Discussion question: why is Facebook succeeding financially?

How is Facebook doing these days?  After repeated scandals, a tidal wave of criticism, a much-pilloried Congressional appearance, bad publicity, rumors and reports of declining user numbers and/or participation, the social media platform… is enjoying its stock trading higher than ever.

Here’s Naked Capitalism’s most recent chart of Facebook’s value against that of other tech giants over the past year or so:

No so good as Amazon, but recovered nicely from a few months ago.

You can see that Facebook’s market value took hits in February, March, and April, but then climbed right back up.  In fact, today’s high value seems to be Facebook’s best ever.

My question for you all is: why is this happening?

After all, 2018 has been a terrible year for Facebook.  Why is their stock growing, rather than collapsing?

Here are a few starter ideas, either from me or from other observers. Please add your own:

  • Investors are impressed by Zuckerberg’s damage control.
  • Advertisers feel that they can still make money on the platform, despite popular anxiety.
  • Facebook is too big to fail.
  • Other platforms – Telegram, Mastodon – just aren’t good competitors.
  • People are jumping from Facebook to Instagram, which Facebook owns.  Most users just can’t escape.
  • Facebook keeps offering new services, like Memories, which people and therefore advertisers like.
  • This earnings spike is only a short-term blip.  It’s the calm eye of the storm before the hurricane wall blasts Facebook to smithereens.

What do you think?


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7 Responses to Discussion question: why is Facebook succeeding financially?

  1. David Knapp says:

    I remember a time in my youth when I picked up the landline receiver and I could hear my neighbors talking and would politely wait until they were done and it was my turn to call someone. I think they referred to this phone system as the party line. The party line also had neighbors that just liked to listen in on their neighbors conversations.

    I think these neighbors using today’s technology would affectionately be called Facebook stalkers.

    I would be curious to look at Facebook studies, why do we open that app or display that page in our browsers? Do we stalk our neighbors, do we research the new guy on the block or cubicle next to us, do we check out our new boss, do we do a little background check on a perspective new hire?

    Other than people watching, its off to Google for news, purchase decisions, and all the things we do on the internet?

  2. Taylor Kendal says:

    Bullet #2

    Privacy issues aside, there’s still no other platform where advertisers can get the same impression to cost ratios. As long as that’s the case, their value trajectory will be difficult to effect. He who has the attention has the power (for better or worse).

  3. Mark Ulett says:

    I agree with Taylor. The impression to cost ratio is incredible and they have people’s attention. It doesn’t matter if a business doesn’t like them, it would be suicidal not to use them to create a social media strategy. Unless a business markets only to tweens, then FB is still critically important.

    We live in the attention economy, and if you can get people’s attention, then advertisers will follow. Besides, it’s not the case that Facebook users will transfer the negative brand impact of Facebook recently onto the brand advertising there. There also isn’t a big campaign from non FB users to go after the brands that still advertise there. The FB brand took a hit, but that isn’t affecting brands that advertise there.

    Finally, FB is embedded into people’s daily routine and habit. It’s how they connect with friends and family, so cutting yourself off from FB because of the scandals means cutting yourself off from friends and family. They aren’t too big to fail. They are too embedded into people’s habits and personal lives to fail.

  4. Tom Haymes says:

    It’s not that Facebook is without its flaws and serious issues. It’s that the alternatives are so much worse.

    I remember in the early 2000s when advertisers and advertisement-sellers discovered the fatal flaw in banner ads: you could actually tell if people read them and followed their links. This dirty little secret sustained newspaper advertising for a century. It was only when they made the McLuhanesque mistake of providing a mechanism for the advertiser to actually see how effective his or her ad was, that the emperor’s clothes suddenly vanished. Suddenly, we became aware of the 3% Rule – approximately 3% of targeted individuals will click on an ad and an even smaller percentage will actually buy something. This was orders of magnitude smaller than assumed under traditional, print advertising.

    Google was the first platform to somewhat mitigate this by offering targeted advertising based on search history. However, this was simply a refinement of a flawed set of premises around advertising. You are still making the basic assumption that people will click on more targeted ads more than they will click on less targeted ads. You were still depending on a small percentage of a relatively mass audience to follow through on your targeting.

    Facebook offers something that turns this model on its head and this is only possible because of their extensive and complex usage of our personal data. Instead of spending a lot of effort to reach a lot of people in the hopes that a minuscule percentage will respond, Facebook has (for the moment) figured out a way to target a very specific audience with a much higher expectation that they will get a response. Also, since you’re not trying to hit a mass audience, it’s possible to send contradictory messages to different targets without them being aware that you’re speaking out of both sides of your mouth. (This is apparently what the Trump Campaign and the Russians did in 2016.)

    Is this sustainable? That’s the interesting question. It’s possible that as people become more digitally literate and skeptical of things they read online, that Facebook’s advantage will be short-lived. On the other side, data transparency initiatives such as the GDPR might threaten Facebook’s secret sauce monopoly. On the other side of the coin, there is a long history of people being hoodwinked by those that control the communications levers of power. These “threats” to Facebook are dealing with the problems of 2016-2020. By the time they take effect, it’s entirely possible that new forms of technological/psychological manipulation will be developed. One thing Facebook has in its favor is its database. With that basis for business, it will be hard to unseat.

    • Bryan Alexander says:

      First off, Tom: thank you for this thoughtful, sustained meditation. You should turn it into a blog post.

      Second: great points across the board, starting with the alternatives.

      Third: what’s the next thing, social VR?

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