Facebook Fights Its Own Power

| About: Facebook (FB)


Facebook is facing the responsibilities of a publisher, and failing.

Unwilling to displease anyone, its moves wind up pleasing no one.

This makes no difference to the case for the stock.yet.

Like Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), which it has replaced for many mobile users, Facebook (NASDAQ:FB) has achieved enormous power to mold minds.

Google responded to this mainly by ignoring it. Sites like Google News and Google Finance, which offer searches on news and finance, respond algorithmically to what users want, without human intervention. They're also not monetized. This way Google can't be accused of favoring one view or another, or favoring one advertiser. It doesn't like to see itself as a publisher. Publishers are human. Google is a computerized curator.

Facebook's news feed can't work that way. It curates items of interest based on user behavior, and acts as a primary interface to the whole Facebook system. Whom you friend, or what you respond to, will only partly determine the subjects that go into your news feed. Others are added, by human editors, for the benefit of the whole group.

Like Google, Facebook does not want to be perceived as a publisher. Being a publisher carries with it certain responsibilities, to the "audience." Those are things Facebook would rather have its users create for themselves, through its software. But it doesn't, because that software, so intimately involved with the audience, is going to carry prejudices with it.

All this first came to a head two months ago when conservative groups, echoing the charge of a former Facebook editor, accused the site of censoring conservative views in its trending topics. Facebook denied it, but politicians saw a way to bash the company and started playing the feud.

Trying to backpedal, Facebook tried to get out of way, removing summaries from its trending topics. But that's not the way politics works. Once you're in with politicians, you're in until the politicians tire of the game. Conservative politicians have not tired of the game.

Now Facebook is trying something else, working to get rid of "clickbait" articles that are created using Search Engine Optimization techniques specifically to draw audiences. Despite good intentions, this will also fail. It will fail because clickbait techniques are as common on political sites as anywhere else. Getting rid of clickbait, then, will be seen as evidence of bias.

The problem for Facebook is more basic than the controversy and strikes at the heart of its business model. Facebook, like Google, lets advertisers pay run-of-network prices for discrete audiences. Creating discrete audiences, and getting a premium for letting advertisers access, has been the entire journalism business model for over a century.

Having destroyed that model, Facebook finds itself with a responsibility it does not want. Adding live video only magnifies the problem. Facebook is replacing other forms of journalism, becoming not "a publisher" but "THE publisher" for much of its audience, and this carries with it moral, ethical, and even legal responsibilities tech companies have sought to avoid for decades.

Social networks like Facebook, Twitter (NYSE:TWTR) and LinkedIn (NYSE:LNKD) are all facing this responsibility. None are effectively dealing with it, and all are starting to pay a price for that failure. The American Consumer Satisfaction Index is finding less satisfaction with Internet Social Media generally, and with Facebook specifically. The editorial process of getting clicks is getting in the way of the business model.

Does this mean you should sell, sell, sell all your Facebook stock? No. There is far more to Facebook than Facebook. Facebook is Instagram, it's Whatsapp, it's Oculus, and it's 100 other things as well as a large, growing cloud provider, and a prime acquirer of anything else that might come around in terms of Internet content.

Mostly, Facebook is Mark Zuckerberg's gut, just as Apple (NASDAQ:AAPL) for years was Steve Jobs' gut, and Microsoft (NASDAQ:MSFT) was Bill Gates' gut. If I'm considering a purchase of Facebook stock today I'm looking at the jockey, not the horse. That will remain true for years to come.

Unless, that is, Facebook can no longer deliver the 50% growth it's presently delivering, and the fat operating margins that let it bring 20% of that money to the bottom line. It's when I see that going away that I'm selling, but until I do see that Facebook will remain the tip of the FANG spear.

Disclosure: I am/we are long AAPL, GOOGL, MSFT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.