Fakebook? The mystery of Facebook and their predicament.

A few months ago I was reading about an AI-powered bot called Aiera which downgraded Facebook’s stock (on behalf of Wells Fargo’s equity arm) but Facebook’s stock continued to rise which led to investors dismissing the bot’s capability.

It did set me wondering though. What if the bot, Aiera was actually right and making a long call (based on longer than conventional time frame)? What if one should actually be selling Facebook’s stocks?

Facebook has not had a good time lately: from accusations of being peddlers of fake news leading to congressional hearings; to major advertisers pulling their marketing spend on Facebook’s platform; to declining numbers of millenials on their platform.

However, the first thing I am keen to explore is Facebook’s purported reach.

Are Facebook’s numbers legit?

The first point of contention for me is Facebook’s claim of over 2.1 billion monthly active users on their platform [Link to Facebook’s media release].

Let us examine this figure in a bit more detail.

The world’s population, according to the UN, is 7.6 billion.

  • 26.3 % (according to the CIA Factbook) is under the age of 14. The minimum age for users for Facebook is 13. Therefore, let’s assume that we can exclude this group from Facebook’s reported figures. This means we can exclude 1.999 billion under-14s from the Facebook group.
  • The Chinese population of 1.4 billion based in China do not have access to Facebook. 83.5% of the Chinese population are over the age of 14. Therefore, we can exclude another 1.172 billion users from the available Facebook population.
  • This leaves an available world population of 4.43 billion who can theoretically use Facebook.
  • According to the World Bank, 767 million people live below the poverty line of $1.90 per day. These are our fellow people who do not have enough water, food or funds required to sustain themselves and Facebook is hardly going to be a priority. We can therefore make a broad assumption that they will not be using Facebook.
  • This further reduces the available world population to 3.663 billion users.
Facebook

If we believe this unrealistic figure of 2.13 billion Facebook users to be true, then we are assuming that 58% or over 1 in 2 of every single living person in the world magically logging onto Facebook on a regular basis despite war, famine, illness and no access to Internet or technology.

This does not seem to be a plausible statistic. As long as anyone of you reading this article on average knows at least 1 person who does not actively use Facebook, then it places Facebook’s claims under stress.

Just to set some further context, there are only about 2.1 billion smartphone users in the world and global literacy rate stands at only 83%.

Another way of looking at this is to consider the number of Internet users in the world today – there are about 3.2 billion Internet users in the world (source: https://www.internetworldstats.com/stats.htm), of whom 772 million come from China, leaving about 2.4 billion Internet users. If we believe Facebook, then we are effectively saying, almost 90% of every other user being on Facebook. This is hugely unrealistic

Facebook’s other quandaries.

Leaving aside the challenge of Facebook’s user figures, it has not been a good few months for Facebook.

According to various sources, the number of millenials (those under the age of 25) leaving Facebook is accelerating. Facebook itself has had to admit the mental health risks it poses leaving to more people leaving the platform altogether.

There is also an increasing backlash by advertisers reducing their marketing spend on Facebook. Unilever has threatened to cut its marketing spend on Facebook if it does not tackle extremist content. Proctor and Gamble also has reduced its social media spend by $200 million, including spend on Facebook, to reinvest in other areas with ‘media reach.’ Facebook also significantly overestimated various metrics, including key video viewing time figures, which will over time impact how much advertisers will be prepared to pay for advertising fees.

There is increasing regulatory scrutiny for Facebook, from Congressional hearings about the ‘fake news’ saga which also led to observers criticising Facebook, along with other tech firms, to be out of touchEuropean regulators are already deeming Facebook’s dominance to be monopolistic with talks of regulatory break-up being whispered in some circles.

There is another more pressing issue for Facebook. For a giant social network, the whole raison d’être is around users being ‘social’ or sharing data. However, Facebook is now facing a syndrome that has been labelled as ‘context collapse,’ or the idea that users on Facebook are sharing less of their lives and content with others. If this continues to peak, it will pose a much more structural problem for Facebook.

Facebook is also facing a backlash against the way it treats its employees. This includes claims of a ‘bro culture’ at Facebook and hypocrisy about their societal welfare they contribute to. Whilst Mark Zuckerberg is a committed philanthropist, vowing to donate 99% of his and his wife’s shares to the Chan Zuckerberg Initiative, stories regarding their cafeteria workers struggling to make ends meet and living in garages do not help their cause. Charity should ideally begin at home.

What does this mean for Facebook?

Everything that has a beginning has an end. This is the order of all things. At some point, perhaps now, perhaps in the next decade, perhaps in the next century, Facebook will disappear. However, the world as we know it will continue.

very interesting study 4 years ago by a group of Princeton researchers suggested that Facebook will lose 80% of its users by 2017 (or 3 years from the time of research). This, we know now, is not correct. However what makes the study interesting is how the researchers compared to the social network’s growth curve to that of an infectious disease. For those interested in reading the research, you can find it here.

Facebook still remains a hugely successful company by all financial metrics, but they may have peaked. In the short to medium term however, Facebook still has the ability to change things around. Some of them may require fundamental changes to their business model. In a world where their revenues are driven by data and content provided by their users, perhaps rewarding them in an appropriate manner for contributing the data which Facebook monetises may help address the fundamental issue of fairness.

If the world can survive the possible loss of Toys-R-Us, I am sure we will survive the disappearance of Facebook.

Advertisements

Of BlackBerries, Apples and Nokia…

Now that some of the initial brouhaha over the Nokia takeover by Microsoft and the slow and painful end of BlackBerry (the company formerly known as RIM!) has eased off, it may be instructive for us to consider some of the lessons learnt from the demise (?) of what were once the world’s leaders in mobile phones.

Nokia, a 148-year old company, at its peak in 2008 had 40% of the world’s mobile phone market, was worth over US$120 billion and contributed to almost 4% of Finland’s gross domestic product. BlackBery on the other hand, in 2008 at its peak was worth over US$80 billon but were bought out a few weeks back for just under US$ 6 billion.

The easy explanation for what happened to Nokia and BlackBerry was that, like so many other companies, it got run over by the juggernaut that was Apple Inc.

However there was a more fundamental problem. The world of technology and social behaviour and patterns changed and BlackBerry and Nokia both did not keep up. Nokia spent their time, effort and resorces primarily around competing against competitors in their immediate space, such as Sony, Ericcson, Motorola, Alcatel, etc. Both Nokia and BlackBerry focused on the enterprise sector and ensured that they remained dominant through supporting business needs more than they did personal consumer needs.

The changing consumer behaviour and tastes also were not picked up on by both companies. Nokia tried to gently enter the era of touchscreen (and there were plenty of engineers and experts within Nokia who claimed that touch-screen was merely a fad that would not take off – the same people who also claimed that the iPad was going to be another technological failure – like the Apple Newton!). They also failed to spot that even within the business world, people were not merely adopting the technology which their companies wanted them to use and the era of BYOD or Bring Your Own Device soon ushered in and enterprises allowed their employees to use their own devices within the business. Businesses and companies have adapted to their employee needs (especially since Apple and Android both improved their security features for enterprises).

The net result is that we had two mobile phone companies (Nokia and BlackBerry) made redundant and obsolete by two companies who were not even from the same sector or industry (Apple and Google who developed Android). Now Apple and Android based mobile devices control more than half the corporate mobile sector.

My (very brief and immediate) views on what went wrong for both Nokia and BlackBerry are as follows:

– they got complacent. Both Nokia and BlackBerry were initially great innovators who led the industry with fantastic technology innovation and progress (such as the Nokia Communicator or BlackBerry/RIM’s enterprise email servers) but became large and bureaucratic and started delaying product launches and did little to lead their industry or the market with innovative ideas and solutions, the way Apple or Google-led Android did; – they focused too much on their immediate competiton and had little long-range planning and scanning for other possible competitors from other sectors or spaces; – they were not responsive or reactive enough to their customers’ (consumers’) needs. The moment you forget your customers is the moment you have peaked and will be on the way down (and these include both internal and external customers). Both Nokia and BlackBery either did not understand shifting consumer patterns and behaviour or simply chose to (criminally) overlook them; – they both stopped taking risks. In the words of Thomas Zilliacus, previously the chief designer at Nokia, “I look back and I think Nokia was just a very big company that started to maintain its position more than innovate for new opportunities. All of the opportunities were in front of them and Nokia was working on them, but the key word is a sense of urgency. While things were in play there was a real sense of saying “we will get to that eventually. Nokia became more of a maintainer, more of an iterator, whereas innovation only comes in re-invention and Nokia waited too long to make the next big bold move.” The lesson here is simple, no risks = no returns = eventual decline. – Nokia thought even if they missed the high-end smartphone market, they still had the lion’s share of the low-cost market. However, what happened instead was that the likes of Huawei and Spice phones (from India) started capturing the low-cost market which Nokia previously were dominant. BlackBerry also thought enterprises would never give up the security functions which they could provide, but that changed the moment Android and iOS both could start coming close to the level of security which enterprises were comfortable with. – they became too bureaucratic and cumbersome – they lost the agility and speed to market which they initially had. Becoming successful has its potential pitfalls – and one of them is around becoming too large, slow and filled with management layers and red-tape. Empire building begins in some functions which is to the detriment of the entire organisation. Microsoft is going through similar pains at the moment too.

The above meant that both Nokia and BlackBerry started their startling and rapid descent into their current predicaments.

Who would have thought when watching Neo of the Matrix dialling into his hyper-cool Nokia back in 1999, that he may one day dial in and find himself stuck in a blue screen of death!