Facebook & Co. – Broken valley

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New philosophy needed.

• Mark Zuckerberg gave a well prepared and practiced performance at Facebook’s congressional hearing but it is clear from this and from some of Tesla’s recent problems that the Silicon Valley methodology of “move fast and break things” is itself, broken.
• Only Republican Ted Cruz was able to rattle Zuckerberg when it came to the issue of political bias and censorship.
• At the heart of the hearing is the use to which Facebook and its developers put the data that the service gathers during the provision of its service.
• The line of questioning from most senators clearly indicated that the majority of the senate does not really understand how Facebook or any of the other advertising driven tech companies work.
• If the political class doesn’t understand Facebook then the vast majority of its users are also likely have no real understanding of the arrangement into which they have entered with Facebook.
• Hence, I suspect that 99%+ of Facebook users still think that the company is providing its service for free and that they are the customer.
• Consequently, these users are under the impression that the data that they upload to Facebook belongs to them, explaining the furore that ensued when Facebook and its associates legitimately used the data to make money.
• Unfortunately, Facebook’s users are not the customers, they are the product.
• The real customers are the advertisers who pay Facebook for an audience to which to market their wares.
• This reality has been very badly communicated by the internet service companies who appear to be more than happy for everyone to scroll to the bottom and click agree.
• There is also a lot more that these companies could do to ensure that the data that they collect is being used for their monetisation and targeting and only that.
• I suspect that users would have been far more wary about exposing their entire lives on Facebook had they been fully aware of this reality, but this is what needs to made clear now.
• Consequently, something along the lines of: “We are able to provide this service to you by selling using your data for targeted advertising. If you would like us not to do this, we can offer you a subscription for $X per month.” will be needed to ensure that the relationship is clear.
• This is where business on the internet is likely to go and I think that once the choice to pay with cash or personal data is clearly understood, then the problem will have mostly been solved.
• However, it is clear from these hearings that the very way that Silicon Valley conducts its product development has a problem.
• Uber, Tesla and Facebook have now all had serious problems with the “move fast and break things” strategy and I suspect that a more rigorous approach to product development is likely to ensue.
• This will mean that the iteration of new products and updates will become slower, but at the same time these sorts of blow-ups will occur less frequently.
• This makes complete sense as the likes of Google, Facebook, Tesla, Twitter and so on, are no longer start-ups but are mature, grown-up companies with all the responsibilities that that entails.
• Big changes are likely at Facebook and I don’t think that any of them are going to be particularly good for revenue growth.
• A huge increase in human surveillance and slower product development are likely to mean lower revenue growth and higher operating expenses.
• Both translate into lower profitability which combined with the fact that Facebook has a long way to go before its fledgling ecosystem can generate more revenues, points to a lower valuation than where we are today.
• Privacy advocate Apple is likely to outperform those that monetise by advertising while this storm rages.