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.

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Where technology lost to tradition

Over the last few decades we have seen numerous examples where technology has usurped tradition, leading to plenty of hands wringing, worrying and eventually acceptance of technology’s dominance over the things that we previously thought were ‘the way things are done’ or tradition.

From going to a travel agency, or flagging for a taxi, or buying takeouts , we have now ditched habits and activities that were previously taken to be the de-facto way.

In the light of these changes (and some undoubtedly have had a huge benefit in people’s lives), it was interesting (and perhaps heartening) to read an example of how tradition managed to stand strong in the face of overwhelming technological progress and indeed even strike a blow and reign supreme!

This is the curious tale of the dabbawalas.  A recent Bloomberg Business article, Startups Haven’t Replaced India’s 19th Century Food Delivery Service (February 3, 2016), highlighted how over 400 technology/app driven businesses backed by over US$120 million of funding  have failed to dislodge a 120-year old, traditional food delivery enterprise. The aspiring new-age disruptors failed to make a dent whilst single-handedly decimating traditional black cab/taxi or travel industries.

Only a handful of 400 food-delivery-tech start-ups are still in business after having lost much of the VC funding and thousands of staff, despite spending millions on technology, promotion and advertising.

I thought it would be useful to take a closer look at the conditions that have led to the enduring success of these dabbawalas (from ‘dabba’ which means lunch box or tiffin carriers – the ubiquitous multi-layered carrier tins; and ‘wala’ which loosely means man or deliverer leading to ‘dabbawala’ – lunch box delivery man).

First some context and history to the humble dabbawala:mumbai-dabbawala

  • Starting from 1890, no rain nor flood nor natural disaster nor riot not terrorist strike nor weather has stopped the dabbawalas in fulfilling their duties.
  • The business model has remained exactly the same since the very first delivery: food prepared at home or community kitchens are delivered to students and workers in schools, offices, factories and depots in a lunch/tiffin carriers, and the empty containers are returned!
  • 5,000 dabbawalas now deliver about 175,000 to 200,000 meals a day (or over 50 million meals a year)
  • They have only ever gone on strike once in over a 120 years – and even then timed it on a public holiday – and in support of an anti-corruption campaign!
  • Each dabba or lunch box changes hands at least six times in transit before it reaches the final consumer – or 2.4 million transactions per day (200,000 deliveries X minimum 6 transits X 2 – to return the lunch/tiffin box back)
  • There are some claims that the dabbawalas lose only one tiffin box per 1.6 million deliveries (comfortably allowing them to be within the six-sigma standard of 3.4 defects per million transactions) – despite the absolute lack of technology or apps to support them. All that is used is a system of alphanumeric codes to identify the source and destination of each dabba.

Next, let’s consider the business and employment model used by the dabbawalas:

dabbawalas1

  • The monthly service charge for the delivery of the lunch boxes is between 400 to 1,200 rupees (or between US$6 to US$18 monthly).
  • The prices are not based on distance but on the customers’ ability to pay – deliveries from richer neighbourhoods means higher rates.
  • There are about 200 ‘managers’ who act as supervisors to teams of up to 25 dabbawalas – managing the total 5,000 dabbawalas
  • The dabbawalas age ranges from between 18 to 65 and are often poorly educated (often rarely receiving formal education beyond the age of 14 or 8th standard in Indian education terms)
  • The dabbawalas continue to be paid low wages – approximately 8000 rupees (or about US$120 monthly) but have achieved a very low attrition rate or labour turnover.
  • Each dabbawala receives the same income, irrespective of experience, age or number of customers serves.
  • Each dabbawala is not an employee, but is an entrepreneur and equal shareholder in the Dabbawallah Trust.
  • The dabbawalas employ a risk-mitigation system of a KYC (know your customer) principle to prevent the threats of contraband or bombs being delivered and implement a minimum monthly-subscription rule.

 

So how have these poorly educated, lowly paid individuals without any access to any computer or app to support their delivery system become an award-wining group of process champions?

  • The dabbawalas have been the paragons of social entrepreneurship – leading to social mobility through enterprise. They have provided employment opportunities for those who have needed it the most. The late Paul Goodman, Professor of Organisational Psychology at the Carnegie Mellon University, described it as thus: “They provide a different picture — a complicated system of working built around human ingenuity and supportive social arrangements that has long been absent from U.S. industry,” in his documentary on dabbawalas.

 

  • Uncompromising attitude to cutting out waste or preventing excesses – this has led to the dabbawalas rejecting a number of potentially lucrative marketing or sales opportunities because it was deemed that they will take up time and impact their core business of delivering on time every time.

 

  • Culture – there is an unwavering commitment to their cause.

The dabbawalas are of a view that their duty is akin to service to God. They are committed to the last man towards a single principle of delivering food on time to the right person.

As Manish Tripathi, a director of the Mumbai Dabbawalas states, “Our work revolves around a few beliefs – the most important ones of which are sticking to time and believing that work is worship. Annadan is mahadan (giving food is the greatest charity). We dabbawalas have a strong belief in god. But you don’t see god, do you? So, whom do you worship? People – after all, they are creations of god. You worship god by ensuring that people get to eat their food on time.”

Professor Stefan Thomke of Harvard Business School notes in his paper, “Culture, for example, often gets short shrift. Too few mangers seem to recognise that they should nurture their organisations as communities – not just because they care about employees but because doing so will maximise productive and creativity, and reduce risk.

 

  • Superior focus on organisational objectives and customer service

There is an absolute focus on unerring time management logistics and commitment to superior customer service through accuracy.

An interesting anecdote is when the dabbawalas were informed that Prince Charles wanted to meet with them, they allowed for the request on the condition that Prince Charles should be at Mumbai’s Churchgate station between 11.20 am and 11.40 am. The mere 20 minutes were given because “they could not take time off work” and only because that was the short period of the day when the dabbawalas had a rare moment of a break time!

Prince Charles Dabbawalas

(As an aside, it is also worth noting that of the three indians invited to Charles’ wedding – two were dabbawallahs (who presented gifts for Camilla (sari) and Charles (turban) – paid for by the dabbawallas pooling)

 

  • Effective leadership

The managers (each managing up to 25 dabbawalas) do not see themselves as leaders or supervisors. They are individuals who help to continuously improve the work-place practices and systems and empower their teams to make decisions within a clearly defined set of parameters. The individual dabbawalas make rapid decisions (modern managers may label this ‘agile’).

There are regular meetings once a month where decisions are made and issues identified and discussed. In the rare event of an error, an investigation is launched to ensure it doesn’t occur again and customers are refunded.

 

  • Adopting new practices to serve customer better

Whilst the delivery model has remained the same, the dabbawalas have introduced innovations such as delivery booking through SMS, online booking (through www.mydabbawala.com) and also introduced online customer services feedback. The customer-centric approach that has been instrumental to the success of the dabbawalas continues.

 

The secret to the dabbawalas is best described by Professor Thomke who says, “The dabbawalas have an overall system whose basic pillars – organisation, management, process and culture – are perfectly aligned and mutually reinforcing. In the corporate world, it’s uncommon for managers to strive for that kind of synergy.”

In this day and age, where the human touch is going out of fashion, the dabbawalas remain a source of inspiration and there is much to be learnt from them.

Branson dabbawalas

As Richard Branson (who spent a full day with the dabbawalas) said, “I will tell my employees: walk like a dabbawala.

Indeed!

dabbawalk