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Facebook CEO Mark
Zuckerberg gave investors reason to worry on
Wednesday.
Win McNamee/Getty
Images
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In its fourth-quarter earnings report Wednesday,
Facebook reported a 5% drop in daily usage of its
service. -
Company CEO Mark Zuckerberg assured investors that this
was actually a good thing, saying the Facebook was focusing on
promoting “meaningful interaction” not maximizing the amount of
time users spent on the site. -
But the drop follows a host of negative publicity for
the company and growing concerns about how its site may be
promoting addiction and depression. -
Facebook’s discussion of the decline in usage raised
several red flags — among them, that the company plans to make
further changes to its service that could reduce usage
further. -
How much time users devote to Facebook is a big
concern, because advertisers — whose spending comprises nearly
all of the company’s revenues — determine where to place their
ads in part based on where their target users spend their
time.
Facebook investors had good reason to be concerned about the
sizeable drop in usage of the social network in the fourth
quarter — no matter how reassuring CEO Mark Zuckerberg tried to
be about it.
In announcing its
holiday period results Wednesday, the tech giant revealed
that usage of its service declined by an average of
50 million hours a day. That’s a 5% drop, Zuckerberg noted on
a call with investors and analysts, linking it to recent changes
the company made to what it shows users in their news feed.
But Zuckerberg argued that the decline was actually a good thing.
The company is focusing on promoting meaningful interactions with
users, not on the gross amount of time they spend with its
service, he explained.
“By focusing on meaningful interaction, I expect the time we all
spend on Facebook will be more valuable,” Zuckerberg said on the
call. “I always believe that if we do the right thing, and
deliver deeper value, our community and our business will be
stronger over the long term.”
Zuckerberg may be right that by giving more prominence in users’
news feeds to posts from their friends and family members and
reducing the number of videos and news stories from publishers
and other organizations, Facebook may become more valuable for
its users. Even if users spend less time overall with the
service, they may end up interacting with their friends and
family members on it more often.
Investors seemed mollified by such assurances. After falling more
than 4% in after-hours trading immediately following the release
of the company’s earnings announcement, Facebook’s shares
rebounded during the call. After it was over, the stock was up
1%.
Facebook’s earnings call raised some big red flags
But shareholders may have some second thoughts after they parse
through the comments Zuckerberg and his fellow executives made on
the call. That’s because they raised several red flags.
One big one has to do with how Facebook — or investors — should
evaluate whether its new focus is working. Measuring the time
users spend on the site is fairly easy. It also has the benefit
of being something that can be directly compared across sites and
other forms of media. One big indication for advertisers and
investors of how important Facebook has become is the degree to
which consumers have shifted their time away from newspapers,
books, magazines and watching traditional television and toward
social media.
But it’s completely unclear how the company plans to measure the
amount of “meaningful interaction” its users engage in —
something it said it plans to track on and off its service.
Facebook has already talked with users to get a sense of what
they find meaningful and is using that to guide its decisions
about what to show in the news feed and how it designs future
products. But it’s uncertain whether the company will share its
measurements on “meaningful interactions” with the wider world or
whether outside organizations will be able to track such things
on their own — much less compare them with similar data from
other sites and media outlets.
Another big concern is that it’s unclear what exactly led to the
drop-off in usage during the final three months of 2017. Was it
due entirely to the recent changes Facebook made on its own or
might it have been caused by outside factors that could reflect a
problem in Facebook’s business? When asked specifically about
that on the call, Zuckerberg ducked the question, instead simply
repeating what he’d said earlier about the changes the company
made to its service.
The decline in usage follows growing discussion about fake news
and social-media addiction
Chamath Palihapitya is
among the former Facebook officials and other tech insiders who
have criticized teh company for encouraging social-media
addiction.
Brian Ach/Getty Images for
TechCrunch
But there’s reason to believe that the decline wasn’t entirely
due to Facebook’s own moves. For the better part of the last
year, the company has been getting negative press about how its
service was manipulated into spreading propaganda and fake news.
Meanwhile, a growing chorus of researchers, parents, and tech
insiders, including several prominent former Facebook executives,
have been raising concerns that the company’s service is leading
to addiction and depression and have been cautioning people to
curtail their use of it.
There’s some indication that all this negative sentiment was
already having an effect on Facebook — even before it tweaked its
news feed. A recent survey by Baird Equity Research, for example,
found that about half of all users across all age groups reported
that they used Facebook less often to connect with friends and
family members. The reported decline was particularly pronounced
among those aged 18 to 34.
Regardless of whether the decline in usage came as a result of
all this bad news or the changes Facebook made to its service,
there’s a final reason to be concerned about it — Zuckerberg
himself warned there are more changes to come. Facebook has only
just started making changes to its web site as part of its effort
to play down what it calls “passive” consumption and to promote
“meaningful interaction.” And additional tweaks to the news feed
or other services could further decrease usage.
“It’s not just one news-feed change that happens overnight,”
Zuckerberg said.
Time spent on the site is important, no matter what Zuckerberg
says
Given all the backlash Facebook has received of late, it’s not a
surprise that the company is making these changes. It had to do
something to show it was addressing the concerns about fake news
and social media addiction or risk being forced to do something
by regulators.
The problem for Facebook is that its business depends almost
entirely on advertising. And advertisers determine where to spend
their money at least partially based on where their target
customers are spending their time. If consumers are spending less
time with Facebook, there’s a good chance advertisers will
eventually spend less money there.
And that’s going to be meaningful to investors — no matter how
much spin Zuckerberg puts on it.
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