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A Modern Fable About Social Media

Issue 80, Nov 3, 2022

Over the past 18 years, social media has become a way for organizations to market their products and services. It has also enabled society at large to remove physical borders to connect, express their thoughts and opinions, and share the events of their day-to-day lives. Social media offers efficiency and immediacy in a highly-connected world. Before the internet, connecting took time — whether in person, writing letters, telegrams or via the antiquated rotary phone. Today, a post, tweet or the like can be seen by many at the same time, removing the need to interact with each individual separately. A positive by-product of the efficiency of social media is the ability to engage with many when we are time-pressed and victims of overcommunication.

When social started, the shift was radical to many but was also quickly adopted and embraced like a shiny new toy — that quickly became addictive. Mass participation on one or many social platforms opened a Pandora’s Box of opportunity for advertisers and marketers wanting to be where their customers were, exploring new ways to raise awareness for their brands and products and feeling compelled to be perceived as current.

User data, more specifically, the data generated by users in what they like, how they comment, what emotions they convey, and what they share as well as what they ignore, became the source of revenue along with targeted advertising using the data. This practice allowed the platforms to remain free for users (an advertising-based model, not subscription-based). People always like free. Many didn’t question how the platform companies got their money to continue to operate. But you always get what you pay for, in this case, lack of privacy.

Historically, the internet and technology seem like the Wild Wild West where everything is possible. There also seem to be few limits, questions, or concerns as to how these tools may impact us. Innovation rules and we worship the tech gods as we forge ahead without questioning the costs of making lives better.

But the frontier is shutting down. Reality is setting in and we have a clearer realization of how data is used and collected. And how a business or bad actors can compromise individual privacy and security. We hear daily reports on the negative influence of misinformation and how the medium can encourage violence. There is a persistent trend of the mental and physical consequences of social media including anxiety, depression, cyber-bullying, and dangerous activities, especially those inspired by short-form Tik-Tok content. Even more dramatic, a new report from AERA states “US schools and school districts have shared an estimated 4.9 million posts that include identifiable images of students on public Facebook pages, unintentionally putting student privacy at risk. Further, the researchers estimated that 4.9 million of the posts had identifiable images of students, and 726,000 of these identified students’ first and last names potentially giving access to a range of actors, including government agencies, predictive policing companies, and those with nefarious intent.”

Government is catching up. Policy, even regulation historically lag behind innovations. Elected leaders see the potential of innovation to create new jobs, additional tax revenue or even transform a regional- or country-based economy. Over the past 20 years we have operated under the philosophy to allow innovation to grow with limited regulatory or policy control.

Times change. When the darker side of the impacts and consequences of social came to light, public sentiment became expansive and louder for action to be taken. We are at a point in time when the US has been slow to react whereas other regions of the world are taking action, and setting policy and regulations to recognize that although innovation is wonderful, its impacts on society and day-to-day lives cannot go unchecked.

This is a fable, or more accurately a cautionary tale, about what has happened over the nearly past two decades with Meta as the protagonist.

Meta as Bellwether

Everyone has an opinion about Meta (née Facebook) and its game-changing founder, Mark Zuckerberg (love him or hate him, he has changed the cultural conversation forever). We’ve got an opinion as well and believe Meta and its social platforms are bellwethers of the sea change in how advertisers and marketers can profit from these dynamic communities. Why do we believe this? If you follow the recent news about Meta, the issues are clear about the promise and pitfalls of social media. We are bringing this to the forefront because organizations are in a hinge point debating how to leverage social media and digital marketing to grow revenues in a marketplace that is becoming more regulated and controlled by policymakers. The use of data to target advertising to users is going to drop significantly and contextual advertising (advertising that is in context to the content it sits next to on a page) is going to once again become common practice. Honestly, there is no other legal alternative to protect privacy when one has limited data and cannot target effectively.

Dream Big

So, back to the American Dream of social media. In brief: Facebook started optimistically in 2004 with the opportunity for people to share their lives with their friends and families. So far, so good. But the subtext of this novel idea was to make buckets of money selling personal information to third parties. For advertisers and marketers, these were fresh Elysian Fields to grow revenues and market share with the ability to hyper-target, quantify and qualify results. Data-driven targeting challenged traditional newspaper, magazine and television advertising that had to sit back, spray and pray, and hope they reached their desired target audience.

Facebook took off exponentially and became the leading social media play on the internet attracting nearly four billion users and making Zuckerberg and his co-founders, incomprehensible amounts of money. The revenue operating crux of Facebook was the promise of advertisers using data to be able to target specific individuals and groups directly or via what Facebook calls “look-alike” audiences. Given the lack of regulation and policy at the time, this formula created significant revenue. But anything that seems to be too good to be true, is.

Staying Alive

Some would argue that Meta is too big to fail, but faced with new privacy lawsuits, it looks like short-term profits have given way to long-term devaluation. A shift has taken hold of the market matched with restricted user data. What remains is less valuable, and inflationary pressures are causing businesses to pull back on their advertising budgets and engagement programs on Facebook and its sister platform Instagram. This downward trend took strong roots ahead of the pandemic, driven by a then burgeoning platform called TikTok.

Facebook tried many ways to tweak their algorithms altering what users were presented across their feeds in hopes of increasing engagement. Notifications to devices increased when individuals hadn’t used the platform for a while. Advertising was tweaked to draw closer correlation to users’ wants and needs.

However, when Meta reported their performance to their shareholders last week (October 2022), the revenue continued to trend down, operational expenses increased, and the company’s resources continued to be funneled to its Metaverse unit with the promise that society will soon be immersed in every aspect of their virtual lives wearing a headset.

Despite Meta’s wildly optimistic projections on adoption, only 200,000 users have joined their Metaverse, majorly comprised of gamers. Sales of their headsets (to gain access to their Metaverse) continue to fall significantly. Meta is now attempting to partner with Microsoft and other companies as a strategy to increase headset market share as well as sales.

The challenges to Meta are formidable. Projecting a future by attempting to create hype around new innovations and over-promising the potential impacts is out of step with what society wants or is prepared for. Yes, it may all come to pass positively in the end. Perhaps society is wrong and simply doesn’t know what it wants, or yet needs. Time will tell.

What is coming to pass is that it isn’t just Facebook that is returning to Earth. Amazon is reducing staff and capacity as the high adoption of electronic commerce during the pandemic is resetting to a normalized level. As we wrote a few weeks ago in “Too Much Choice,” popular streaming service Netflix is struggling to retain and grow subscribers and has adopted a new business model. And even America’s sweetheart, Starbucks, is plotting a new path to reduce stores, add more efficient equipment and further diversify its products to be more competitive in a market where many of their products and services are viewed as commodities.

Has Our Promising Technology Balloon Burst?

Bloomberg’s Billionaires Index calculates that Zuckerberg’s net worth has dropped $87.3 billion year-to-date. The net worth correlates to the amount of value Meta itself lost after it reported its recent earnings. Both drops may be a momentary situational blip, but we don’t think so and suggest it’s sizable enough to get anyone’s interest and attention. It is collateral damage in our ever-changing environment.

Privacy issues, encompassing user data, protection of those underage, and continual pressure to manage false and misleading information are what all social media platforms face, and the future is unclear. As Drum reports, The US Federal Trade Commission (FTC) has “cracked down on commercial surveillance and lax data security practices. It touches on a range of important data protection and privacy issues, including data monetization models, transparency and user autonomy, children’s privacy and safety, secondary uses of data, discrimination and algorithmic biases and data security. The move represents a major milestone in the global shift toward more stringent regulatory stances on data privacy and protection.”

Apple ATT

Now that EU policy and US state policies are in place, Apple has given control to individuals to exempt themselves from tracking, and as users are becoming more aware and managing their own trails, revenue for social media is falling. What seemed like an altruistic promise for connecting people, social media has experienced an abrupt reality check. These brands are now competing in a marketplace where regulations and policies are reframing the actions of the companies to do good for the user. The Wild Wild West of the internet and digital marketing is taking a pause. Any brand that uses third-party tracking data has had to pivot to implement an operational strategy to collect first-party data which it owns. These issues have been on our mind throughout the summer of 2022, and in our newsletters, we previewed the changes that were being codified in policy, regulation and in response to loud public sentiment.

To dig deeper, Stratechery reports “Before Apple’s App Tracking Transparency (ATT) policy, ad measurement, particularly for all-digital transactions like app installs and ecommerce sales meant that Meta knew with a high degree of certainty which ads led to which results, because it collected that data from within advertisers’ apps and websites. This in turn gave advertisers the confidence to spend on advertising not with an eye towards its cost, but rather with an expectation of how much revenue could be generated. When ATT severed that connection between Meta’s ads on one side, and conversions on the other, by labeling the latter as third-party data, this not only made the company’s ads less valuable, but it also made them more uncertain.”

Imagine going from having 100% of available data to understand your website performance to having 50% or less — and then having to guess what comprises the unknown 50%. Or imagine your financial system only records 50% of your transactions and you are attempting to balance a budget without knowing where and how the other 50% of the funds were spent.

Stratechery adds, “Meta, to their credit, admitted that ATT would reduce their revenue by $10 billion a year, and because that impact is primarily felt through lower prices, that is money straight off of the bottom line — and it’s a loss that will only accumulate over time, by extension reducing the terminal value of the company.”

Yes, but what ATT did not do was kill digital advertising. “There are still plenty of ads on Facebook, and mostly not from traditional advertisers from the analog world: entire industries have developed online over the last fifteen years in particular, built for a reality where the entire world as addressable market makes niche products viable in a way they never were previously — as long as the seller can find a customer. Meta is still the best option for that sort of top-of-the-funnel advertising, which is why the company still took in $27 billion in advertising last quarter. Moreover, the fact that number was barely down year-over-year speaks to the fact that digital advertising is still growing strongly, ” adds Stratechery.

We would counsel that the overall tracking of digital advertising demonstrates that growth will be in niche areas. What remains viable for Facebook may be the rinse and repeat practice of organizations that have marketing dollars set to spend on advertising even without being able to qualify or quantify the results. Organizations generally are becoming more astute as they seek to validate the promise of digital advertising’s ability to measure. Remember: in challenging economic times, a marketing budget is one of the first to get reduced.

Nothing Is Irreplaceable

Social media is tricky. Young audiences are fickle. Meta’s products (Facebook, Instagram) are falling out of the mainstream, being replaced by TikTok. The once-novel quickly gets replaced by another shiny object for next-gens. TikTok may well be threatened by emerging alternative experiences as people grow tired and weary and want something new and different as they adapt to digital technologies and interactions.

Zuckerberg’s all-in belief is that the metaverse is going to be all things to all people. But the investment community isn’t buying it. They have withdrawn their support because of the lack of progress and lackluster performance. The gamers community continues to be the early adopter, but the longer-term success of the metaverse is in doubt as society considers how a virtual world applies to them after two years of living without much physical contact. With any radically new idea, it sometimes takes a while for the rest of the world to catch up, and Zuckerberg may be ahead of his time or completely off-base and out-of-touch.

What Next?

Organizations face challenges from all digital marketing fronts. Bad actors still run rampant on social media. It’s increasingly impossible to detect whether humans or bots are generating content. And in either case, when Elon Musk stated a return to a more open Twitter platform without moderation, is it a move for free speech or fake news … or both? EU regulators countered the move saying the Digital Services Act resulted in all social companies agreeing to a code of conduct. Twitter will be required to follow the law and that code of conduct.

Musk, ever the champion of making more money at the expense of others, has broached the concept of verified accounts to help communicate to users that someone’s identity is real and that they work for a reputable news organization. The Verge reports that Musk wants to start charging users up to $240 annually for verification. But think about it: Many journalists may not be able to afford the fee, meaning the free news engine of Twitter could easily get snarled up with reports from deceptive or unaccountable actors that have money to spare. Advertisers will surely take notice, according to Quartz.

Many large organizations have already publicly communicated their position to end their advertising spend and remove themselves from Twitter since Musk is now implementing some of his earlier public statements. Depending on Musk’s eventual Twitter-focused decisions on what the platform is and how it operates, more bad actors may try to game the new more open system.

We are already hearing news out of the EU of other bad actors attempting to work around the new data protection regulations that put control of targeted advertisements and cookies in the hands of users. Some publishers have started to piggyback on advertisers who have gained consent from users. The piggy backer of course doesn’t have direct consent from a user. Although that is illegal in the EU now that the new regs are in place, the mother of invention will find a way rightly or wrongly to track customers.

The Moral

Whether you support big government or a more deregulated marketplace, social media is now under regulations to protect users. However, the bottom line in this arena is trust. If any organization breeches its foundation of trust with stakeholders, its future is limited. And in our contentious marketplace, memory is long and even institutionalized on, you guessed it, social media. We live in a paradoxical world where we use the platform we may not trust to share our beliefs, which we do trust.

Adapt or die, perhaps a little harsh, but only change endures. The survivors will evolve with their markets and customers, anticipate the future and not catch up to it and never compromise on trust that is the cornerstone of a sustainable future.

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