Is Facebook Dying?

Is Facebook dying? This is by far the most interesting question anyone would ask about the social media giant. Since its inception, Facebook has been growing exponentially until its business model was exposed. Many people did not understand, and some still do not understand how Facebook makes money. Firstly, this article will address how Facebook makes income. Then, the trend to its first-ever decline in active users per day - the most important metric for the company - which contributed hugely to a sharp drop of over $200 billion in market value will be discussed. Lastly, a breakdown of mitigative actions from an ESG perspective will be presented. These will be done in principle.

Facebook as a company, now Meta, has shown growth over the years and there is still a bright future for the company. Possibly, if the company can manage to face off competition from Tik Tok, the social media giant can bounce off immensely. Facebook makes more than 90% of its income from advertising. As a Facebook user, you trade off your data for a free profile and connection with your loved ones on Meta's signature app – Facebook. Though Facebook does not explicitly inform its users of how it makes money, every user counts, and the more you use the app, the more Facebook makes money. The value of Facebook is tied to the number of active users per day. So, even when you have a profile if you do not log in for a day, you will affect the value of Facebook. That is not the only catch though. Facebook needs more than your login, the more you update your data on Facebook, the more you become more valuable as a user, that also applies to how open your privacy settings are.

Facebook depends on tracking user activity beyond the app to create more value for their paying customers, in other words, you are a critical partner to Facebook, but Facebook failed to let you know of your value because they know very well that the more you understand your value, the more you are going to either demand accountability or reward for your value to their business model. Now because it is evident that more than 70% of its users are not aware of this, we need to zoom in to understand why all these issues have caused a sharp decline in Facebook’s market value in February 2022.

There are two interesting principles to investigate about Facebook’s stakeholder relations – privacy and transparency. Firstly, it will be worth it to get an understanding of Environmental, Social, and Governance (ESG) issues. ESG is a common approach to sustainability in the corporate world, though common with Finance professionals, ESG is beyond investment decisions, it is part of every decision-making process a company can make. Companies, at different levels of decision making from operational, to tactical to strategic, should incorporate ESG into their decision processes. Precisely, we will focus on two social issues, data protection, and privacy and community relations.

In 2012, Facebook faced a lawsuit about privacy concerns of which the company is considering paying a settlement of $90 million after a decade. As if that is not enough, Apple through their privacy policies has limited Facebook’s ability to target ads on their products. Both these issues are risks that Facebook should have predicted way before. The privacy concerns represent social issues that Facebook should have considered as part of its sustainability plans and strategy.

Data protection and privacy are key ESG issues that companies need to incorporate into their strategies for healthy growth. Protecting user data and privacy is not only about legislation but also about gaining trust from users, it is about fidelity and most importantly community relations – another social factor of the ESG issues. Facebook has a very diverse and fragile community. Their vision was to unify different people with different backgrounds and expectations, and they almost achieved that. They had the opportunity, but instead, they misused it. Community relations as a key social factor require companies that are highly involved with communities to treat such communities with respect and accord them the level of authority they deserve pertaining to the company's decision-making processes.

Facebook had one assignment, to engage the stakeholders and gain a social license to operate. Did they fail? ?The answer is yes, did it drastically affect their business? The answer is still yes. Will social license to operate affect their growth positively? The answer will only be yes if they will learn from their mistakes and take an integrated and in-depth consideration of their key ESG issues. It is up to the management to consider ESG as critical to the company's success. ESG issues are factors that all corporate and startup leaders should pay attention to.