If you had read CEO Mark Zuckerberg’s letter in Facebook’s 2012 IPO Proxy, you could have anticipated him facing outraged legislators at a future date. I read Facebook’s IPO letter back in 2012 when I wrote Investing Between the Lines and used my candor analytics system to uncover the company’s potential. Not only did the letter reveal Facebook’s goals and mission, it also exposed two problems that confront the company today:
Problem No. 1: Revenue confusion
The letter began with a statement about Facebook’s social and commercial purposes: “Facebook was not originally created to be a company. It was built to accomplish a social mission—to make the world more open and connected.”
This purpose sounded noble, but how would Facebook make money as a public company? Zuckerberg wrote: “We don’t build services to make money; we make money to build better services. And we think this is a good way to build something.” Perhaps this bewildering sentence distracted readers from noticing there were no reports about specific strategies to produce revenues from Facebook’s 800 million users and its one billion connections. There was no mention of selling user information to advertisers.
Problem No. 2: Failure to see connection between privacy and security
Zuckerberg’s passion for the company’s mission was evident in his vision of the “huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future.”
But this raised a flag. Was he assuming that “everyone in the world” would use Facebook to transform society for the better? This wasn’t realistic. Such a vast audience would include good and bad actors, some of whom might want to harm society and individuals. As well, Zuckerberg’s attention was focused on the “unprecedented” scaling of the technology and infrastructure to create the platform. He wrote, “… this is the most important problem we can focus on.”
(AP Photo/Carolyn Kaster)
Since the IPO, early investors who held their Facebook stock have done spectacularly well. And while Facebook’s users acknowledge its importance today as a social platform, some are increasingly ambivalent about the company’s purpose. Roger McNamee an early Facebook investor mistrusts and values the platform. He uses it to advertise his rock and roll band.
Long ago I accepted privacy risks to gain the benefits of social media. But the theft of data by Cambridge Analytica undermines my bargain. Silicon Valley entrepreneur Tarun Wadhwa explained, “Facebook assumes their platform has the lock on making meaningful social media connections happen. But for this to work, users must believe that Facebook is a trustworthy mediator. Not only are users reconsidering how much to trust the company, they now see their information can be used in ways they never imagined when they first signed up—in other words, how privacy and security are linked."
Have the Congressional hearings impacted Facebook’s financial performance and user growth? It’s not possible yet to determine these impacts since the hearings were held in early April. In the recent first quarter earnings call, Facebook reported a 13% increase in daily and monthly active user growth, while revenue increased 49%.
But an analysis of key words from this first quarter call reveals a different kind of Facebook conversation. This chart shows that key words like “private” and “privacy” were mentioned 14 times in the earnings call compared to zero a year ago. The frequency of words like “protect” and “hate” also increased.Rittenhouse Rankings, Inc.
Key Words in FB Earnings Calls
During the earnings call, analysts asked questions about the company’s revenue model, especially with the anticipated activation on May 25 of the General Data Protection Regulation (GDPR) in Europe. The GDPR website states this is intended to: “harmonize data privacy laws across Europe, to protect and empower all EU citizens’ data privacy and to reshape the way organizations across the region approach data privacy.” Compliance could be challenging. Perhaps this will moderate how Facebook and other social media platforms flash words around the world, often without context and responsibility.
Is Facebook trustworthy? Tell us in the comments. Read more at Forbes.