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On Facebook’s Unique Weakness

August 1st, 2018 · 36 comments

An Anti-Social Response

Last week, Facebook reported weaker than expected second quarter earnings and warned investors to expect diminished growth. As a result, its stock promptly fell 19%, wiping out over $120 billion in market capitalization. No publicly traded US company has ever lost more dollar value in a single day.

This seems like bad news for the social media giant, perhaps the first indication that its struggles over the past couple of years are catching up to its bottom line.

But not everyone agrees.

Earlier today, business columnist Farhad Manjoo wrote an optimistic piece for the New York Times titled, “Stumbles? What Stumbles? Big Tech Is as Strong as Ever.”

As Manjoo writes:

“[T]here is something deeply incongruous at the heart of the supposed ‘techlash’: It is not really making a huge dent in the tech giants’ financial performance.”

But what about Facebook’s massive price plunge? Here’s Manjoo’s response:

“In a strange way, the social network’s troubles only underscored its dominance…Pretty much everyone who studies Facebook believes that it will hold its grip on the culture and the advertising industry for the foreseeable future.”

Manjoo supports this assertion by quoting RBC Capital analyst Mark Mahaney, who argues: “[Facebook] is one of the most profitable business models I’ve ever seen, and that really hasn’t changed.”

A Different Opinion

I agree with Manjoo and Mahaney’s assertion that Facebook remains massively profitable.

But I disagree strongly with their conclusion that Mark Zuckerberg’s behemoth should be considered in the same blue chip league as other dominant tech giants like Apple, Amazon, Microsoft and Google.

While Facebook’s value might be comparable to these other companies at the moment, it suffers from a unique weakness that I don’t think is discussed enough by the professional investor class: it’s dispensable.

In my experience researching and writing about the intersection of technology and culture, I’ve noticed that a substantial fraction of Facebook users seem indifferent, or, at best, only mildly positive about the service.

They don’t mind it, and perhaps even experience some small benefit from its features, but they would also be completely fine if you removed it from their life. I know this, in part, because I’ve helped thousands of people do exactly this.

The most common reaction I encounter when asking people what life is like after quitting Facebook? A shoulder shrug.

It turns out you don’t need Facebook to maintain a vibrant social life (if anything, it might make things worse), and there are better ways to keep up with the news or find entertainment. This service does help you remember your friends’ birthdays and monitor the political opinions of high school classmates — but does this justify a larger market capitalization than ExxonMobil?

Now compare Facebook to the other tech giants currently dominating the stock exchanges. If you shut down google.com, forced Amazon shoppers to return to brick-and-mortar malls, or outlawed Apple and Samsung smartphones,  people’s lives would be significantly harmed.

The services offered by these companies, in other words, are indispensable for large portions of the population — and this provides them a foundation in the marketplace that I don’t believe Facebook shares.

(This doesn’t mean, of course, that companies like Google, Amazon, Apple and Samsung are untouchable. They must still aggressively fight off competitors and fear bottom-up disruption, but the markets they dominate are stable and unlikely to dissipate any time soon.)

I haven’t done the research to back up this assertion with complete confidence, but I’d wager that in the history of modern capitalism, there’s never been a company that has been so valuable while simultaneously being so dispensable as Facebook is at the moment.

Given all the recent chatter surrounding social media, technology, and culture, this seems like an observation worthy of note.

36 thoughts on “On Facebook’s Unique Weakness

  1. I agree. I use FB approximately 2 minutes a month (and 6 minutes of smartphone time of my 250 minutes). And my quality of life is the better for it. FB is piffle.

  2. corey says:

    Facebook is a mirror, masquerading as a window. Many find “value” in FB because of the false reflection they see of their lives.

  3. Toan says:

    Hello, Cal!
    Thank you for your post, again, fantastic article. It seems to me that you are only targeting at Facebook, what about other social media giants(e.g. Instagram, Snapchat and Twitter)? I think it is fair only if you share your thoughts about them as well. Thank you!

    1. ET says:

      I agree all social media platforms should be clustered and reported especially if you cluster the others. Referencing Apple, Samsung as always being needed…..hmmm maybe because they are diversified companies with many product lines. IIf he’s saying Apple=iPhone, Samsung=Galaxy Phone then we might be reminded there used to be companies like Blackberry and Palm Pilot.

  4. Simon Huggins says:

    There is an irony here, because FaceBook relies on ad income, and if people get increasingly indifferent, that has got to be reflected in the bottom line.
    But I have to say ‘diminished growth’ as a reason to reduce the stock by that amount?
    I wonder if this says more about our obsession with hyper-inflated growth expectations of young companies like FaceBook – that seems to me a major insanity, and suggests the stock value is most likely over-inflated anyway due to those expectations.
    Let’s call it a readjustment, with a trend towards sanity.

  5. Spencer says:

    It is probably worth mentioning that Amazon has an even stronger position due to AWS. Many technology services, large and small, depend on it. I can only imagine the consequences if it were to suddenly shut down.

  6. mhammed says:

    Facebook is using DATA as OIL stock…so it will be greater in the FUTURE….

  7. I agree with you, Cal. Facebook is quickly becoming just “something to do” with our spare minutes between tasks, not something that is integral to our functioning in daily life. At one point I thought FB would never fall, but now I’m starting to have seconds thoughts.

  8. Jim Upchurchc says:

    You hit the nail on the head regarding the most useful functions of Facebook. It is nothing more than a birthday-reminder tool with a ton of bells and whistles.

  9. Clayton says:

    Your analysis of Facebook the website is correct, however, there is a major shortcoming when it comes to Facebook the company. Facebook the company owns both WhatsApp (largest used messenger in the world, 1.5billion users) and Instagram (arguably what is taking over Facebook the website as the default personal sharing platform). I think people would be far less likely to say those two products are “dispensable”.

  10. I quit all social media after watching your TEDx video. I don’t even have a LinkedIn profile anymore, and guess what I got a new job last year.
    I also read Deep Work which is an fantastic book.
    And yes, Facebook is dispensable.

    1. Jeff Williams says:

      Thanks for your comment. I abandoned FB and Twitter after reading Deep Work (twice!) this year, but LinkedIn is the one I’ve waffled on, since it was how a recruiter found me for my current job. Lately, though, it’s felt pretty dispensable. Did you notice any difference with LI, compared to the other, more social, social media?

      1. Being on LinkedIn for almost 10 years did not add anything to my professional life. Also, if you have heard of women complaining of man using LI as a dating platform, that happened to me 3 times. Another reason that made me leave LI. LI is very dispensable. This idea that you need to be there to find a job is just not true, just their marketing. And remember, to have a full experience you got to pay for LI. I’d rather differentiate myself.

        1. Leo says:

          I’ve quit Linkedin about 1-2 months ago it made me realise it serve little to no purpose on job searching, I use jobsdb or something else familiar.

          To me Linkedin feels more like a social media platform, with a somewhat of a business like tool. I could find something even better elsewhere without the need of the social media feed.

  11. Carl says:

    FB profits by effectively hijacking your attention–a sacred thing not to given away so casually.

  12. Calum says:

    Tobacco companies have been pretty big. Similar in peddling an addictive and mostly worthless product.

  13. Tyler Morgan says:

    Social networks certainly are dispensable, from a Maslow hierarchy of needs perspective, but given their grip on society as a whole, I don’t see any reason to classify them any differently than Amazon, Google, or Microsoft. Although Facebook itself may be overtaken by one of its competitors, just as Google may be overtaken by Yahoo, the public at large is extremely unlikely to give up social networking altogether, so I would argue that Facebook is as indispensable as Google and the other entities listed. Social networks will be a part of our society for the rest of our lives (even if a select few of us personally choose not to use them). If I was an investor, I would not be concerned about the fate of social networks long-term, but I would instead focus my energy on trying to pick the best one.

  14. Patrick says:

    It is worse than that. Facebook is like a pandemic disease. It spread virally through the population. But over time people are building up a resistance to it. So like most pandemics, after spreading through the population it will crash.

  15. Tyga Nelson says:

    The core problem with all social media platforms is that they are funded by advertisers. And advertisers like to delude themselves with fictitious ROI calculations. It is an old adage that they know that half their advertising doesn’t work, they just don’t know which half.

    The social media companies are well aware of the inefficiency of advertising campaigns, but they are not going to provide useful metrics because doing so will damage their rivers of money.

    Last time I checked, FB was not paying and not intending to pay dividends. So their share price is totally dependent upon the greater fool theory of stock pricing. The recent fluctuations in stock prices is a mere reflection of the possibility of running out of fools with ever deeper pockets.

  16. Geoff says:

    The interesting corollary to your observation Cal, may be that Facebook is in a strong situation of being a platform that advertisers are seemingly utterly dependant on, but not its consumers, which perhaps makes FaceBook utterly dependant on it’s advertising revenue (possibly one of it’s only sustainable sources of income?) I don’t know enough about the details.

    Other big tech besides FaceBook however, generate their own income through their actual services and technology, which actually provide enormous value to their consumers, but are almost completely independent of any 3rd party advertising… maybe?

    Maybe I’m just demonstrating my ignorance, but I think you can get the gist of what I’m saying here.

    Most companies are utterly dependant on their consumers being satisfied by their products. FaceBook is utterly dependant on its affiliates being satisfied by Facebook’s consumers.

  17. Vikrant says:

    I was never on Insta or Pinterest but yes a lot on FB and Twitter. Last year I came across Deep Work and in 1 year read it 5 times.

    As of now I am no where now and only exist on Medium where I keep my blog and portfolio and Angelist. In last 1 year I did career-change to design, written more than in last 5 years (while I was addicted to social media) and now creating more value in less time and still have time left for so many things. And few minutes back I deleted LinkedIn too, too much of unwanted connections.

    The clarity, focus and sanity I got my digital minimalism helped me so much in career, health, lifestyle and improve my skills in design and writing.

    I am so grateful and thankful to Cal for this and his books. Also I bought The Shallows which is nothing less than a revelation in itself of how deep and harmful Internet usage and addiction is, if not kept in check. Reading it 2nd time and trying to imbibe its lessons.

  18. Xbox Support says:

    Facebook seems to pose an all charming, guilded social networking platform for almost a decade before it is analyzed carefully in these recent years. A laudable read!

  19. EA says:

    Cal – I was listening to the first mindfulness meditation on the popular Calm app titled “Mindfulness at Work”. Guess what? YOU are the solution to the problem of lost productivity, according to the teacher. The teacher mentions you (and only you) and “Deep Work” as the main way to avoid context switching.

  20. Maren says:

    Last time I was here, your website was secure. What’s happening??

  21. erin says:

    Hey Cal, I just saw this study on how rituals increase self control. I thought it was pretty cool as you frequently talk about adding in little rituals to your day (like your shutdown ritual). Here’s the link!

    https://digest.bps.org.uk/2018/07/11/performing-meaningless-rituals-boosts-our-self-control-through-making-us-feel-more-self-disciplined

  22. Dave Dayanan says:

    FB maybe struggling right now. They have to do something to keep a firm hold of what they have now.

  23. In this post, I learn about the unique weakness on facebook. which is very important to me. it is really important to me. With the help fo this post, I can easily solve my problem. which is very helpful to me. I really like your post. I using the Apple Tv and if I have any problem then go to the website https://applesupportnumber.net/apple-tv-support/ which provides the best support.

  24. Kieran McCarthy says:

    As a counter argument, WhatsApp is owned by Facebook and is increasingly indespensible as a communications tool, particularly outside the US. Plus, leaving aside normative considerations, plenty of companies do well financially by making products that its users would be better off dispensing with, with obvious examples such as Diageo and Philip Morris.

    I’m not a FB user or a fan, but I would bet against its imminent demise on grounds that it is not strictly necessary.

  25. Fubang says:

    Hello Cal,

    Thank you for another great article, I agree with the social media linkage with depression and major anxiety disorders, as I child growing up, I always found that connection should be made face to face, instead of comparison with endless pictures or selfies of people who are narcissistic.

    I am pre-ordering your book, and just want to say thank you for helping me to get a 4.0 GPA in my grade 11 and 12 years of high school.

    Regards,
    Paul.

  26. Marijus says:

    Very well noted. Its dispensable. The most common reaction I encountered when asking people what life is like after quitting Facebook? “I have more time for things that matter”.

  27. Shelly says:

    Privacy – that is a major concern for most Facebook users.

  28. Neil Johnson says:

    Having just shut my account, only used for 6 months (many stagnant years) for a political party. It was a very ineffective tool. Where the real value of this lies is Propaganda. It is the largest most effective tool ever devised for propaganda. Most people under 30 have had this as their source of “news” if such a thing even exists today. The feeds I have witnessed, and what they have understood as “news” were just non-profits, organizations all having ties to political parties. The hate, discord and generally stupid understanding of how the world truly works is distorted beyond compare by Mr. Zuckerberg. It is being used primarily for the most evil intent ever devised. I suspect my life and endeavors will increase dramatically now. I no longer have Zuckerberg and the other crazy people chasing fame and attention in my head. I knew he was up to no good, but having spent some time seeing how powerful the propaganda was is truly frightening. Manipulative and evil…..

  29. Anna says:

    I think Facebook has an AI problem. Everytime you do something that looks strange to them (like adding too many friends, giving too many likes, closing ads, changing name or settings) they lock you out of your account and ask you an ID. You give them the id, then they ask a photo of you holding the ID. You sent them, then everything stops. Impossible to get back to your account. So much time wasted and data you can`t access anymore. I lost 4 accounts in 2 months. I have something to promote, but I got tired of this nazi attitude and I gave up. Maybe this is a part of their problem.

  30. Great article, thank you.
    Purely objectively, totally agree – absolutely true!
    But I think the ‘indispensable’ need that social media addresses, of which Facebook is one means, is ‘belonging to a tribe’.
    I also think that need might be higher on maslow’s pyramid than the services of the ‘indispensables’ you rightly indicate. Hence the market valuations of the likes of Facebook.
    It’s also why the masses that subscribe to Facebook don’t directly fund it – funding comes from those who want to use the ‘tribe dependency’ thing to reach the hordes (that suffer from that ‘tribe’ need) through advertising, and of course pay handsomely for the opportunity!

  31. itech says:

    Nowadays people don’t feel secure on Facebook. Data Privacy a thing where facebook lacks

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