6 Reasons this could be the beginning of the end for Facebook.
It's not revenues that are causing a problem, there's plenty of money still flowing through the Facebook machine and whilst people might have expected a better performance based on past history, Facebook still beat their own estimates.
No, I think this share slide is indicative of a platform, and business, that is heading into its twilight. When you take a good look at it, Facebook are facing the kind of threats that could really mean we are seeing the beginning of the end for the social media titan.
Scandals, oh... the scandals
The Cambridge Analytical scandal forced Facebook, and it's definitely not camera-friendly CEO Mark Zuckerberg, squarely into the crosshairs of the government and the mainstream media.
Looking and sounding like a failed AI experiment hailing from deep inside the Uncanny Valley, Zuckerberg's handling of the Facebook privacy scandal undoubtedly did damage to the business. For many people, they got their first good look at the type of person who makes a business out of codifying social interactions and monetising friendships. It wasn't a pretty picture. (Sorry, Mark!)
It was the chink in the armour the mainstream media had been waiting for. Their own advertising revenues gutted by the likes of Facebook and their own influence waning, they went for Facebook all guns blazing. And they haven't stopped...
It's not just privacy that's a problem for Facebook. Fake News was the buzzword of the past US Presidential election, with numerous allegations of interference by foreign powers using Facebook ads to influence the outcome of the election. The same allegations have been made about the UK General Election (both of them), Brexit, and probably The Great British Bake Off.
The net result is that far fewer people trust what they read on Facebook and not a month goes by without the media picking up a story about a scam, fraud, or outright lie being spread on the platform. I only needed to run one Google search to turn up the latest Facebook data scam, and it's a big one...
Other social media platforms, notably including Twitter, have eschewed political advertising moving forward in the wake of this but Facebook has refused to limit or regulate advertising on its platform.
With Donald Trump's team allegedly planning to spend over $20M on Facebook advertising for his re-election campaign, the gravy train will roll on for Facebook even if it's heading full steam for the buffers.
In my opinion, Facebook's best option would have been to ban political advertising as others have done. Why haven't they done this? Well, perhaps $20M represents just the tip of a very, very big iceberg in terms of the political spending on the platform. Perhaps they believe they have the "right" to carry this advertising and can regulate it themselves or, perhaps, they simply don't have a good mechanism for working out what is a political advert and what isn't... Technologically, they are not the wunderkind they one were.
Facebook is Old
Facebook was once the new kid on the block. Praised for it's clean and intuitive interface, it crushed MySpace beneath its calming blue jackboot and became the de-facto place to share cat memes, pictures of your kid's birthday party, and engage in humble-brags and make vague, passive-aggressive mentions of how bad your day had been.
Since then, innovation hasn't been something much associated with Facebook. Most changes it makes are clearly designed to help it make more money, not to improve the experience for its users and are roundly hated. You can't spend more than a hour or so on Facebook without encountering somebody posting something like
This post serves as official notice that Facebook are not allowed to use my photographs, videos, or other data for marketing and are not, under any circumstances, allowed to sacrifice my children to the dark elder gods that they worship.
... Or something like that.
All in all, it's not a *happy* user community and Facebook's innovations, such as they are, have been restricted to gobbling up competitors before they get too big and then copying some of their more popular features.
Developing and maintaining Facebook is not cheap either, Facebook have 1,000 engineers working on privacy alone, their headcount has grown by 26% year on year, and costs are significantly up.
Facebook's Users are old too
Facebook continues to report user growth, but outside of new and emerging markets it is slow, adding just 1 million users in the US and Canada last quarter. For Facebook, that's a very small number. Growth in younger demographics is also very low. To put it bluntly - the kids aren't down with Facebook.
Facebook is where your Mum and Dad hang out. Give it a few more years, and it will be where your Nana is too. Facebook is not cool and Facebook know it. They've got a decent timeline ahead of them milking their existing users, but it seems unlikely they are going to be able to recapture the explosive growth among young users they once enjoyed and this is resulting in slow profits from an investment perspective.
They'd need to do something really cool, really innovative. Like... er... crypto! Crypto's cool, right?
Yes, Facebook's recent announcement, that they are going to create their own cryptocurrency "Libra" might look like a bold move, but only if you redefine bold to mean "brave enough to put a shotgun in your own mouth".
Facebook has wanted to be an eCommerce business for years. First, there was their disastrous integration with Amazon, then they launched Facebook Store, which was discussed in depth in the most earnings call.
Yeah. So we're doing a lot around commerce and payments because there are lots of different segments for what people are trying to do. In terms of buying and selling things, a lot of people want to buy and sell used goods. We have Facebook Marketplace for that. A lot of small businesses want to set up storefronts. We're enabling that through Instagram and Facebook and then increasingly through Messaging as well.
The holy grail here is, of course, not skimming off a percentage on transactions - it's having all the data about what we buy. Libra, Facebooks' cryptocurrency, should have been the focal point for this, but they've handed over control of that to the Libra Foundation, partly as a response to the massive scrutiny and the threat of regulatory interference from governments around the globe.
On the payment side, WhatsApp Payments will be a part of Facebook Pay. I mean, we announced this program last year that basically will make it so that if you pay for something in any of our apps, you only need to enter your credit card once, and then you can use that to have a more frictionless checkout experience across the other apps. So those two things tie in together.
You can understand the nervousness in some sectors about this and why partners have been leaving the Libra Foundation faster than underage drinkers leave a nightclub when the lights go up. Think about it - A company that has been doing everything it could think of to convince us that it could be trusted and didn't need to be regulated just told us that it wants to create its own untraceable, stateless, unregulated currency.
Seriously, what could go wrong?
Right now, there are near-constant rumors that Facebook will drop Libra but the company continues to throw its weight behind it, at least in public. Partners like Visa have stepped aside from Libra and personally I don't personally think it will ever see the light of the mass market.
It does provide a very useful distraction from Facebook's other big project though, one I think personally is the real big project inside Facebook right now. It's something I'm calling...
The Great Unification
The two-headed beast of privacy scandals and political advertising has caused many people to ask if it isn't time for regulation in the social media industry - starting with Facebook (which is also Instagram and WhatsApp).
Facebook is also facing two antitrust probes from the EU: The first is into Facebook's proposed plans for Libra and the second is into how Facebook collects and monetizes user data.
Some regulators and politicians want to break the company up, separating its component parts to make it weaker and easier to control. Facebook don't seem to want that and they are moving the chess pieces around the board to stop it from happening.
It seems like they are wise to the public appetite to impose some controls and sanctions on Facebook and so rather than fight regulation on the political or legal front, they are going to take the fight to somewhere they feel more comfortable - down into the code.
Facebook is making changes to the Facebook platform, Instagram, and WhatsApp to "unify" the applications onto a single infrastructure. Blurring the lines between where Facebook stops and the platforms begin, Facebook appears to be attempting to create a monolithic system that might be impossible to break apart. *Caveat - that's just my assessment, based on the news.*
What does it all mean for Facebook?
How can it feel like the writing is on the wall for a company that just reported a colossal $21.08 billion in revenue? Why are the shares taking a knock when all the financial indicators look good?
Well, whilst some investors are definitely just looking at the comparative slow numbers, others are certainly thinking about issues like the ones I've discussed here. Are they even beginning to question the long term future of the company? Maybe it's time to "get out while the getting's good".
For those of us on the outside, Facebook increasingly looks like yesterday's platform - a solid and reliable performer turning over big revenue, but no unicorn. And the markets do love a sparkly, sparkly unicorn.