What Did Facebook Screw Up This Month?

It’s fair to say Facebook has not had an easy time of it recently. They’ve faced the Cambridge Analytica scandal earlier this year, lacklustre appearances by CEO and Founder Mark Zuckerberg in front of inquiries in the US and EU, and continuing allegations of how the platform was misused to influence the 2016 US presidential election. And the news hasn’t improved. Here’s what’s happened to Facebook this month.

Earlier this week, we reported on Facebook suspending another analysts firm, Crimson Hexagon, on potential breaches of the rules Facebook sets out on how third parties can use data from the social media platform.

And back on 3 July, a software bug was revealed that allowed people you had blocked to see you again.

All that pales into insignificance though. Despite all the bad news, Facebook did continue to add new users, albeit at a slower rate than expected. This was coupled with decreased profit margins – down from around 50% and heading to the high 30s. All of this was covered in their earnings call overnight.All that’s led to a massive dip in share price with the company losing about 20% from its market capitalisation.

To put that in context, during the dot-com bubble of 2000, Intel lost $90b and Microsoft lost $70b. Facebook dropped by $119b overnight. In personal terms, that drop in share price took about $15b from Mark Zuckerberg’s personal stake. But he doesn’t need to panic just yet. His stake is still worth ‘just’ $67b.

This month may come to be seen as a watershed moment for the world’s biggest social network. With over two billion users, it’s easy to say the company is too big to fail but I think that’s an overly simplistic reading of the situation. My feeling is people will become increasingly selective about their engagement with Facebook. Rather than following in the footsteps of MySpace and becoming almost completely irrelevant over a very short period, Facebook will shrink and transform.

I liken them to being more like IBM in the 1970s. The ground changed under them and they failed to adapt. The old “no one ever got fired for buying IBM” maxim lost its power as competitors came along and the needs of customers changed. In Facebook’s case things are little different.

Facebook’s users aren’t its customers. The customers are an asset. As our engagement changes we become less valuable assets.