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Episode 16: Why we shouldn’t be cheering for Facebook’s downfall, with Axios

From data privacy to fake news to fluctuations in traffic to publishers, Facebook is a complicated topic. From the point of view of publishers, the media, and content creators, are we taking into account exactly how complicated?

Sara Fischer, Media Reporter at Axios, joined us to discuss why it’s worthwhile to look at Facebook from multiple perspectives, both in the context of the attention economy and the wider, global economy. “I think at the end of the day they’re an American company and it’s important that we understand the power of the technology and we don’t rush to dismiss it,” she said.

Sachin and Andrew discuss origins of negative attitudes towards Facebook, differences in how the company sees itself internally compared to how users view it, and how traffic to publishers complicates the picture even more. Plus, they go +1/-1 on D2C companies.

Listen to the full episode above and read on for the audio transcript. Subscribe to The Center of Attention on Apple Podcasts, Google Podcasts, or Stitcher.

Show notes:

Transcript:

Megan: Okay, you guys. It’s time for mean tweets, Facebook edition. Sachin, go first. What have you got?

Sachin: All right! Here’s one to start us off. This is from @PhilippeReines—no idea if that’s how you pronounce it—who is a political consultant, and he writes, “Only 75% to go.”

Andrew: What? That’s in response to the Facebook stock drop?

Sachin: Yeah. It’s when they fell by 24% back in July.

Andrew: Oh, I see. Yeah, that’s similar to the tweet I was going to share too. I guess we’re going all negative on Facebook. So the tweet I had was, “It is time. #deletefacebook.” And that seems like a pretty innocuous and maybe typical tweet for the time, but the interesting thing here is that it’s from Brian Acton, who’s the co-founder of WhatsApp.

Sachin: Now, was that the billion dollar tweet?

Andrew: The billion dollar tweet. What do you mean by that?

Sachin: Well, I think this was prior to when he actually ended up leaving Facebook, because WhatsApp, for everybody who doesn’t know, is owned by Facebook. Brian Acton, co-founder of WhatsApp, had his company acquired for billions of dollars, and I think he actually left $1 billion on the table as a result of privacy concerns related to why he tweeted, “It is time. #deletefacebook.” I think this might be the billion dollar tweet.

Andrew: Oh, interesting. That might be the only one that had that value. The cool thing about the Brian Acton tweet to me, or maybe the interesting thing, is that his co-founder, WhatsApp as a company was always founded as like a pretty inspirational company prior to the Facebook acquisition, because it was this super lean startup that served I think over a billion users with a staff of like 50 people or something like that.

On top of that, it was also one of the first messaging apps to do full on end-to-end encryption. They were involved, or I think adopted in some way. the signal standard for end-to-end encryption. I think that perhaps maybe the reason these guys kind of turned on Facebook is because Facebook realized they needed to turn on the WhatsApp business model of having lots of users pay a little bit of money and giving them end-to-end encryption and privacy as a result.

Sachin: Well, they certainly paid a lot for it, so they’re going to want their money back at a certain point. I think this all brings up a larger question, which is should we be rooting for the downfall of Facebook as a business? If they do go away, does that mean there’s just a void in the social media space, or does that mean somebody else takes on the reigns of this? This is a broader question; what should Facebook be doing? What should we be thinking as citizens, I guess, of this country and of the world in relation to the success or downfall of Facebook?

Megan: (03:01) Welcome to The Center of Attention, the podcast exploring how digital behavior relates to the attention economy at large. I’m Megan Radogna, I’m Parse.ly’s content marketer, and I’m here with Parse.ly’s co-founders and the shows co-hosts; Sachin Kamdar and Andrew Montalenti. Hi, Sachin.

Sachin: Hey, Megan.

Megan: Hi, Andrew.

Andrew: Hey, Megan.

Megan: What do you guys make of the blow back about Facebook?

Andrew: (03:23) Yeah, the interesting thing about Facebook to me is that it’s a halfway point in my mind between the business model of Google and the business model of a company like WeChat in China, right? A company like Google is trying to support the open web and the tapestry of e-commerce companies and publishers online and then provide a utility service to many, many users, which is generally finding information or helping people search for information. But Facebook is more like a place where people communicate and just so happen to consume a lot of content, and Facebook doesn’t seem to have a clear identity with regard to whether it wants Facebook.com and the Facebook apps to be the end-all-be-all of people’s internet experience much like WeChat is in China, or whether they want Facebook to be a part of a broader open web the way Google is.

I think that that’s some of what you see playing out to the degree that Facebook tries to control content and be a gatekeeper, it feels to the public like it’s exercising too much power and to the degree that it opens up, it feels maybe like it’s acting as some industry supporter or something that you actually would want to root for. I think that there’s some debate maybe even going on internally at Facebook about which one it wants to be.

Sachin: (04:55) I think the thing that I’m worried about with Facebook though is I feel like the actions that they’re taking right now and some of where they’re putting their time investment and money in is not in the public discourse arena. In fact, we saw this with our own data when we saw publisher traffic go down because they didn’t want to get involved in content discovery, maybe presence or lack of presence of fake news, fact verification truth. They said, “Okay. We’re just not going to play in that field. Where we’re going to play is in these private conversations that don’t have the responsibility of holding up to weighty things.”

So you see that by their effort to monetize things like WhatsApp. You see that by their product importance and pressure on things like Facebook groups where, again, those things aren’t readily open. It just makes me worry that what they’re saying is, “We’re not going to lean in and help to solve these issues. We’re actually going to go a different direction where we don’t have the scrutiny of the public on our company.”

I think that is probably a bad decision for the future. I think they really need to lean in and own the fact that, “Hey, we are a place for a public discourse across the globe, and we do have to meet the standards that the public holds for us. Otherwise, what’s the point of having a platform that supposedly is open and connecting people through communication across the world?”

Megan: (06:28) Luckily, we had an expert here today to talk to us about this exact question. I spoke with Sara Fischer, Axios’s Media Reporter, about why Facebook’s place in the wider economy and not just the attention economy, means that this is a more complicated question than maybe all these people on Twitter took into account. We shouldn’t be cheering for Facebook’s downfall, and here’s Sara with why.

Sara: (06:51) I don’t think we should be cheering for Facebook’s downfall. I think at the end of the day they’re an American company and it’s important that we understand the power of the technology and we don’t rush to dismiss it.

There have been many technologies in our history that have seemed dangerous and seemed daunting from the get go especially when new unforeseen consequences are introduced as a result of those technologies. I think about cars. I think about rail. I think about even a cotton gin. But at the end of the day, if you can regulate them in an efficient manner overtime, learn about them, these technologies can end up being very powerful tools. I think social media could be one of them.

I think when a company like Facebook experiences a 24% drop in their stock because they slightly missed on earnings and people are cheering that, I think that’s not necessarily the right approach. I think the better approach is we should want American companies to succeed, and if they aren’t succeeding, what’s the reason and what are the lessons that we could be learning from that?

Megan: (08:06) I’d like to go into both sides of that. First, why are people maybe inclined to cheer? When you looked on Twitter at the end of July on the day that Facebook’s stock dropped, what maybe encouraged some people to have that negative attitude?

Sara: (08:22) I think that for some in the media world, in journalism, they look at Facebook as being the company that has stolen a lot of their ad revenue. We know that Google and Facebook combined are taking about 85% of every new ad dollar in the digital ecosystem.

I don’t feel as though publishers think that they directly compete with Google as much, because their advertising proposition is search based and that’s not something that most publishers monetize. Whereas Facebook, which makes most of its ad revenue based off of display advertising, that is something that publishers and members of the media have been able to monetize digitally for decades. I think that they do feel this sense of a different type of attitude towards Facebook.

Now, to be very clear, I don’t think that any media or tech reporters have a bias against that company when they cover it. But I do think if you’re asking me about the broader landscape on Twitter or just media execs, I do think that the competition with Facebook is something they think about, which is why when they hear that Facebook stock is down because of slow ad load, because of saturation to their newsfeed, the thought in their head could be, “Well, if they’re going to reach a point of saturation, maybe that could be good for us. Maybe that if their growth is going to be stalled, we’ll be able to capture some of those dollars back.

Megan: (09:50) But in reality, if Facebook stock continued to fall—if it plummeted, say—what impact would that actually have for media?

Sara: (09:58) Well, taking a macro-level view. I mean, anytime the market is that volatile, it’s problematic, because the media relies on a lot of companies that would be intrinsically tied to that downfall. So you noticed that when Facebook took that 24% dip, Google dipped, Snapchat, Twitter. If Facebook had really dipped, even more significantly, a lot of the platforms in the companies that news media companies work with would have also been jeopardized. So that’s one way of thinking about it.

If Facebook as a company, as a tech company, were to fall to a point where it couldn’t recover—which is crazy, that probably would never happen—you can imagine that some of the advertising dollars that Facebook made from display advertising would flow back into the ecosystem. Now, would they flow back to publishers? I mean, my guess is not. My guess is that a lot of those dollars might flow back to just other platforms that sell really highly targeted programmatic advertising, but potentially that could be one outcome.

Megan: (11:04) It seems like what publishers are focused on is traffic. They’re focused on their own business models. But something that they need to keep in mind is more of a broad economic picture.

Sara: (11:16) Yeah. I mean, they are not incentivized too. I look at is this way. I think they should be a little bit concerned if they are ever working with publishing partners, like Google and Facebook and they take big hits to their business. I think, again, if you take a look at some of these companies that are going to Capitol Hill, they should have an eye on what’s happening with these platforms not in a quid pro quo way necessarily of, “Oh, if one fails, I should cheer it on, because it’s more opportunity for me.” But more so the decisions made around how these companies managed their businesses do affect media companies.

If you think about it, Facebook and Google with regulatory pressure have completely changed their political advertising mechanisms. It could be that publishers who don’t want to necessarily have to disclose through Google or Facebook or whatnot, maybe they will turn more to digital publishers to buy some of those ads. I’m just kind of thinking of hypotheticals here. But I think it’s smart for everyone to just take note of what’s happening to the companies that they work so closely with and that are so close to their industry anytime they’re reporting earnings or changes, etc.

Megan: (12:25) Thinking from that perspective, instead of asking how is Facebook affecting a particular company, what are some questions that the media business is maybe ignoring that are more about how these companies should be regulated or how they’re impacting people’s freedoms and rights?

Sara: (12:43) One is we should think about how technology changes the way that we should be interpreting current and longstanding regulation. So an example I’ll give you is regulation around advertising is and has been for decades broad in the sense that the actual law states that you just shouldn’t be deceptive. There are a lot of rules to interpret that law that have been changed and updated over the years. I think about the FTC first instilled native advertising guidelines in 2015. Those types of rules and guidelines need to be updated constantly.

For example, if you read the guidelines it says like, “Well, native advertising should be a very drastically different color than the background of a website.” Well, we all know that programmatic makes it harder to be able to do that in real time or to be able to track how all these ads move. So what we need to do is address the way that we’re thinking about these rules and these guidelines to take into account modern day technology. That’s just one thing I think we could be doing to help regulate media and technology today.

I think the other big thing that we should all be thinking about is understanding how we’re funding public media. I know the Trump Administration wanted to cut back on some of the funding for public media outlets, like PBS and NPR. And I think in an ecosystem in which some of the media companies, legacy media companies that have roots in traditional journalism, are struggling to survive. We should be thinking about how we can create a holistic media environment for all Americans, and that might include thinking about publicly funded media, that might include nonprofits, as well as private sector media. Just thinking about how we’re going to regulate it as a whole, media diet I think is important.

Megan: (14:50) Is the situation with Facebook and the media unique?

Sara: (14:54) There’s always going to be friction between the wholesalers and the suppliers. You’re seeing this right now with content companies and telecom companies, where telecom companies want to buy content companies. By content companies, I mean like TV networks, like a Time Warner, or a Disney, or a Fox, because they have the supply. They have the content. But those content companies do not have any direct relationship with consumers. They all go through wholesalers, which are telecom companies. So you get access to CBS, or to Viacom through Comcast, or through Verizon, etc.

The difference between that dynamic versus let’s say what Facebook is, is Facebook just goes direct to consumer. Facebook doesn’t need a wholesaler. They, in a sense, are the wholesaler. So there’s a very big analogy that’s being drawn right now to what retail as an industry is facing in comparison to media. Because in retail you have a similar problem. You have the suppliers who have typically gone through wholesales. Let’s say they are mom-and-pop or brick and mortar shops or stores like Targets or Walmarts who now suddenly are competing with tech companies. Think Amazon, or even like an eBay, who have direct relationships with consumers and can cut the suppliers short in the process.

There’s a lot of people that have made that comparison between how media companies and brands are shoving to go direct to consumer in the way that some of the retail brands have. If you look at some case studies, there’re examples of how Dollar Shave Club going direct to consumer on Instagram is crushing Gillette right now, which is an institutional brand underneath Procter & Gamble. The same sort of thing is happening media, where you have some of the legacy companies, like Viacom, who are not able to communicate as well as some of the mobile first digital companies, like an Elvis News.

Megan: (17:06) Looking at some of these D2C companies, like Dollar Shave Club, that are circumventing the system in a way, like delivering directly to consumers: What’s something that they do so well other than making that direct connection, or maybe a way that they forge that direct connection that media execs can keep an eye on and maybe start to learn from?

Sara: (17:29) They’re very data-centric and data-heavy. They track their consumer and they market to them in a very tailored manner. If you think about most, in particular, consumer packaged goods, but most retail companies, the way that they targeted consumers was incredibly broad. If they bought a TV ad, it was targeted to them through a day part. Meaning, “Okay, we’re assuming that the type of customer that we want to reach is going to be tuning into The View or tuning in to Sunday night football,” but you don’t really have a good picture of that customer. You don’t know anything their purchasing history. You don’t know anything about their website history.

If you work with digital internet data, you’re able to track them much more closely. So you don’t have to make assumptions about what your customer looks like. You know what your customer looks like. I think the companies that you’re probably looking at right now, the companies like Allbirds, like Reformation, like Everlane, Dollar Shave Club, even some of the meal lubricants, like Blue Apron. These are companies that use data to inform not only their marketing, but also to inform their advertising and the entire customer experience so that it’s incredibly tailored and they’re more likely to get the consumer buy-in.

Whereas if you’re Procter & Gamble and you’re selling toilet paper, everyone needs it. Fine. TV works. But if you’re trying to sell a more narrow good, like Sketchers trying to sell a sneaker, Gillette trying to sell a razor, this can be a little more difficult.

Megan: (19:02 If referral traffic from platforms like Facebook isn’t going to be saving grace for some of these media companies out there who are thinking about revenue streams right now, what exactly should they be focusing on to cut through the noise and just to start to reach people in a valuable way?

Sara: (19:18) Yeah. First of all, they don’t always have to think about everything in terms of getting traffic through digital. There are a lot of opportunities at the top of the funnel right now where you don’t have to accrue traffic direct from a social referral. You can just develop a really high brand recognition and that will help get people to your websites or to your podcast or whatever it is directly.

I think about some of the TV efforts by a lot of digital companies right now—BuzzFeed has a show with Netflix, and Fox has a show with Netflix, and The New York Times has as how with Hulu. I think those are some of the ways that you can, through a smart attribution model, drive traffic to your sites and your properties.

If you want to think about how you’re going to do it directly through web channels or social, etc., there are a lot of social distribution, news distribution companies that are gaining traction as Facebook has declined or down-ranked news in the feed. I think about Flipboard or even Twitter and Google AMP, which is their accelerated mobile pages program.

There’re a ton of things you could do, and I think the bottom line should be you just should never rely on one company or strategy and put your eggs in that basket, because if they change course, then your entire strategy is blown up. So the smartest thing you should do is diversify where you’re investing in traffic and revenue so that you never have to be the victim of a massive algorithm change or strategy change like what Facebook did earlier this year.

Andrew: (21:06) All right, Sachin. It’s time to figure out what we’re going to disagree about today. It’s the plus one and minus one segment.

Sachin: Thumbs up. Thumbs down. Plus one. Minus one. Love it. Hate it. Let’s get into this.

Megan: When I talked to Sara, we talked about how publishers can start to think critically about what D2C companies are doing and take from their bag of tricks. So I want to get you guys’ takes on maybe some of your favorite D2C companies, aspects of what they’re doing that you find engaging or are maybe plus one on, but then also maybe there are some things that you see D2C companies do that you’re minus one on in the context of how publishers could file a suit. Andrew, what do you think?

Andrew: (21:50) I think D2C companies are pretty interesting because they showcase the breakdown of the gatekeeper relationships between audiences and products. The term “direct” and “direct to consumer” is really just about connecting with a consumer directly and selling them something directly and establishing that relationship with them and in the past consumers have only had direct relationships with consumer brands in so far as they like bought their products at a retail store or something like that. But now there’s quite a lot of brands out there that sell products where the relationship is direct and like that leads to some interesting dynamics where you can have not just brand loyalty from the standpoint of going back and buying the same product over and over again, but maybe even brand identification in the same way that people identify with publishing brands.

Megan: What’s a brand do you think does that well?

Andrew: (22:52) My favorite brand in this space is a little bit geeky and techy, which is O’Reilly Media. They’re probably the largest book publisher of technical programming books that’s out there. They’re like a perfect example of blurring all the lines between publisher and brand and product company and SaaS company and subscription company and even events company. For people who don’t know much about O’Reilly, the summary of them is that they publish thousands of books, which cover different programing topics and technology topics. They’re detailed books. They were one of the original technical manual companies.

But nowadays, the way O’Reilly monetizes that is not just through print book sales on amazon.com and similar sellers, but actually a product called Safari where you subscribe for unlimited access to all of their content archive. In addition to that, they run a number of events where they sell tickets to those events, where they have the authors of those books speaking at the events and signing books and so on.

They’ve really created a brand that techies and programmers in particular really identify with and they want to give them money because it’s professional development, it’s personal enrichment, it’s also a community. It’s all those things wrapped up in one.

Megan: Sachin, what about you? Do you have a favorite D2C?

Sachin: (24:19) I don’t have a personal favorite D2C, but I have to love the D2C companies that are the disruptors. So the two that come to mind for me are Dollar Shave Club and Warby Parker, where it’s very clear that there were companies that were just taking advantage of consumers. In the case of razors, they were charging more for more razor blades, but it seemed like it was less in some way, shape or form, and the prices were just crazy.

Dollar Shave Club came in and said, “You can get a really good razor for cheap. The reason that we can offer it so cheap is because we’re not going to have this crazy retail business. We’re going to go directly to the consumers.” They’ve done really well. They got bought by a big company, but I was really excited to see the success of them.

Warby Parker is very similar, where you had … Like eyeglass frames are plastic. They can’t be that expensive. Yet, like you had to pay hundreds of dollars for them, and Warby Parker said, “Not only can we give it to you for cheaper. We can give you more options that you can get directly from your home,” and they circumvent into the system as well. So those are two stories that I love. Both very successful companies that I think took a market that they knew weren’t doing right by the consumer and use that to their advantage.

I think there are a lot of now shady companies in the D2C space, specifically on Instagram. I feel like there are more every single day where you’re just wondering what the hell this company is. What exactly are they selling. What am I going to get if I buy something from them? That said, Instagram is really successful at getting me to click on that stuff. They have interesting gadgets or interesting products that I do click on and look at, but then I’m like, “What? Who is this company? I’ve never heard of them,” and I think twice about actually getting something from them.

I think the other area where some shady stuff has happened historically, and I know like some of the companies are trying to clean this up, is the fundraising companies, like Kickstarter, GoFundMe, some other stuff like that where you’re just unsure exactly what you’re getting. In fact, they don’t promise a product. They say that there could be a case where you don’t get anything if you donate to this specific campaign. So those are some areas where I have question works about.

Megan: (26:37) I think what I’m most plus one on is a through line from these examples, which is just the convenience of it. From a market perspective you can see, “Oh, it makes so much sense to go right to a consumer.” But as the consumer, I’m like, “Yes, please send me my five pairs of glasses to try on at home.” It’s so great. I’m also prey to clicking on Instagram ads and being like, “I really want this Patagonia jacket, but I have no idea what this company is,” but I still click on it. I need to explore it. So, I don’t know. They’re tapping into some kind of instinct there.

I think that about does it. Thanks for being here. Thanks for talking to me today both of you, and our thanks to Sara for joining us as a guest. You guys know the drill. You can subscribe to The Center of Attention on iTunes, on Google Podcasts, Stitcher or SoundCloud. You can follow the show on Twitter; we’re @attnpod. And you should and can follow Andrew and Sachin. Andrew is @amontalenti, and Sachin is @sachinkamdar.

Thanks again for listening, until next time, and in the meantime remember that D2C has all the secrets.