One of the most frustrating things to watch in business is companies making decisions aimed solely at boosting their stock prices in the short term at the obvious expense of long-term growth. So it was somewhat refreshing to see a chastened Facebook doing the opposite Wednesday–seeming to address many of the recent concerns about how its platform has been exploited by recasting that platform to ensure that it’s stronger years from now, even at the cost of its stock price now.
As Gartner analyst Brian Blau puts it, “Companies don’t often say, Hey, maybe we made a mistake, we need to backtrack and re-set, and that may impact the bottom line.”
Today, during the company’s fourth-quarter earnings call, CEO Mark Zuckerberg doubled down on something he’d said three months ago: that Facebook will be making fundamental changes to the way its system works that will ensure more meaningful interactions between users down the line, but which will result in significantly less engagement now.
Zuckerberg’s prediction in the third-quarter earnings call of such a dynamic proved to be spot on. Because of changes in things like showing fewer viral videos, people spent 50 million less hours per day on Facebook, about a 5% reduction.
Wall Street reacts
Wall Street didn’t initially like this news, quickly sending the company’s stock down nearly 5% in after-hours trading. Yet Zuckerberg insisted on today’s call that Facebook plans on prioritizing meaningful social interactions over passive consumption of videos, news, and other posts. Within two hours, the stock had reversed course, and as of this writing is up nearly 4%, perhaps as a result of the doubling-down.
“My personal challenge for 2018 is making sure our services are not just fun . . . but for people’s well-being,” Zuckerberg said. “When you see a photo from a friend in News Feed, that’s an opportunity to reach out to that friend [and] remind them that you care. When you see a video or a news article . . . unless you start a conversation around it, you’re not building a relationship.”
Added Zuckerberg: “The product directive that I’ve given to all of our teams is to shift from showing the most meaningful content to people to now encouraging the most meaningful interactions.”
While Facebook has grown massively in the last couple of years–evidenced by Q4 revenues of $12.97 billion, up 48% from a year ago–Zuckerberg thinks that growth is crowding out users’ personal connections on the service.
Reason for skepticism
It’s easy to be skeptical about Facebook’s decision to prioritize meaningful interactions in the wake of months of intense scrutiny from regulators, the media, and others over the company’s role in enabling the spread of fake news and shady Russian-purchased election ads. Congressional leaders have demanded that Facebook–as well as Twitter and Google–make changes to ensure that the platforms are not exploited in future elections or in undermining people’s faith in fundamental institutions.
And there’s no doubt that the company was initially slow to accept its responsibilities in this area. Zuckerberg, for example, initially scoffed at the notion that fake news on Facebook had had a meaningful impact on the 2016 election.
Blau, however, thinks Facebook didn’t take care of what should have been obvious vulnerabilities years ago, even when it should have recognized the potential for the kinds of problems that emerged in 2016. “Now they’re having to, and it’s potentially going to hurt the business” in the short term, Blau says, “even to the point that they’re having to make public statements to investors, which is the most serious type of statement. . . . You’re telling the people that back the company that, Hey, this is the fundamental problem that we’ve got to fix.”
In recent months and weeks, Facebook has instituted a number of changes aimed at solving at least some of these problems. Those included initiatives to ensure transparency in ads, to prioritize posts from friends and family over brands, to lean on the community to determine news sites’ trustworthiness, and to prioritize local news.
Video is clearly a major component of Facebook’s business, but Zuckerberg says he worries that people have been spending too much of their time watching passively. That explains why the company made the changes during the last quarter to downplay viral videos that contributed in part to the overall 5% drop in engagement. But, Zuck says, “helping people connect is more important than maximizing time spent.”
Yet even as engagement is down by 50 million hours a day, Zuckerberg insists the amount users interact with each other will go up.
Being willing to take these kinds of risks is “refreshing,” Blau says, but argues that Facebook should have been watching out and fixing these issues before they ever became public problems.
During the earnings call, Zuckerberg noted that Facebook hasn’t normally shared time metrics, but that doing so now illustrates how serious the company is about ensuring it’s focusing on the right things. It knows that people are willing to view ads–the heart of its actual business–if they care about content on the site, but people are likely to ignore marketing messages if they’re only passively engaged with a post or video.
“We always believe that if we do the right thing,” Zuckerberg said, “our community and business will be stronger over the long haul.”
That sentiment was echoed by chief operating officer Sheryl Sandberg: “Any change that’s good for the well-being of our community is good for the long-term health of our business.”
Sandberg added that while Facebook is making changes to its core platform that it thinks are the right thing for the community of 2.13 billion users, the business impact of those changes “is certainly not negative.”
From Blau’s perspective, the situation is simple. “I’m glad they’re doing something about it,” he says. “It’s the right thing to do, and the market will reward them if they’re successful. And that’s the big if: How are they going to be successful in this? How are they going to change Facebook for the better, keep it a vibrant community, and keep the riffraff out? I think that’s a huge challenge, and likely one that’s going to impact the company, and [it] may take awhile.”