how it collects and uses our data and how at times that has caused a bit of strife.
How did Facebook come about?
Facebook might feel like it’s been around forever, but it wasn’t even 20 years ago that it was just a twinkle in Harvard University student Mark Zuckerberg’s eye. He, along with some mates, developed the idea of a social networking website that would allow Harvard students, and eventually students at other universities, to connect. It’s been through many iterations since then, but these days it’s a social media platform.
What kind of impact has it had?
Like Apple, Amazon and Google, Facebook has been a game changer. In Facebook’s case, it’s given us a way to connect with each other – and that’s what Zuckerberg says its core purpose is. But it’s also opened doors to some big questions about how content is shared and what content is ok. And of course, it’s changed media and journalism forever by being hugely successful at sucking up advertising dollars.
What’s its primary business model?
Its business model is a relatively simple one, and that’s advertising. And it’s a pretty successful one too, with Facebook hitting the trifecta of high scale and high growth and high profit margins that were unmatched by any tech company in the world. A couple of years ago it hit the dizzying heights of 50/50/50/500. Talking in US dollars, what that means it had $50 billion annual revenue, growing at 50% per year, with a 50% operating margin, making the company worth nearly $500 billion. In 2019, it generated revenue of $70 billion and today it has a market valuation of just under $700 billion. And as far as suers, Facebook is the biggest social media platform with over 2.6 billion monthly active users. So it knows a lot about consumers…
What user data does Facebook collect?
When you sign up for an account you provide Facebook with a tonne of information right there. Your profile includes things like your contact details, friends, details on your relationships, education and work profile. And even if you don’t explicitly detail that information, it can get a better picture of you from your Facebook friends. There’s also the pictures and videos you share – and not just the ones you load, but ones others have shared and tag you into. And that’s just the start. From there, Facebook keeps track of your activity. They know where you’ve been, content you’ve clicked on, who you’ve been with – it keeps it all. It does, and the commercial wonder that is Facebook is that it takes at that information and the webs of relationships and interests that we all weave and sells that to advertisers. What they’re buying is access to very specific audiences, and the level of detail that Facebook can offer for targeted ad campaigns is incredible. And incredibly cost effective for an advertiser. This has seen Facebook become worth hundreds of billions of dollars, but it’s also drawn criticism.
What was the Cambridge Analytica scandal about?
It was March 2018 when The Guardian and the New York Times reported that political consulting firm Cambridge Analytica – who was working for the Trump campaign – had improperly accessed the data of Facebook users, and had used that data to target voters on Facebook to get them to support Trump in the 2016 presidential campaign. It turned out 300,000 users took a quiz and that gave the firm access to all the data from their Facebook friends – 87 million Facebook profiles in total. The accusation is that gaining access to all those accounts in that way was a breach of the privacy laws. Now, it’s never been clear whether the tactic actually worked – but it did raise a lot of questions about Facebook and its role. It even saw CEO Mark Zuckerberg front up a couple of US Congressional hearings to answer questions. So from there the Federal Trade Commission undertook an investigation and in mid-2019 Facebook agreed to pay a $5 billion fine for Cambridge Analytica scandal and breaches of users’ privacy. During this time, some are argued that Facebook is too big and it ought to be broken up. Thats because Facebook isn’t just Facebook. It’s also Facebook Messenger, WhatsApp and Instagram. And to underline regulator’s concerns, Facebook was assessed to be the most downloaded app between 2010 and 2019, followed by the company’s Facebook Messenger app. WhatsApp came third, and Instagram fourth.
What are the concerns about the way Facebook handles content?
The content Facebook allows on its platform has been a discussion that’s been live for a while. It was PM Scott Morrison and Kiwi leader Jacinda Ardern who took proposals to other leading countries to limit violent content social media platforms in the wake of the Christchurch mosque attacks. That was raised after the gunman livestreamed his attack on Facebook.
And in the wake of the George Floyd/Black Livers Matter protests in the US in May and June, concerns about the content that’s shared on Facebook were raised again. Facebook faced quite a backlash when US President Donald Trump posted to Twitter and Facebook a post with the racially charged phrase “when the looting starts, the shooting starts.” He did that as tensions in Minneapolis were peaking after Floyd was killed in an encounter with police gone wrong. Now, Twitter limited the public’s ability to view the president’s tweet saying that it “violated the Twitter Rules about glorifying violence.” But Facebook left it up in keeping with its policies about free speech. Zuckerberg’s view has been that it’s not Facebook’s job to moderate that sort of content. And Facebook has maintained that position for a long time under enormous pressure. And even still, they have largely held the line on their free speech credentials and defended its position on running political ads too. But in recent times, Zuckerberg said Facebook would do more to look at ways it can stop campaigns with misinformation and moderate content to prevent hate from being spread on Facebook.
What’s the boycott movement about?
The spread of hateful content on the platform led some big brands to declare they would boycott Facebook in July over concerns it’s not doing enough to stop that sort of content from being spread. Disney, Starbucks, Unilever, Adidas, Coca-Cola, Ford – it’s a who’s who of companies that have joined the Stop Hate for Profit campaign that was started by several US civil rights groups. The Stop Hate For Profit campaign asks the questions of Facebook like whether they could they protect and support Black users or call out Holocaust denial as hate speech. An ad boycott is unlike anything the platform has experienced in its history, and it took a $72 billion hit to its share price when the campaign got a head of steam at the end of June, but it’s made that up over the month since then. As for the revenue it has foregone – it’s hard to say, but analysts will be keeping a close eye on the company’s next financial update.
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