Monday, June 30, 2014

It's About Trust, Stupid Facebook

In the 1992 presidential election, a catchphrase emerged out of the Clinton campaign: "It's the economy, stupid." It was a reminder of the issue voters most cared about and the topic that would win the election. This rallying cry helped Bill Clinton defeat George H. W. Bush.

If I were advising Facebook (which, I guess, I am with this blog post), I'd hang this in every office in Menlo Park and Facebook's other outposts:  "It's About Trust, Stupid." It is a reminder of the issue consumers most care about (eventually) and the topic that will keep Facebook on top.

Facebook is in a very dangerous situation: It is wildly successful. If only all of us could have such problems, huh? The problem with success is that it tends to make an organization lazy and overconfident. Kodak was wildly successful. Myspace was wildly successful. The Roman Empire was wildly successful. When you are riding high, you begin to believe you are invincible, and that it is the moment you are most vincible.

Facebook has good cause to be confident, I suppose. After every change of its news feed, a million voices scream how they are going to abandon the platform, but few do (and the ones that do almost always come crawling back.)  Six months ago, the buzz was so loud that "kids were leaving Facebook" that every major news outlet trumpeted the exodus with headlines, yet a Forrester study found that 80% of teens are more active on Facebook than any other social network. Facebook has taken more body blows than Rocky, but it always seems to get the last punch.

Facebook appears to have little reason for concern, but neither did Kodak, Myspace or the Roman Empire--until it was too late. The thing that Facebook's leaders do not seem to realize is that if (or when) a tipping point occurs and users start to flee, the company will be as powerless to stop it as Myspace and Friendster was.

I am not suggesting an exodus is imminent, but Facebook now has everything to lose and--let's face it--very little to gain. It is already one of the 25 largest US corporations based on market cap; there aren't too many rungs above them, but there is a bottomless pit beneath Facebook. And this is a company with a single, undiversified revenue model--it is completely and totally reliant on advertising. (On this blog, I've often criticized the company for failing to diversify, especially during an age of growth in the collaborative economy. The fact Facebook remains completely addicted to old-school advertising while social business flourishes around Facebook is an embarrassment and a huge risk, in my opinion. But I digress.)

The company's lack of diversification means if (or when) people feel they can socially engage on a safer, better, more trustworthy platform, the companies' entire business model may unravel rapidly. We often forget how rapidly confident, successful companies become the opposite. Kodak was trading within 20% of its all-time high in July 1998; a little over two years later, Kodak has lost more than 50% of its value. In March 2006, Borders was trading near its record high price; two years later it was down 75%.

When the tipping point happens, no one sees it coming (or else the stock price would be lower) and everyone is surprised at how fast it happens. Facebook needs to be less confident. The company needs to be reminded "It's About Trust, Stupid."

The company may own consumers' time and social sharing, but it is on shaky ground when it comes to trust. A year ago, a study suggested consumers trust Facebook less than the NSA and the current American Customer Satisfaction Index reveals consumers are less satisfied with Facebook than virtually any other organization.

There is good reason for consumers to have little faith in Facebook. The company has shot itself in the foot several times, and the media is not always kind or fair. From Facebook settling with the FTC for deceiving consumers to Facebook monitoring your browsing behavior to target ads to social gaming scams run on the platform to the the dubious practice of sponsored stories (which turned consumer posts into brand advertising without specific permission), this is not a company with a good track record (or any track record) in earning consumer trust.

(When the company launched Sponsored Stories, I told my Facebook rep that we would participate only if we could first secure permission from each participant. My rep questioned why we would want that and I responded EVERY advertiser should want that; a couple years later, Facebook had advertiser fleeing from the program and settled a class action lawsuit over the practice. But I digress, again.)

The latest trust issue to hit Facebook was all over the media (and Facebook) this weekend. The company allowed researchers to manipulate users' news feeds to evoke positive or negative emotion, proving the obvious--we feel happier when we see positive things and sadder when we see negative things. (Shocking! Positively shocking!) Of course, some Facebook users have reacted negatively to being treated like lab rats and having their communications manipulated. (Shocking! Positively shocking!)

It has been supremely disappointing to see some marketing "experts" defend Facebook by claiming this is no different than the sort of positioning brands have always done. They fail to recognize the humongous difference between a brand manipulating its own communications to evoke a desired reaction and Facebook manipulating your peer-to-peer communications to do the same. That is the difference between Old Spice changing campaigns to increase purchase intent in consumers and Gmail hiding messages from friends to provoke a desired response in users. It is not hard to understand why Facebook is facing the backlash over the research study, but it is unfathomable why Facebook leaders ever thought that publishing the study (much less conducting it) was a good idea.

Facebook has defended the study, pointing out it has the right to do these things based on the service's terms and conditions. To me, this reeks of the South Park parody where Apple claims the right to turn customers into human centipedes because it buried this permission into the 100-page agreement no one reads and everyone accepts automatically. The fact Facebook believes it can rely on legalese instead of consumer trust is further evidence of a serious problem for the social network. It's About Trust, Stupid.

I don't have a crystal ball, and I certainly recognize that Facebook seems invulnerable to consumers' lack of trust and satisfaction. But rather than strengthen the company's resolve and confidence, the consumer reaction to this study should really be a warning sign to those at Facebook.

No company can operate without trust and satisfaction forever, and if the end comes, it will not be something most see coming--least of all the folks in Menlo Park.


Anonymous said...

I remember Lew Platt's words when HP was at the top: Everything looks green but am worried, we're becoming complacent. Then HP went down slowly.
Success and a monopolistic position does breed arrogance..add to this equation that data is king, with FB loaded with behavioral data and you've got a recipe for arrogance leading to breaches of common sense limits.
Perhaps social network should be monitored as much as cable companies.

Unknown said...

Well done, Augie. Let me posit, however, that the issue goes even deeper than trust, or rather itself underlies trust: Simple recognition that, as Scott Rosenberg put it, we don't call the shots in our digital home:

Old news? To the Social Media Commentariat, certainly. To the Great Unwashed FB Masses? Not at all. Scott writes: "We know Facebook doesn’t show us everything, but to each of us, our newsfeed feels like a space that has been put together just for us." I would suggest he's being overly generous in stating "we know..." I'd bet that not only the great majority but an unsuitably 70-80-maybe 90 percent of the FB masses realize that their FB newsfeed is in fact constructed by FB rather than simply *delivered* to us. And if that's anywhere near the truth, then the implicit naive, superficial trust that the masses have held and still hold in FB could be in jeopardy.

*Could be*: Because will the FB masses, and not merely the relatively tiny Commentariat, get this news, and understand it? And even if do, will they really care eough to act on it?

Unknown said...

sorry -- that should have been: *do not* realize...

Unknown said...

We have all become addicated to online social interaction. It is simple and easy and we cannot give it up. Facebook by and large owns the network even though a lot of us hate outselves for using it. They are opening the door for a disruptive competitor but so far no one has stepped up to the plate. They will be able to get away with far more until there is an alternative. They have been shown to be manipulative, dishonest, and unscupulous but as the old age goes. "if you are not paying for the product, you are the product" and we are certainly seeing how that feels.

Unknown said...

What Facebook did was egregious. That puts them in good company at the pinnacle of American media and business ethics. Banks that are too big to fail, energy companies that don't clean up after themselves, network news that skirts the truth in favor of ratings and airlines keep busting guitars.

When called out by the government, big (and small) companies that break the law will pay fines (without an admission of guilt) and a promise to behave better in the future. Those promises are, more often that not, broken. That's about what Facebook can expect.

GM made conscious decisions that resulted in the deaths. Business ethics are what you can get away with.

You make some great points, Augie, and there should be some changes made. But we, the users, are complacent. I've not seen one friend who is a daily Facebook user leave the platform because of this. We love to hate the companies that make the things we love.

Augie Ray said...


I'd bet most people know their news feed isn't a pure feed of posts. After all, they can see the pure chronological feed in the upper right hand corner of their home page in a browser.

While some people seem to have a problem with the fact Facebook filters the news feed, I generally do not. I no more want to see EVERYTHING EVERYONE posts than I do EVERY news story, EVERY email (including spam) or EVERY tweet. To me, filtering that is based on true interests and affinity is very vauable--if Facebook gets it right and does not manipulate it. I trust them not to (there's that "trust" word again), but I am growing uncertain I should.

The operative question is the one you asked--will consumers really care enough to act on this sort of news? Not now, but I keep wondering if a tipping point might not be reached eventually.

Augie Ray said...

Terry, I certainly agree that no competitor has been ready to step in. Some folks thought Google+ would topple Facebook, but I never felt Google was a whole lot more trustworthy than Facebook was. Then others got excited about PATH, but it had limitations that prevented it from taking hold.

I tell you, I'd be tempted to go get some VC cash and start my own social network. I'd duplicate Facebook (to the extent I would not get sued) except for one key difference: No advertising.

My revenue model would not lead to explosive growth and billion-dollar vlauations, but I believe one could create a successful social network without advertising. I'd build business models around sharing economy concepts (think Etsy, eBay, AirBNB and RelayRide, powered by a trusted network of friends and contacts.) I'd offer profile upgrades for those who care to pay (a la LinkedIn).

And perhaps most importantly, I'd align brand offerings with the concept of earned media and not paid media. To me, that is the most important problem Facebook has--it is an earned media network that never found a way to make money off of earned media, so it is undermining its own model and trust with old-school interruption marketing. What if a social network allowed brands to amass their first 50,000 fans for free (good for SMBs!) and then charged brands 25 cents per fan per month over that? Brands would have to get very picky about who they accumulated (meaning no dumb game giveaways and sweepstakes). And if you allowed brand to control who followed or didn't (in the same way an email marketer might perform hygiene on their lists) the brand could focus on the users that are most engaged and most valuable.

I'm not suggesting there wouldn't be more complexity, but I think an anti-advertising Facebook clone could work. It's too late for Facebook, but maybe not for someone else.

What do you think?

Augie Ray said...


"We, the users, are complacent." I agree. After a decade of hearing about how WORD OF MOUTH was going to cause companies to behave better, I see no evidence. BP destroyed the coast; Walmart and McDonald's underpay pepole, GM kills people--and... where's the adverse impact? Hell, people HATE Congress, but they'll still re-elect 90% of the incumbents!

I think this theme was the subject of my last blog post, about United breaking another guitar. Consumers DO have the power to get companies to behave better, but that requires less complacency. I don't see anything changing, do you?

Judy Gombita said...

If this study was conducted in 2012 (and only being published now in the academic journal, which is how knowledge of its existence was unveiled), is anyone else wondering (as I have) what other "experiments" Facebook has allowed other academics or organizations in the last two years (with a similar lack of transparency)?

Augie Ray said...

Judy, That's a great question, and given the reaction to this announcement, it does not seem likely we'd hear about any other research they conducted, does it? (Or, if you're a conspiracy theorist, maybe this was the least egregious research they conducted and the announcement was a canary in the mineshaft to test consumer reaction.) :)