Features | From Pivot Magazine

Losing face

Facebook users are logging off en masse. Can the company evolve to keep them—and advertisers—online?

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Facebook logo ripped and stapled togetherFacebook expertly harvests user data to help advertisers reach the customers they want and convince them to buy (Photo by Getty Images)

Back in April, Facebook unveiled an ad that acknowledged what everybody already knew: the company has some very big problems. In the commercial, as videos of cute babies, dancing couples and tearful reunions scroll by, a narrator laments that the social media site once connected family and friends before “spam, clickbait, fake news and data misuse” sullied the experience. Now, we’re told, they will do more to protect our privacy and get back to bringing us all together.

It is an admission from Facebook that it needs to change, especially the news feed, which is the core of the platform and its biggest trouble spot. One question is whether it can actually be fixed; the bigger question is how Facebook itself will evolve in what’s proving to be a critical time for social media. 

Facebook is a sprawling company, with a virtual reality arm and a huge investment in artificial intelligence research. But it actually makes money in a far more prosaic way: placing ads in your news feed. In the second quarter, advertising made up 98.5 per cent of the US$13.2 billion in revenue. It’s been so successful because it expertly harvests user data to help advertisers reach the customers they want and convince them to buy. Jaron Lanier, an author and virtual reality pioneer, describes it as a business model that depends on manipulation, leaving it vulnerable to malicious actors bent on influencing public opinion and sowing discord. “If we could just get rid of the deleterious business model, then the underlying technology might not be so bad,” he writes in his book, Ten Arguments For Deleting Your Social Media Accounts Right Now, published this year. 

But Facebook hasn’t shown any willingness to upend its entire business model. The company has, for example, mostly rejected the notion of subscription revenue. Asked about that possibility on a conference call earlier this year, COO Sheryl Sandberg seemed to shoot it down. “Ads for us are a very natural fit for our business,” she said, “and we have a lot of runway ahead of us.” Besides, as any news publisher knows, charging for something after giving it away for free is incredibly difficult.

Facebook is no longer an exciting, fast-growing tech superstar, but a lumbering giant. For businesses, there are worse fates.

Keeping people glued to their news feed, then, is crucial. The company has taken steps this year to fix it, such as tweaking the news feed algorithm to favour posts from friends and family, and banning conspiracy monger Alex Jones (for 30 days). It also removed 32 pages and accounts engaged in “coordinated inauthentic behaviour” mirroring Russian troll farms, and in August banished 652 more that originated in Iran. Sandberg herself has taken a more active role in efforts to moderate content, and the company built a “war room” to watch for false news and phoney accounts in the run-up to the U.S. mid-term elections. 

These are important steps to regain trust among users. Marketing dollars follow consumers, and that puts pressure on Facebook to not only retain users but to also find new ways to appeal to advertisers. This summer, the company said it would soon be placing ads in Facebook’s stories feature, which allows users to post and share videos. “That was really a big area that advertisers were testing out,” says Paul Briggs, a senior analyst for Canada with research firm eMarketer. “They were very enthusiastic.” But perhaps even more importantly for Facebook to maintain its appeal with advertisers, the company has to demonstrate it can be trusted with consumer data and privacy. “Advertisers are looking for that trusted source more than users,” says Peter Hughes, national digital lead with KPMG. “They’re not going to want to get embroiled in a Cambridge Analytica thing.” And while there are no signs Canadian advertisers are cooling on Facebook in a big way, the intense scrutiny on the company in the past year shows it can’t afford any major missteps.

Especially since there are troubling signs of fatigue in Facebook’s customer base. Pivotal, an equity research firm, found time spent on Facebook’s core platform fell by eight per cent per person in the U.S. earlier this year; eMarketer estimates Facebook will lose two million U.S. users age 24 and under this year. And while Facebook is growing globally, in the last quarter, user growth flatlined in the U.S. and Canada, while falling one per cent in Europe.

This isn’t just because of trolls and fake news. Rather, a malaise could be affecting the entire industry. Snapchat lost three million daily users in the second quarter, while Twitter, which has struggled to grow for a while, lost one million monthly users. Social media is so pervasive that growth naturally has to slow at some point (nearly 1.5 billion people already use Facebook each day), but even young people are feeling they need some time away. Hill Holliday, an advertising agency in Boston, surveyed members of Gen Z about social media use and found 64 per cent of them were taking a break. Respondents felt they were wasting time and social was too negative. “It’s more of a pause,” says Jessica Lloyd, a vice-president and planning director at Hill Holliday. “They’ll turn off a profile for a while, and then go back to it.”

Mark Zuckerberg in senate hearingsMark Zuckerberg, Facebook’s founder and CEO (Photo by Getty Images)

In between, they might spend time on another platform. The social media landscape is more crowded than ever, and young people are especially prone to hopping around. Lately, an app called TikTok, which allows users to make and share short music videos, has captured attention. The concept seems far away from Facebook, but any service that divides a user’s time is a threat.

Facebook is evolving in the face of these pressures. As people split their time between different platforms, the company has been carving off the services people find most useful. It’s a way to keep users in its orbit, even if they spend less time on the main platform. That’s especially true of its Messenger service and WhatsApp. Facebook has lately emphasized it’s just now starting to tap the money-making potential of these apps, but how successfully the company will be able to do that is anything but clear.

It’s important to remember, though, that Facebook wields its own gravitational pull. “They have a strong relationship with their users, even if it is contentious,” says technology commentator Jesse Hirsh. “Facebook has a decade’s worth of photos [and] social connections that are only available via the platform.” That provides a compelling enough reason for many users to stay.

The company is also big enough to buy any legitimate threat. That’s why it paid US$1 billion for Instagram in 2012 and US$19 billion for Whats­App two years later. (Both companies’ founders left Facebook this year, reportedly over a lack of autonomy and concerns about its use of personal data.) And if it can’t buy a competitor, it can always copy it. Facebook, for example, mimicked the concept of short, disappearing videos from Snapchat, helping stunt its rival’s growth.

This points to a future where Facebook becomes a conglomerate. Think of it as the Microsoft of social media. Facebook maintains a core social platform that, while flawed, people grudgingly check into because it’s omnipresent. (Likewise, is any Microsoft product truly beloved?) At the same time, it keeps adding new services and makes acquisitions in a bid to stay relevant. It’s no longer an exciting, fast-growing tech superstar, but a lumbering giant. For businesses, there are worse fates. Maybe next it will realize the kids are on to something and take a run at TikTok.