Facebook has announced a “privacy-focused” vision for its future, a response to what can only be called an avalanche of privacy, fake news, and abusive posts problems. Some people have responded to these issues by dropping out of Facebook, but it’s less likely that has stimulated Facebook to act than that they fear government regulation, particularly internationally. There are a number of questions the new vision raises, including whether Facebook means it, whether it will work as planned, and whether the company can deliver to investors based on the shift. A bigger question not often asked is whether Facebook’s issues are symptomatic of problems in the Internet overall.
In business terms, the Internet is a two-layer structure. At the bottom, there’s the access network that provides users with a portal onto the second layer. This access network is provided by Internet service providers (ISPs) for both home and business users at fixed sites (“wireline”), and to mobile device users (“mobile broadband”) via cellular mobile services. At the top is a layer of information and experience providers accessed over the bottom layer. This group, typically called “over-the-top” or OTT players, don’t provide network connectivity, but rather provide the stimulus for being on the Internet to start with.
Among the OTT players, we can find three categories of resources. First, there are company or organizational websites that promote the products, services, membership, or whatever in the entity that creates the site. These websites are cost-justified by what they promote. Second, there are information sites sponsored by advertising, which include many publications and social networking sites, search engines, and so forth. These are paid for through the revenues obtained by presenting ads to site visitors. Finally, there are fee-for-service sites that collect fees for what they provide. These include the streaming TV services like DirecTV Now and YouTube TV, most VoIP sites, many online news and magazine sites, and so forth.
Many sites, including Facebook, have their foot in a number of these spaces, but Facebook is primarily a player in that second ad-sponsored group. This happens to be the group that poses the most regulatory and public policy issues, because of the way that advertising is valued and because of the inherent limits in the total addressable market (TAM) for ad-funded services.
Total global advertising revenue for 2019, according to my modeling, is $612 billion. This number has seen fairly steady growth of about 4% annually, and it includes print, TV, and digital/online advertising in all their permutations. There does not appear to be anything much that can be done to increase the TAM growth rate, and obviously OTT players wouldn’t be satisfied with 4% annual revenue growth, which means that the ad-sponsored OTTs need to gain market share at somebody’s expense. For social media and search players and for OTTs that supply ads to websites that depend on them, the best way to gain market share is to improve targeting and ad click-through success.
Ad targeting means more information about the targets, which is where privacy issues have come in. Any company that can gather personal information, information about recent interests and activities, purchases, and so forth can leverage that to place ads that are more effective. That means more advertisers will use them, which means their market share and revenue will rise.
A corollary point is that more eyeballs also mean more ad benefit. You can have great targeting, but if nobody goes to your page(s) then it does you or your advertisers no good. That means that people and topics that generate views are valuable to OTTs like Facebook, which many believe is why the company has been slow to respond to issues of fake news, propaganda, and so forth. It’s even more important to have hot topics when those topics also drive advertising. You want a bunch of emotionally drive people spending a lot of time online, being a target for ads and at the same time revealing hot-button factors about themselves that can be leveraged to get even more attention.
This point is where we jump off to the “tribal” model of social media. Suppose you’re a believer in UFOs from the planet Mars. It’s not exactly mainstream, so it’s not unlikely that your family and friends don’t share that view. In many cases, this lack of social support will diminish your commitment to those flying Martians. But go to social media and you have a potential way of engaging people with like interests, no matter how bizarre or even deviant they might be. Reinforced, you become a member of the Flying Martians Conspiracy group, and that group generates activity that the social media player can leverage with ads.
The value of ads, then, is related to the targeting and the number of ad presentations you can promise. It’s fairly easy to see that both these factors favor larger players, that consolidation in OTTs is the consequence of companies’ need to mass up to compete effectively. That means that breaking up “big tech”, at least in OTT ad-sponsored areas, would be very difficult. It also means that the same forces that got companies bit would tend to make them bigger still. Combine that with the desire to improve targeting by gathering information and you can see how Facebook ends up where it has.
You can also see why Facebook would find it incredibly difficult to abandon its current practices. If you read the post by Facebook’s CEO Mark Zuckerberg, it seems to me that what it’s promising is a “building a privacy-focused messaging and social networking platform” that includes encryption, non-persistent messages, and options for group communications that’s not “in the open”. What it doesn’t say, and in my own view can’t say because it’s not true, is that this new model will replace the current Facebook model or cure the issues users have with privacy and fake or hurtful or manipulative posts.
Offering a platform that turns Facebook into a secure chat room may sound good from a privacy perspective, and it might even sound good from the perspective of avoiding the tribalistic abuses we see like trolling. The problem is that offering that secure chat room isn’t the same as switching to it, and users have chat facilities available already. Presenting a choice Facebook knows users won’t make not only fails to address the issues, it may submerge the things that could really help. However, I’m not at all convinced that any real change by Facebook or other ad-sponsored sites, or even TV networks, is possible.
Neither Facebook nor any other ad-sponsored experience source can sustain its share price by trashing its main revenue stream, and so nobody will do that. This new model is going to be little more than a parallel pathway. Ironically, instead of pulling regulators off Facebook’s scent, it’s likely to increase their angst. A messaging platform based on encryption, secure from everyone—even Facebook—from monitoring? Might the new Facebook platform be immune from any oversight, and thus become a place where things that both public policy and user (particularly parent) consensus says should not be on social media can now happen?
The real question here is how a society can respond to ad sponsorship in a practical way. You will surrender privacy for experiences sponsored by ads, period. What’s done to protect your privacy will ultimately reduce the value of ads and thus the quantity and quality of experiences you can obtain by using ads to sponsor you. Do you want good stuff? You’d have to pay for it, and nobody wants to do that either.
You also face a less visible but perhaps more significant risk in what we could call “content bias”. Content bias means that types of content that are likely to generate more ad revenue are more likely to be presented. We see that literally every day in the tech industry, but we also have it on television stations and even news programs.
Go back five or six years and ask what used to be covered on the news; the answer was all sorts of events. Look at news TV today and it’s almost 100% politics. Why? Because once you hear about a “normal” news event, you don’t need to keep hearing about it. Politics can offer endless opportunities for reanalysis. Those immersed in the political debates (on either side) are more likely to tune in than those who just want a quick summary of what’s happening in the world overall. News networks learned that during the 2016 campaign, and they responded predictably. Thus, you will get political news, whatever you might like to get personally.
In tech, content bias has literally crippled one of the major engines of the industry. Back in the 1980s, certain tech publications ranked second only to “experience of a known and trusted peer” as the most important influence on buyers’ strategic thinking. Today, the influence of the media on strategic thinking and planning is just a bit above statistical significance. The top reason why IT and network professionals give for reviewing an article or analyst report isn’t to support their planning, but to convince non-technical management to make a decision. Those top publications of the ‘80s aren’t even published anymore.
Lawmakers won’t fix this, not because they couldn’t but because voters won’t let them. The reduction in ad revenue that enforced privacy rights would bring would starve people for free stuff. Most people today would happily trade privacy for free videos and music, and so all people will make that trade. If anyone in Congress was brave enough to take an effective position against ad sponsorship and in favor of effective privacy protection, they’d either find little or no support among other lawmakers, or be swept out of office at the next election. It would take a major, destructive, breach of trust to change people’s minds, which nobody wants to see.
Instead, we’re going to see consolidation among OTTs, as we already are, as people fight for market share in a contained ad revenue space. We’re going to see more and more invasive advertising, which we’re already seeing, and we’re going to see Facebook promising to do stuff that’s not going to change anything…which just happened and will happen again and again. I just wish Mark had been frank and said “Look, we’ve got you, and you’ve got us, and we know it’s symbiotic interest that drives us both, so we’ll do a little dance here and then it’s business as usual.”
But it’s not Facebook’s fault but ours. At the core of the Facebook problem is the fact that we want something for nothing, but that’s not what’s happening. Payment is there, but it’s neither direct nor obvious, and from that point it’s only a short romp to “insidious”. Robert Heinlein said it best in an old sifi novel called “The Moon is a Harsh Mistress”; “there’s no such thing as a free lunch.”