On February 3, Facebook shares (now part of Meta) lost $ 230 billion, making it the biggest one-day fall in U.S. stock market history. This happened for a number of reasons.
First, Facebook reported that the number of its daily active users had dropped by 500,000. That’s a small fraction of 2.91 billion active users a month, but this is the first time Facebook’s growth has gone in the opposite direction. The special significance of this decline is that these users are migrating to other platforms, mainly to TikTok, which are rapidly conquering the market for young people. Facebook is increasingly seen as old-fashioned, and its main customers are getting older. Many of today’s users are parents, grandparents who want to keep in touch with their children.
TikTok does not offer the same service as Facebook, but it better attracts and holds the attention of young users. One of the reasons why this is a fundamental threat to Facebook is that its business depends on “capitalism oversight”, which means that users have to share huge amounts of their personal data so that Facebook can analyze them and sell information advertisers.
The power of each internet platform is based on the simple principle of networking, which is that the cost of a communication network is proportional to the square of the number of system users. As more users join the platform, it increases the incentive for additional users to join, so the company becomes bigger, more attractive to advertisers, thus revenue grows, and the company becomes more valuable. That’s why companies like Facebook don’t charge for their services. Their goal is to become so big that they can make the most of their advertising revenue, and they have been so successful in doing so that they have taken hundreds of traditional media companies out of business.
However, Facebook does not rely only on its network capacity. He has also been accused of using anti-competitive behavior, such as capturing smaller competitors before they become too strong to maintain market dominance.
The drive for monopoly power is why Facebook is working tirelessly to increase its users and why it is accused of ignoring evidence that its platforms were used by criminals to rob and traffic people; that they allowed the loudest, most aggressive and racist voices to dominate the public domain and thus undermined rational debate, truth and honesty in public life; that their platforms subjected innocent people to severe harassment and abuse, and that the use of young people on social media was linked to depression and suicide; and that they were used by some of the most contemptuous regimes in the world to suppress dissent and oppress minorities.
However, the network effect cuts in both directions. As Facebook users begin to switch to another platform in large numbers, that platform quickly increases in value, and Facebook 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 beginning to realize how much personal information they have given away, and many no longer feel that way. Last year, Apple introduced application tracking transparency (ATT), which required users to consent to their every move being monitored by programs. When users were actually offered a choice, many refused to share their personal information. One of Apple’s innovations cost Facebook $ 10 billion in lost advertising revenue, nearly 25 percent of their total revenue in 2021.
CHANGING USER MOOD
Changing user sentiment threatens the entire current Facebook business model. Many users are now increasingly aware of the extent to which they have allowed companies like Meta to look into their lives, track their relationships and investigate their behavior, and data protection and personal privacy are fast becoming increasingly important. When Apple allowed people to restore their privacy, people took advantage of that opportunity. This is a serious threat to a company like Meta, which relies on the ability to process and sell information about its users, usually without understanding how their data is exploited.
In 2010, IT security expert Bruce Schneier said, “Don’t make the mistake of thinking you’re a Facebook customer. You are not – you are a product. Its customers are advertisers. ” Despite this very clear explanation, most Facebook users still think they are customers, and Facebook has been able to take full advantage of this misconception.
Facebook’s third problem is that people are increasingly concerned about the social damage the company is doing. Even Facebook’s Supervisory Board has decided that it is wrong to allow people’s names, addresses and photos to be published (known as doxxing) if it exposes them to vile abuse and brutal cyberattacks. A statement released earlier this month by the Supervisory Board said that “the harm caused by docking disproportionately affects groups such as women, children and LGBTQIA +, and may include emotional stress, job loss and even physical harm or death ».
Facebook has also been criticized for spreading hate speech. A horrific recent example is when the Tatmada regime in Myanmar encouraged the massacre of a minority of Rohingya Muslims. It is reported that 24,000 Rohingya have been killed and nearly a million more have fled and are now refugees in neighboring countries. The Rakhine group is now suing Facebook for $ 150 billion for failing to take any action to stop the spread of hate speech and subsequent genocide.
Of course, it is surprising that Facebook has for years exposed people to “job loss, physical injury or death” or even genocide without any consequences.
Facebook’s fourth problem is that regulators are also now waking up to this story of abuse. In 2020, the Irish Data Protection Commission ruled that the Common European Data Protection Regulation means that Facebook can no longer collect data from users in Europe and transmit it to the United States for processing. Meta then said that if the data transfer is blocked, she will have to close Facebook and Instagram in Europe. He made a similar threat to the Australian government when he was told he would have to start paying for news he takes from other media companies, but declined when the Australian government told the company that the country could run well without it. The US, UK, Brazil and other countries are also now changing their data protection rules, forcing Facebook to either abandon some of the major markets or make significant changes to the way it conducts its business.
Abuse of market dominance
Data, media and antitrust regulators are now concerned about the abuse of market dominance by hyper-scale social media companies. In January, a U.S. federal judge ruled that the Federal Trade Commission could launch an antitrust lawsuit to liquidate Facebook, forcing the company to sell Instagram and WhatsApp. The crux of the FTC case is that Facebook has monopoly power and deliberately maintains that power through anti-competitive behavior, such as buying rival companies.
Despite this pressure, Facebook never made friends. In January, the House of Representatives Committee to Investigate the Capitol Hill Attack asked a number of social media companies to submit internal documents regarding dissemination of disinformation, support for extremism and insurgency, and attempts to overthrow the United States government on January 6, 2021. . However, Meta and YouTube have refused to comply fully, probably because they are concerned that the House of Representatives’ investigation into the role of social media platforms in polarizing society and encouraging extremism is likely to further damage their reputations, but many consider it unacceptable. charges.
So it is possible that now the trend is beginning to unfold against hyperscalers, particularly Facebook, which has been linked to some of the worst abuses in recent years.
In two articles written for Pick-up Last year, I concluded that technology giants had promised the world a new era of freedom but opened the gates to abuse and malice on an unprecedented scale and that many governments would be forced to bring the digital frontier under the rule of law. Regulators in a number of countries have come to the same conclusion, and a number of new laws and regulations are being passed. It is important that Jamaica and other Caribbean countries also develop legislation and law enforcement capabilities to protect users, control and take effective regulatory action against any market or other abuses by companies such as Facebook.
Anthony Clayton is Professor of Sustainable Caribbean Development. Send feedback to email@example.com.