Numbers drop for Facebook

On Wednesday (31^st January), the Facebook earning report showed that the time spent by users in North America the last quarter of 2017 had fallen by approximately 50 million hours a day due to a change in the content algorithm promised by Zuckerberg. This new algorithm is meant to fix important issues with the platform to prevent misuse of the website.

Background

In May 2017 news was released saying Facebook was a key influencer in the outcome of the 2016 US Presidential election and the Brexit vote, according to those who ran the campaigns. Those in charge of these digital campaigns believe that the social network was decisive in both wins. In the past years, social media in general has come under scrutiny for hate campaigns and terrorist propaganda, the presence of bots, and the proliferation of so called fake news ahead of elections.

Since the start of 2018, Facebook has committed to making significant changes to their platform. In a post on his page on the social network early this month, creator and CEO Mark Zuckerberg said the website was making too many errors enforcing policies and preventing misuse of its tools. Zuckerberg has famously set himself challenges every year since 2009. This year the Facebook creator said his “Personal challenge” is to fix important issues with the platform to prevent misuse of the website.

These issues include “protecting our community from abuse and hate, defending against interference by nation states, or making sure that time spent on Facebook is time well spent.”

Facebook said, for example, that it would ask its users to tell it which news sources they read and trust to help it decide which ones should be featured more prominently, in order to feature more trusted sources on the website. This is intended to focus on “meaningful connections” that make the website “good for people’s wellbeing and for society”.

Analysis

In November 2017, after hiring 10,000 moderators for the website to monitor issues such as Russian disinformation and violent or terrorist content, the company warned of a possible hit to profits.

On Wednesday (31^st January), the Facebook earning report showed that the time spent by users in North America the last quarter of 2017 had fallen by approximately 50 million hours a day due to a reduction in the presence of viral videos on newsfeeds intended to create a “higher quality experience”. This translated into a 5% drop – an average decrease of 700,000 users a day. The news that this latest algorithm change led to a decrease in time spent by users invited concerns from investors about the corresponding drop in demand for advertising, resulting in a fall of shares of over 4% during afterhours trading.

December 2017 saw only 2.1 billion monthly active users. According to Bloomberg, daily active user growth is at the lowest it’s ever been, at approximately 13.8%, indicating that the growth of the massive social media platform is slowing. However, real numbers for daily active users are still higher now than in January 2017.

The corporation also issued reassurance that the 5% decline was temporary. CEO Zuckerberg added, “I want to be clear: The most important driver of our business has never been time spent by itself. It’s the quality of the conversations and connections.”

During the report, Facebook also indicated positive growth on other platforms: particularly mobile advertisements on Facebook and other apps such as Instagram and Facebook Messenger. COO Sheryl Sandberg stated that “monetization opportunities” such as these could increase due to the changed algorithm.

Shares eventually rebounded after positive forecasts.

Assessment

Our assessment is that Zuckerberg’s decision to weed out untrustworthy sources and inauthentic accounts is a step in the right direction. Figures also indicate that Facebook will not take a drastic hit in its user base or fiscal stability despite significant changes. Its greatest challenge could be regulatory scrutiny if it is unable to effectively deal with issues such as terrorist propaganda and Russian misinformation.