On Feb. 3, shares of Facebook (now part of Meta) lost US$230 billion, the largest one-day drop in US stock market history. This happened for a number of reasons.
First, Facebook reported that its number of daily active users fell by 500,000. That’s a small fraction of its 2.91 billion monthly active users, but it’s the first time that Facebook’s growth has s reverse. The particular significance of this decline is that these users are migrating to other platforms, primarily TikTok, which are rapidly taking over the young adult market. Facebook is increasingly seen as old-fashioned and its customer base is aging. Many users today are parents and grandparents who want to keep in touch with their children.
TikTok does not offer the same type of service as Facebook, but it is more effective in attracting and retaining the attention of young users. One of the reasons this is such a fundamental threat to Facebook is that its business depends on “surveillance capitalism”, which means it needs its users to divulge vast amounts of their personal data in order to that Facebook can analyze it and sell the information to advertisers.
The power of every Internet platform is based on a simple principle of networks, namely that the value of a communication network is proportional to the square of the number of users of the system. As more and more users join a platform, it increases the incentive for other users to join, so the business grows, becomes more attractive to advertisers, hence revenue increase and the business becomes more and more valuable. That’s why companies like Facebook don’t charge for their services. Their goal is to get so big that they can capture most of the ad revenue, and they’ve been so successful in doing that that they’ve put hundreds of traditional media companies out of business.
However, Facebook did not rely solely on the power of its network. It has also been accused of using anti-competitive behavior, such as taking over smaller rivals before they grow too strong, to maintain market dominance.
The drive to gain monopoly power is why Facebook works tirelessly to grow its user base and why it has been accused of ignoring evidence that its platforms have been used by criminals for looting and corruption. traffic; that they have allowed the loudest, most aggressive and racist voices to dominate the public domain and thereby undermined rational debate and truth and honesty in public life; that their platforms have exposed innocent people to serious harassment and abuse and that young people’s use of social media has been linked to depression and suicide; and that they have been used by some of the world’s most despicable regimes to crush dissent and oppress minorities.
However, the network effect goes both ways. If Facebook users begin to migrate to another platform in large numbers, that platform quickly increases in value and Facebook then begins to lose value. This is probably the main reason why market sentiment shifted against Facebook earlier this month.
Facebook’s second problem could be even more threatening to the company. Users are starting to realize how much personal information they have leaked, and many of them are no longer comfortable with it. Apple introduced its App Tracking Transparency (ATT) last year, which required users to consent to having their every move monitored by apps. When users did have a choice, many of them refused to hand over their personal data. This Apple innovation cost Facebook $10 billion in lost ad revenue, or nearly 25% of its overall profit in 2021.
CHANGING USER SENSE
A shift in user sentiment would threaten Facebook’s entire current business model. Many users are now increasingly aware of the extent to which they have allowed companies like Meta to see into their lives, track their relationships and examine their behavior, and data protection and privacy are becoming rapidly becoming more important. When Apple allowed people to take back their privacy, people jumped at the chance. This is a serious threat to a company like Meta, which relies on its ability to process and sell information about its users, usually without them being aware of how their data is being exploited.
In 2010, computer security expert Bruce Schneier said, “Don’t make the mistake of thinking you’re a Facebook customer. You are not – you are the product. Its customers are advertisers. Despite this very clear explanation, most Facebook users still think they are the customers, and Facebook has managed to take full advantage of this misperception.
Facebook’s third problem is that people are increasingly concerned about the social damage caused by the company. Even Facebook’s own oversight board has decided it’s wrong to allow people’s names, addresses, and photographs to be published (known as doxxing) when it exposes them to despicable abuse and savage cyberattacks. A statement released earlier this month by the Oversight Council said that “harms resulting from doxxing disproportionately affect groups such as women, children and LGBTQIA+ people, and can include emotional distress, loss of employment and even physical damage or death”.
Facebook has also been criticized for amplifying hate speech. A horrifying recent example is when the Tatmadaw regime in Myanmar encouraged the massacre of the Muslim Rohingya minority. 24,000 Rohingyas are reported to have been killed and almost a million more have fled and are now refugees in neighboring countries. A Rohingya group is suing Facebook for $150 billion for failing to take action to stop the spread of hate speech and the ensuing genocide.
It is, of course, amazing that Facebook has escaped for years exposing people to “job loss, physical injury or death” or even genocide, without any consequences.
Facebook’s fourth problem is that regulators, too, are becoming aware of this history of abuse. In 2020, the Irish Data Protection Commission ruled that the European General Data Protection Regulation meant that Facebook could no longer collect user data in Europe and transfer it to the United States for processing. Meta then said that if it was blocked from transferring data, it would have to shut down Facebook and Instagram in Europe. She made a similar threat to the Australian government when told she would have to start paying for news she received from other media companies, but backed down when the Australian government told the company that the country could manage just fine without it. The United States, United Kingdom, Brazil and other countries are also changing their data protection regulations, which will force Facebook to either withdraw from some of its main markets or make significant changes to how it conducts its business.
ABUSE OF MARKET DOMINATION
Data, media and antitrust regulators are now all concerned about the abuse of market dominance by large-scale social media companies. In January, a US federal judge ruled that the Federal Trade Commission could bring antitrust action to break up Facebook by forcing the company to sell Instagram and WhatsApp. The basis of the FTC case is that Facebook has monopoly power and has deliberately maintained that power through anti-competitive behavior such as purchasing rival companies.
Despite these pressures, Facebook is not making friends. In January, the House committee investigating the attack on Capitol Hill asked a number of social media companies to turn over internal documents regarding the spread of misinformation, support for extremism and the insurrection, and the attempt to overthrow the United States government on January 6, 2021. However, both Meta and YouTube have refused to fully comply, likely because they fear a House investigation into the platforms’ role of social media in polarizing society and encouraging extremism further damages their reputation, but many consider this refusal to be unacceptable. given the profound seriousness of the charges.
So it’s possible that the tide is now starting to turn against hyperscalers, especially Facebook, which has been associated with some of the worst abuse in recent years.
In two articles written for the gleaner last year I concluded that the tech giants had promised the world a new era of freedom, but had opened the doors to abuse and malice on an unprecedented scale and that many governments would be forced to place the digital border under the rule of law. Regulators in a number of countries have now come to the same conclusion, and a number of new laws and regulations are being enacted. It is essential that Jamaica and other Caribbean countries also develop legislation and enforcement capacity to protect users, monitor and take effective regulatory action against any market or other abuses by companies like Facebook.
Anthony Clayton is a Caribbean Professor of Sustainable Development. Send your comments to [email protected]