Three Reasons Facebook's Mark Zuckerberg Need Not Step Down

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On May 18 of this year, Facebook stock debuted on NASDAQ at $38 per share. Last week, three months later, it was selling for half that price. As the stock has plunged, questions about CEO Mark Zuckerberg's leadership have risen. Late last week, the LA Times asked "Is Mark Zuckerberg in over his hoodie as Facebook CEO?," a swipe at the attire Zuckerberg famously wore on the day the stock launched. CNET Columnist Ben Parr received an email from an attorney's PR firm promoting his drive to force Zuckerberg out. And even Perez Hilton got into the act, taking a break from scribbling on celebrity photos to ask, "Should Mark Zuckerberg Step Down As CEO Of Facebook?"

Should Zuckerberg step down? That is up to him to answer. Zuckerberg could certainly follow in the footsteps of Twitter's founders who stepped aside to allow a more seasoned leader to take the helm, not that the sailing has been that smooth over at Twitter since the transition. Under Dick Costolo, Twitter has alienated its developer community and violated its long-standing commitment to free speech by encouraging NBC to request the suspension of a critic's Twitter account. Although Twitter's revenues are rising, they reportedly lag Facebook's revenues considerably. It is difficult to evaluate Twitter's performance since it remains privately held, but the company's SecondMarket valuation was downward trending this year until rumors surfaced of Apple's interest in a share of the microblogging network. The point is that, while CEO leadership is important, CEOs are not miracle workers (no matter what you may have read about Marissa Mayer).

Whether or not Zuckerberg should step down is a question only he can answer. But need he step down or will he be forced to do so? If you think this, you have not been paying attention. Here are three reasons why Zuckerberg's position is secure:

1. It is his damn company: As noted on this blog six months ago, Facebook's S-1 IPO filing could not have been clearer about the control Zuckerberg wields at Facebook. After the IPO, Zuckerberg owned 56.9% of the voting shares, and the IPO took pains to warn investors what this meant. It noted Facebook would be a "controlled company" and that "Our CEO has control over key decision making as a result of his control of a majority of our voting stock." In case this was not clear enough, the IPO also included this comment: "Mr. Zuckerberg will be able to effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of our company." Facebook's CEO, much like the social network itself, came with a "Like" button but no "Dislike" button, and there is virtually no chance Zuckerberg can be forced from his position running Facebook. If he steps aside, the decision will be entirely his own.
     
2. Investors' unreasonable expectations and mistakes are not Zuckerberg's responsibility. If you thought Facebook was going to be a safe or strong short-term stock, you were truly misguided. The stock debuted at a price that represented a PE ratio (price/earnings ratio) of 95. At the time, successful tech companies like Apple, eBay, Microsoft and IBM were trading at PE ratios of less than 16. In other words, Facebook was going to need to grow its net income 500% in short order to justify its price, much less create positive market momentum. (The first person who says, "Earnings don't matter" will be sentenced to go back in time to March 2000 to relive the dot-com bubble burst and learn what he or she should have the last time around.) If you are looking for someone to blame for the fact the shares were overvalued, then pick on analysts at firms like Sterne Agee, Needham & Co. and Wedbush Securities, all of whom rated Facebook a "buy" in May and suggested target prices in the $40s. As far as I'm concerned, there has been nothing surprising about Facebook's stock performance since its IPO, and if you think I am Monday morning quarterbacking, feel free to check out my blog post from December 2011 when I predicted the continuation of the "slow-motion social media valuation bubble burst." Or, heck, go back even earlier when in June 2011 I noted that Facebook or Twitter "could pull an Amazon, lose 90% of their market cap and spend another decade clawing their way back."
     
3. Facebook's financial performance under Zuckerberg has been exactly as expected. The sinking price of Facebook shares has far more to do with investor perception than with company or CEO performance. In July, Facebook's first quarterly filing as a public company "just squeaked in at analysts’ expectations." That included an almost one-third rise in quarterly revenue in a year, a 32% year-over-year increase in Daily Active Users and a 67% increase in Mobile Monthly Active Users. On a non-GAAP basis (the way the market evaluates Facebook), the Earnings Per Share were level with the year prior, which is not surprising given the company is still fueling worldwide growth with a 50% increase in headcount and a two-thirds increase in capital investments. Overall, while Facebook's lack of earnings growth may disappoint the street, the company's performance is on track for what market watchers expect. Compared to Zynga, which recently slashed its earnings estimates for 2012, Facebook looks like a solid, growing, successful, well-run, young company. 

In short, it is pretty darn tough to see how Zuckerberg would be forced out from his CEO position considering he controls the company and is delivering the financial results expected. This is not to say that I think Zuckerberg has been a good CEO in recent years. I have railed against Facebook's lack of revenue diversification and innovation, and its focus on advertising rather than facilitating new social business models has been, in my opinion, a serious blunder in long-term strategy. Moreover, as my former Forrester peer Nate Elliott noted, the company has not delivered the sorts of marketing metrics that marketers need to justify greater investment in Facebook advertising.

Even more concerning is that Facebook's desperation to quickly grow revenue and income seems to be pushing the company away from Zuckerberg's own core beliefs. As David Kirkpatrick, the author of The Facebook Effect, noted in the early years of Facebook, Zuckerberg "resisted pleas to turn Thefacebook into a highly commercialized ad platform, because he thought users would dislike it." Facebook's CEO continued to show ambivalence and concern about advertising years later when in 2010 he said, "There’s a big misperception that we’re making these changes for advertising. Anyone who knows me knows that that’s crazy.”

It is hard to square Zuckerberg's stated vision with the actions of the company this year. Facebook seems to be exploring some very dangerous and unpalatable waters, such as charging users to have their posts seen by more of their own friends and permitting advertisers to place ads in users' news feeds even if those users have not "liked" or given permission for those advertisers to do so. Moreover, Facebook's new Reach Generator threatens to push aside content users want to see in favor of content advertisers want them to see.

I do expect more out of CEO Zuckerberg, but that has more to do with my expectations around social business models and strategy than with the company's 2012 financial performance. In the end, however, what I or anyone else thinks is meaningless. The world can "poke" Mark Zuckerberg as much as it wants, but he and only he will make the decision when the time is right for a new CEO.

Progressive is Not Facing a Social Media Crisis

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Much is being written about Progressive Insurance's "social media crisis." I will not go into great detail about the situation other than to say that a young woman, Kaitlynn Fisher, was tragically killed in an auto accident that was apparently another driver's fault. She carried insurance from Progressive that protected against the danger of an accident with an under-insured motorist. Because the driver who caused the accident was under-insured, the family sued, and Kaitlynn's own insurance company, Progressive, acted in the defense of the responsible driver.

The company says "To be very clear, Progressive did not serve as the attorney for the defendant in this case," but an article on the Mail Online states, "Court documents clearly show that Progressive filed as an 'interested party' and was 'allowed to intervene as a party defendant' and 'granted all rights to participate in this proceeding as if it were an original party to this case.'" Over on Consumerist, a Maryland attorney attempts to shed more light on Progressive's actions, and it is noted that "it's not unheard of for this to happen." And while some tweets and posts claim Progressive paid for the defense of the man responsible for Kaitlynn's death, this is not the case--the driver's attorney confirms Progressive did not do so.

Since I am not a lawyer and this is not a law blog, I am not going to weigh in on the legal merits of this situation one way or another. I do, however, wish to explore if this situation is really a "social media disaster." That term gets tossed around a lot, and it is beginning to irk me. It carries with it the implication that social media is responsible for brand and corporate reputation damage. Perhaps it is time that our view of social media matures and we begin to put the blame where it belongs--not on the medium where people discuss, share and criticize, but on the corporate actions that cause these discussions, shares and criticisms.

Source: PRBreakfastClub.com

The evidence for this being a social media disaster may seem quite clear: This incident was instigated with a blog post by the victim's brother, Matt Fisher, and rode a wave of more blog posts and tweets until mass media paid attention. Now, thanks to articles on CNBC, CNN, Gawker, Huffington Post and others, this situation is garnering worldwide attention. To make matters worse, the company has responded to critical Twitterers with a single, identical response, and a blog on Progressive.com features a safe six-sentence response that reads like it was written by a lawyer (because it was). Progressive's social media actions have been called everything from robotic to soulless. (And many have pointed out the repeated cut-and-paste responses appearing next to Flo's smiling face hardly helps the company appear compassionate.)

Social media disaster: Case closed? Not so fast. While this is not exactly a case study for how to handle a sensitive PR crisis, did Progressive's tweets and blog post make matters worse? And while this situation was exacerbated by social media, was the problem truly created by social media? To use an analogy: If you jump off a cliff, do you blame gravity for your situation or trace the problem back to your decision to leap from the cliff in the first place?

No, this is not a social media disaster. Social media is not responsible for the tragic accident, did not create Maryland's liability laws, and did not decide on a legal course of action. Progressive is not suffering because of social media; it is suffering because its actions in this case seem contrary to the public persona presented by the company's ads and brand communications. If a mistake was made, it was not a social media error but a blunder of judgment and corporate culture.

Social media is not the cause, and neither is it the cure in this situation. Nothing Progressive tweets or posts to a blog is likely to change many minds, because actions always speak louder than words. Don't get me wrong, Progressive could accelerate the brand healing with a more human and candid response, but healing will happen in time anyway. Soon, this crisis will blow over, just as it is already doing for Chick-Fil-A and did for Nestle, Delta, United and many others before. Time heals all wounds, even social media ones.

The fact reputation problems shared in social media have a relatively short half-life does not mean companies should take them lightly--they come with real costs. Some sales are lost, costs for PR and marketing are increased, executives lose focus on other priorities to deal with reputation issues, expenses increase as changes are made to prevent recurrence of similar situations, and brands may suffer some long-term loss in trust and value. Look at BP: The BBC estimates that the Deepwater Horizon disaster will cost BP shareholders "some £40bn in lost income" in the long term, even though the actual costs of the disaster are estimated at £26bn. Since the disastrous oil spill (and BP's CEO's slightly less disastrous public relations missteps), BP stock is down 31% while the Dow is up 19%. A lot of that is obviously due to fines, cleanup costs and changes in safety procedures, but some of this loss in value is due to the fact BP today enjoys less trust among investors and consumers.

Progressive may face real costs as a result of this situation, and if it does, who is to blame? The social media team? No, it is stuck between a rock (the consumers) and a hard place (the demands of a sensitive legal situation). The real source of this PR crisis is, instead, the Legal Department at Progressive.

Matt Fisher and his sister, Katie
Source: Huffington Post

Again, I am not going to criticize the legal decision in this complicated situation, but I do think we can question whether this decision was made with full consideration of the social era in which we live. Today, it is very possible to make a decision that is the right one from a legal perspective but very much the wrong one from the social, brand and reputation perspective.

In this case, the costs Progressive faced were a mere $100,000. That is the amount Kaitlynn Fisher's policy covered in the event an uninsured driver caused injury or death, according to an attorney for the Fisher family. Was this worth $100,000 to Progressive? The company spends around half a billion dollars every year telling consumers it is fun, caring and trustworthy--just like Flo. This single $100,000 claim represents 0.02% of the company's annual ad spend, and now social media is speaking louder than Progressive's advertising. So, was it worth it to fight the claim in this case?

I cannot count the number of times I have said this, but in today's social era, every employee is a social media employee. Your delivery driver can become an overnight YouTube sensation. The employee who makes burgers in Ohio can become an inadvertent anti-hero. And an attorney who decides to deny a claim, forces a grieving family to pursue a lawsuit, and files papers in support of the person responsible for the death of the insured may, indirectly, become a social media influencer. We do not know who the man or woman is who made this decision, but today, he or she speaks louder than Flo on behalf of Progressive.

If every employee is a social media employee, then every decision is a social media decision. Watching this situation develop reminded me of another case from many years ago involving a Walmart employee, Debbie Shank. She was injured in an auto accident and left brain damaged. The family was awarded $1 million by the trucking company involved in the crash, and then Walmart chose to file a file a $470,000 lawsuit against the family to recover the expenses paid for Shank's medical care. Walmart won in the court of law but had to reverse its actions after online reaction threatened to harm the company's reputation. (When I share this story with audiences, I sometimes become choked up when I recount that Shank is unable to form new memories, so she frequently asks about her son and relives anew the anguish each time she is reminded her son was killed in Iraq.)

Like Walmart before, Progressive is dealing not with a social media problem but a legal, reputation and brand problem. Social media did not cause it, but now that the Fisher case is a cause célèbre, Progressive will perhaps be forced to handle the outcome differently. In addition, it is likely this situation will bring a change in how Progressive (and other insurance companies) deal with these sorts of claims.

So let's stop calling this a "social media disaster." This is not a result of social media but of corporate actions and culture. Once again, I am reminded of the words of Ralph Waldo Emerson--a quote I have shared more than once on this blog:

“Who you are speaks so loudly I can't hear what you're saying.”

Your tweets may help your brand's reputation, but they cannot speak louder than who your company is or what its actions are.

Please Support My Change.org Petition to Change Change.org

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Change.org is a terrific, timely idea, giving a voice to consumers and advocates like never before. It could be better, however, because its omission of two-way dialog prevents the exchange of different perspectives and allows misinformation to spread. This should be a concern to every person who cares about truth and believes in the value of dialog, but those of you responsible for managing social media for your employer should pay special attention--the day may come when you desperately want and need to engage in debate and combat inaccurate information on Change.org.

Change.org furnishes a way for anyone to launch a petition, encouraging others to lend their voices to worthwhile causes. A successful petition can gain traction, earn attention in the media, inspire action and create change, but does Change.org do enough to enable all voices and facilitate informed decisions? Change.org does not permit those with contrary opinions or information to share, and I believe silencing debate in this manner reduces the power of Change.org. Change.org could become even more powerful if it permitted true dialog and debate, so I launched my own petition and ask that you consider adding your name.

I think the petition speaks for itself, so here is the entire text:

Change.org is a terrific service empowering people to transform the world, but it could do even more to achieve its goals. If Change.org enabled true bilateral dialog, people could be exposed to more than one side of each issue, allowing them to make more informed decisions as to the petitions they choose to support.

In its current state, Change.org only allows one-sided arguments to be presented, furnishing no opportunity for those being petitioned or others to offer contrary opinions or information. People visiting a petition have just two choices--sign a petition or leave. Because Change.org does not allow those with differing opinions or additional information to add comments to a petition, erroneous information and unsupported assertions can go unchallenged. Without dialog and debate, people may sign petitions without having the benefit of hearing other views and weighing additional facts.

If Change.org really wishes to be a force for change, it will permit dialog. People deserve to make fully informed decisions, to have access to all perspectives and to engage not just on the petitions they support but also the ones they oppose. Please sign this petition and encourage Change.org to allow dialog, debate and diversity of opinion.

This petition supports Change.org and its goals. We can make Change.org better!.

Why might you care to support the petition? A couple of reasons are worth considering:

• If you are responsible for social media for a brand, a time may come when your employer is the target of a Change.org petition. If so, you may wish to furnish more information, share your organization's perspective and perhaps even correct erroneous information. As Change.org stands today, you are unable to do so.
    
• If you care about true dialog and believe that the sharing of ideas, feedback and information helps people to be thoroughly informed and take better action, then please sign my petition.
    
• If you wish to prevent the spread of misinformation, encouraging Change.org to permit dialog will do so. One obvious example of how Change.org can be used to disseminate inaccurate information is the petition to "Arrest and impeach Obama" for using "forged documents as proof of eligibility to be an American citizen." On the other side of the political spectrum, a petition accuses the Romney campaign of giving away items of value in exchange for votes--a violation of election law--but furnishes no evidence. These may be bad examples because they are so obviously partisan, but you can imagine how easily unfounded accusations and misleading allegations may be spread in a forum where two-way dialog is not permitted. 

I want to see Change.org change, but I very much respect its mission to become "an international network of people empowered to fight for what's right locally, nationally, and globally." Change.org has been the platform for many successful efforts to change minds and behaviors, such as:
 

• Molly Katchpole, a 22-year-old nanny, famously launched a petition on Change.org that helped force Bank of America to reverse its decision to institute debit card fees.
    
• An organization supporting the right for Saudi women to drive created a petition asking Secretary of State Clinton to support their cause; shortly after the petition accumulated 10,000 signatures, Ms. Clinton publicly backed the effort.
    
• A petition asking JCPenney to pull an offensive T-shirt delivered the desired results in just one day.
    
• When a class of fourth graders noticed the web site for the upcoming movie version of "The Lorax" lacked information about trees and the environment, they reacted with a Change.org petition. Fifty-seven thousand signatures later, Universal added tips on saving trees.
    
• A mother who lost her two daughters in an accident caused by a faulty rental car launched a Change.org petition asking Enterprise to support legislation increasing federal oversight of safety recalls for car rental agencies. After initially balking, Enterprise changed its stance when the petition amassed 170,000 signatures. 

Change.org is a powerful force for change, but could it be even more so if it allowed debate on the issues? With no way for people to offer opposing views or additional information, Change.org deprives visitors of the opportunity to see diverse perspectives. In an era of transparency and dialog, Change.org offers little of either.

A small example of how Change.org's policies provide a one-sided view can be seen in the local debate over LED signs in South Kingstown, RI. Change.org features a petition urging people to "Keep the ban on LED signs in South Kingstown." The petitioner notes, "These signs are aesthetically unappealing, can cause driver distraction, and are not in line with the charm and character of South Kingstown." Meanwhile, local businesses have asked that the ban be changed, noting the signs "are more energy efficient and can cut down on light pollution because the bulbs are dimmer and directional." You will not find the local business perspective while viewing the Change.org petition because Change.org does not permit different perspectives. To see the other side of this debate, you must search and find the Patch.com article covering the local controversy.

Do the 276 signers of the LED signage petition know the concerns and facts from those on either side of the issue? Are they sufficiently informed to weigh in? Might some minds have been changed if both the pros and cons of LED signage were presented? I don't know, and neither does the South Kingstown Town Council, because Change.org provides no mechanism for dialog and different perspectives.

I reached out to Change.org sharing my opinion that facilitating two-way conversation would enhance their site. They responded, "Would you consider making a petition of your own to support your side of the argument? We generally do not allow negative comments unless someone signs a petition, but since Change.org is non-partisan, that means that if you wish, you too could create a petition so that it gets the word out to others about your side." I don't think separate, conflicting petitions are the answer--that is a shouting match, not a debate--so I took Change.org's challenge to launch my own petition.

I believe the petitions on Change.org can be even more persuasive if the site permitted a back-and-forth dialog that educated petitioners. If you agree that debate and transparency are good and advisable aspects of both social media and social action, please consider signing my Change.org petition.
 

What Do Facebook's 1 Billion Users Represent? [Infographic]

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Let me be the first to welcome Facebook's 1 billionth user.

No, you haven't missed an announcement from Facebook, but it is coming very soon. Facebook's recent SEC filing indicated that Facebook had 955 million Monthly Active Users (MAUs) as of June 30, 2012, and the social network was adding MAUs at a pace of almost 600,000 per day. At that rate, Facebook will hit the 1 billion mark in mid September.

A billion is a big number. Really big. How big? Well, here's an infographic I hope you will find interesting...

Random Trivia: Facebook took eight years to reach 1 billion users, the same number of years it took Ray Kroc to sell his 1 billionth McDonald's hamburger. While Facebook undoubtedly has a few duplicate users, Kroc had a great deal more repeat customers. Whether or not Facebook will ever be able to claim "billions and billions served" as McDonald's does remains to be seen. The second billion will be much harder for the social network. At the current time, Facebook's growth curve is flattening in the U.S., Canada and Europe as the saturation point is approached, but Facebook still on an upward slope in Asia and the rest of the world. Facebook still has plenty of room for growth globally.

Source links for data in this infographic:

http://investor.fb.com/secfiling.cfm?filingID=1193125-12-325997

http://en.wikipedia.org/wiki/List_of_continents_by_population

http://en.wikipedia.org/wiki/List_of_countries_by_population

http://en.wikipedia.org/wiki/Internet_access#Growth_in_number_of_users

http://www.wan-ifra.org/articles/2012/04/17/world-press-trends-2011

http://www.comscoredatamine.com/2011/06/google-reaches-1-billion-global-visitors/

http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/b#mobilebroadband

http://www.winbeta.org/news/microsoft-1-billion-people-worldwide-now-use-microsoft-office