*Updated 2019 by Kira Goldring and Rachel Segal
In just over a decade, Facebook has become a household name around the world for revolutionizing communication. Its services have forever changed how people interact with each other and businesses. However, recent controversies, specifically its role in the 2016 elections and data privacy abuses, have raised questions about its dominance and influence over its 2.3 billion users. In fact, it is expecting to receive a $3-$5 billion fine from the FTC for failing to keep privacy promises to users, which is the largest fine of its kind in history. Business-wise, its mere size raises the question of its ability to maintain growth, especially in the ultra-dynamic digital world.
Here are three arguments for Facebook being so successful that its status can’t really be jeopardized and three more arguments that the company has already passed its high point.
Facebook is in a league of its own that can’t be challenged
The true unicorn
In Silicon Valley terms, a ‘unicorn’ is a tech startup company valued at over $1 billion. Facebook has become the model of this success, launching in 2004 and earning $15.1 billion in revenues in Q1 2019, a 26% increase year over year. The company also has plans for future growth that involve profiting from privacy, payments and e-commerce. Facebook has sustained its growth by building an all-in-one information empire, providing services that are hard to match. Its more than 2.3 billion monthly users dwarf other social media giants including Youtube (around 1.5 billion), Instagram (around 800 million) -which Facebook bought in 2012 – and Twitter (around 330 million).
Facebook built a platform users don’t want to leave
Facebook’s real power over users is evident in its ability to keep them on its platform for longer times and for a greater variety of needs. By knowing its users and showing them what they want, Facebook has developed a habit-forming product that keeps users online every time there is a moment of boredom or an urge to check what’s new. In fact, studies have been done that suggest that brain patterns in people who report compulsive urges to use Facebook are similar to those of drug addicts.
The company’s endless tweaks to its algorithm aim to maintain its appeal. Back in 2016, for example, the company changed the algorithms running its News Feed so that “things posted by friends you care about are higher up” in the feed. Since then, changes in its algorithm have centered more on eliminating fake news.
A testimony of its power can be found in the fact that more people are turning to Facebook as their medium for news consumption. Pew research shows that 45% of the US population consume their news from Facebook compared to Youtube at 18% among online sources.
The amount of personal information Facebook has is insane
Facebook is collecting information its users willingly give to use its services, from age, location and gender to long-distance relationships and expectant parents. This is how Facebook makes its money, generating $26.9 billion of its $27.6 billion of revenue in 2016 from selling this information to advertisers targeting users based on what they’re likely to buy. The Federal Trade Commission reports that Acxiom, one of Facebook’s largest advertising partners, has 3,000 data segments for almost every US consumer. It sounds like the old adage: “If you’re not paying for the service, you’re the product.”
The amount of Facebook’s users has allowed the company, along with Google, to put a stranglehold on online advertising. With such targeting abilities over a massive user base, it’s easy to see why advertisers are pouring in money to obtain results that are harder to get from other platforms.
Nothing lasts forever
Facebook has come under fire more than once for security breaches. Considering the amount of user information Facebook has access to, these breaches – culminating in election scandals, which left Facebook $60 billion poorer – could have severe impacts on everything from identity theft to election fraud.
Data analytics firm Cambridge Analytica obtained personal information of over 50 million Facebook users without their consent, and used it to target individuals with ads in order to help Donald Trump win the 2016 election. As a result, Facebook is negotiating a settlement with the Federal Trade Commission following its investigation, which is expected to result in a $3-$5 billion fine, a punishment that many say is too lenient. Additionally, Facebook willingly gave data on millions of its users to former President Obama’s second election campaign, which could be a major violation of federal campaign finance law.
In light of all this, can Facebook really be trusted with its users’ personal information? One lone corporation should not have this much power at its disposal. To allay users’ and critics’ fears, the company has agreed to create a privacy committee to protect user data, in addition to an external assessor, appointed by the company and the FTC.
Facebook can’t control its content
Over recent years, several instances have eroded users’ trust in Facebook. The launch of Facebook’s live-streaming service in 2015 has resulted in unintended consequences as people have begun using it to broadcast killings, rapes and suicides. Some question whether the live streaming has opened a Pandora’s box, especially after a terrorist used Facebook’s live-streaming while attacking mosques in Christchurch, New Zealand. Despite changes to its algorithm to prevent the prevalence of fake news, Facebook has come under scrutiny for its inability to control the proliferation of it on its site. An Ipsos Public Affairs poll shows that 18% of respondents trust news on Facebook most of the time, compared to 44% who said they almost never do.
Facebook faces competition from other online advertisers
Other tech giants are looking to advertisements for growth, and Facebook’s biggest competition is Amazon. It is projected that the online retailer’s market share of the US digital advertising market will be 8.8% in 2019. Its revenue share from digital ad spending will be 37.2%, compared to Facebook’s revenue share of 22.1%.
Another factor is that investors are turning away from Facebook in search of the next unicorn. Instead of paying $166 per Facebook share, young users were the demographic most attracted to Snapchat parent company Snap’s initial public offering in March 2017, valuing the company at around $24 billion. Though its revised downward to $15 billion, it is showing signs of a strong comeback. Plus, some of the public may even appreciate the fact that Snapchat has turned down Facebook’s advances more than once.
The Bottom Line: Facebook controls an enormous amount of personal and public information, giving it an advantage in the market that is very hard to match. But maintaining that level of dominance is almost impossible, and Facebook is facing mass criticism for privacy issues and influence that spiral out of the company’s control. Do you think Facebook will continue to grow, or is it already tumbling down from its peak?