Facebook has become too good at giving users what they want. In Q1 ‘16, the average Facebook user spent 50 minutes on the site daily, up from 40 in 2014, but this growth has come at the expense of quality.1
Facebook’s gained operating efficiencies due to technology improvements pose a risk to their business model. While Facebook’s scale (over 1Bn users) and habitual presence in users’ lives provide stability to the business, any shift in value proposition for the users or the advertisers could cause the scales to tip. The digital and data revolutions have enabled Facebook’s entire existence, creating a beautiful two-sided platform connecting advertisers with people, but Facebook’s algorithmic success poses additional risks that must be considered.
Facebook’s mission is to “Give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.”2 Facebook’s predecessor was a combination of the yellow pages, handwritten personal address books, newspapers, in-person gaming competitions and physical letters. Their business model is fueled by technology:
- 7Bn user scale online: As Facebook’s user base grew to over 1.7Bn, brands and advertisers followed, and the data generated by both parties has become increasingly valuable.3 Without scale on both sides, this two-sided platform doesn’t work.
- Customized experiences create value: Facebook recognizes that users seek different things when they go to facebook.com, and recognizes that access to and information on these users is incredibly valuable to businesses. In 2015, ad spend on Facebook ($8bn) was 13.5% of all ad spend online, second only to google.4
- Mobile growth strengthens model: This scale has been fueled by widespread growth of mobile smartphones – as more people have consistent internet access, network effect magnified.
Facebook has successfully adapted their operating model as technology has advanced and more businesses have come online. Here are a few examples:
- Site features drive increased engagement: As site speed and compression have improved, certain features such as infinite scroll, auto–play video, and Facebook live have all improved customer experience and time on site. Facebook uses the news feed as a mechanism to facilitate that value.
- Advertising platform: Real-time bidding for ads allows Facebook to capture as much value as possible and cookie-based targeting justifies prices. Facebook’s US advertising average revenue per user was $13.71 in Q2 ‘165, up from $3.20 in Q2 ‘126
- Additional sources of content: In 2009, Facebook allowed organizations to create profiles on Facebook, instead of just individuals. Businesses could then create profiles on Facebook for free, drawing more readers to the platform.7
As Facebook has expanded their product offering and improved targeting, their role as a news provider has grown. Their operating model has further adapted to drive further news consumption:
- In May 2016, 66% of US adult Facebook users get news from Facebook, up from 47% in 2013.8
- Facebook is the highest source of referral traffic to news and media sites across the industry, providing estimated 15-45% of publishers’ traffic.9
- Instant Articles is a product feature designed to increase speed and improve user experience for reading articles, and was opened to all publishers in Feb 2016.10
Their operating model does not reflect additional challenges:
- Facebook has not implemented controls to prevent fake news articles from being shared.
- While Facebook’s algorithm is extremely complex, articles that receive higher click-through-rates and share-rates are more likely to be promoted in users’ news feeds – which can lead to more content that is click-bait, emotion driven, or isolated to topics that users find interesting and have clicked on in the past.11
When a platform grows, and the numerous sources of value in each direction become more intangible, you must be aware of tradeoffs. Here, Facebook is optimizing time-on-site to boost ad revenue, but not recognizing that fake news and click driven news feeds may be a turn-off to users in the long run. Both issues have been hot discussion topics after the most recent presidential election. The Wall Street Journal published a fascinating graphic illustrating the difference between news articles shared by liberal and conservative users.12 Jeff Jarvis, a professor at CUNY school of journalism, proposes several changes Facebook can make to combat fake news.13
If users were to begin to distrust Facebook as a source for news, this will have ripple effect consequences for the advertisers and the content creators. And outside of the negative potential impacts on Facebook’s network, this also poses broader risks for society.
Do you think Facebook should consider adding filters for fake news? Do you think the newsfeed is an echo-chamber which is detrimental? How should they balance these risks with their need to keep eyeballs on the site?
Word Count: 799
 James B Stewart, “Facebook Has 50 Minutes of Your Time Each Day. It Wants More,” New York Times, May 5 2016, http://www.nytimes.com/2016/05/06/business/facebook-bends-the-rules-of-audience-engagement-to-its-advantage.html , accessed November 2016.
 Facebook, “About Facebook”, https://www.facebook.com/pg/facebook/about/, accessed November 2016.
 Facebook, “Facebook Investor Relations,” https://investor.fb.com/home/default.aspx, accessed November 2016.
 Aleksandra Gjorgievska, “Google and Facebook Lead Digital Ad Industry to Revenue Record,” Bloomberg, April 21 2016, https://www.bloomberg.com/news/articles/2016-04-22/google-and-facebook-lead-digital-ad-industry-to-revenue-record, accessed November 2016.
 Adrian Stevens, “Facebook’s Revenue per User is Strongly Trending Upward,” Market Realist, Jul 28 2016, http://marketrealist.com/2016/07/facebook-2q16-arpu-growth-remains-strong/’, accessed November 2016.
 Facebook, 2012 Annual Report, p. 40, https://www.sec.gov/Archives/edgar/data/1326801/000132680113000003/fb-12312012x10k.htm, accessed November 2016.
 Samantha Murphy, “The Evolution of Facebook News Feed,” Mashable, Mar 12 2013, http://mashable.com/2013/03/12/facebook-news-feed-evolution/#eklxk6MYmkq8, accessed November 2016.
 Joseph Lichterman, “Nearly half of U.S. adults get news on Facebook, Pew says,” NiemanLab, http://www.niemanlab.org/2016/05/pew-report-44-percent-of-u-s-adults-get-news-on-facebook/, accessed November 2016.
 Jeffrey Gottfried and Elisa Shearer, “News Use Across Social Media Platforms 2016,” Pew Research Center, May 26 2016, http://www.journalism.org/2016/05/26/news-use-across-social-media-platforms-2016/ , accessed November 2016.
 Facebook, “Instant Articles,” https://instantarticles.fb.com/, accessed November 2016.
 Eytan Bakshy, Solomon Messing, and Lada Adamic, “Exposure to ideologically diverse news and opinion on Facebook”, Science Magazine, May 7 2015, http://education.biu.ac.il/files/education/shared/science-2015-bakshy-1130-2.pdf, accessed November 2016.
 Jon Keegan, “Blue Feed, Red Feed,” The Wall Street Journal, May 18 2016, http://graphics.wsj.com/blue-feed-red-feed/ , accessed November 2016.
 John Borthwick and Jeff Jarvis, “A Call for Cooperation Against Fake News,” Medium, November 18 2016, https://medium.com/whither-news/a-call-for-cooperation-against-fake-news-d7d94bb6e0d4#.rx1ddhnfz , accessed November 2016.