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Facebook has growing political problems because it has business problems. The company appears to have committed errors that almost every business does — namely, overextending its product lines and over leveraging switching costs.
Overextension occurs when companies think that every competency can be a product: Many electric utilities went into the telecom business in the 1980s and early 1990s because they already had poles, fiber networks, etc. So why not leverage them? They were rarely successful.
Switching costs are the costs that customers incur to switch brands or products. For example, once it developed Windows, Microsoft knew it would be costly for people to switch to say Apple because they would lose access to old files. The company leveraged this for years with less than stellar versions of Windows. Customers found alternatives.
It appears too late for Facebook to divert the political backlash by addressing business problems, but politics will be the least of the company’s worries unless it asks itself and others at least five key questions:
Question 1: Why is now different?
Facebook is no stranger to troubles — it was caught running psychology experiments on users, it ran those infamous Russian ads, research has shown that it has negative psychological impacts on users, etc. — but it has never lost users. Until now.
In 2017, the company lost almost 10 percent of its users in the 12- to 17-year-old demographic. Its daily active user count recently declined in the US and Canada, the first time that has happened in any market.
Why now? Maybe the constant drumbeat of negative news has caught up with the company, affecting how users feel. Or users are starting to feel like they are not Facebook’s customers, but its product. Or competition is growing. If the company doesn’t understand the answer to this question, the decline will accelerate.
Question 2: Why is there only one artificial intelligence in Facebook?
Facebook uses artificial intelligence (AI) to learn about users and direct content to them. Its algorithms have drawn criticism for being biased, but AI is biased by definition. So the problem isn’t bias per se but the nature of the bias.
What if customers were allowed to choose which AI algorithm(s) applied to them? Could there be categories, such as one biased toward recent events, one biased towards positive news, and one biased toward Asia? What if customers switched algorithms whenever they liked?
Question 3: Why do advertisers pay Facebook?
Currently, customers give their attention and data to Facebook in exchange for various forms of dopamine rushes. This gives Facebook an incentive to grow how long users stay on the site any way it can. According to a former Facebook executive, the company did exactly that a few years ago, using psychological tricks to get people to spend more time on Facebook.
Are there other ways for Facebook to develop a valuable user base? How would Facebook change if it had a cryptocurrency that advertisers could use to pay users for their data or time? What if the tokens were redeemable or exchangeable or given to charities? How would it affect users if Facebook’s financial arrangement with advertisers was scored like the SAT used to be graded, where Facebook was paid for ad placements that hit and paid users or advertisers for those that didn’t?
Question 4: Why is Facebook individual centric?
Facebook’s mission statement is about building communities, but at the user level, it is really a system of links and nodes, with users serving as nodes that have links to other people and to Facebook Groups. This isn’t how traditional communities work.
What if Facebook looked more like the physical world where people associate by going places? Could there be virtual Facebook taverns where people chat, private clubs with more exclusive, private rooms where content is confidential, and media rooms where people catch up on news of their choice?
Question 5: What will destroy Facebook?
According to Abraham Lincoln, “An Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too, shall pass away.’” This probably holds for Facebook.
Some companies delay their demise by looking at themselves from the outside, asking questions about avenues for competitive entry, about what could change industry paradigms, and about what they are not seeing from their current vantage points.
How can the company effectively reflect on itself? Royal Dutch Shell once took up scenario planning to get outside itself. The content was generated in part by outsiders, sometimes by the company’s harshest critics, and the company stayed in a learning mode. Perhaps interesting scenarios would be: What if governments took control of data? Or what if half the world’s work moved to a gig-economy system?
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