Facebook’s core problem: customers vs. users

Please note that this post is from 2012. Evaluate with care and in light of later events.

Facebook’s massive growth came because they gave users what they wanted: connect with your friends, see what their doing, conveniently share with them, and so on — and do it for free. But now they’re publicly traded, and satisfying users has become secondary to profit growth:

• The news feed shows what Facebook (via “EdgeRank“) mysteriously chooses for you, and insistently switches you to it (even “Most Recent” doesn’t show quite everything anymore)
• Relatedly, it’s expanding “promoted posts”: pay $7, and Facebook will make your posts more visible to your friends
• It’s scanning your private messages for links in order to boost the “likes” of things you mention
• Facebook is removing “fake” accounts (no family pets on Facebook!) and “phony likes“

All of this makes sense from the Facebook (and Wall Street?) side. Some of it even makes sense from an advertiser-on-Facebook’s perspective. But none if it is aligned with the interests of users. And failing to align business interests with user’s interests makes for a more complex, challenging, and vulnerable business model.

Other businesses

Car makers, for example, make more money when the people who buy their cars are happy. Their users are their customers, and happy users buy more cars. So to make more money, you make better cars. (Though customer desire, for example, can still be manipulated.)

Television producers make shows for advertisers. Their customers are not their viewers. While they attempted to make up for this with various tools (like Nielsen ratings), their fundamental business model — while profitable for decades — has proven deeply vulnerable to changes in habits by their users (VCRs, then DVRs, downloading, and streaming). But because television is aligned towards their customers (advertisers) — and they have not fundamentally changed — television has struggled to adapt. They simply are not attuned to their users, since their profit comes from another source.

Facebook is facing the same fundamental problem that television is: their customers and their users are not aligned in interests. Whatever Facebook does to make a profit, then, always requires a vulnerable balance that requires convincing users that Facebook’s changes are valuable to them, even when they’re not. Or convincing users that Facebook cares about their needs, even when Facebook only cares about their actual customers.

Facebook problems

Thus, for example, Facebook cares about privacy enough to keep users quiet about the issue. Keeping users is important to Facebook (because their real customers care), but that’s an indirect concern. Facebook directly makes more money when users have less privacy, not more. But if customers were their users, that wouldn’t be true.

As another example, some users are giving up on Facebook because it simply doesn’t deliver what they want anymore. The mysterious and opaque EdgeRank — tuned to Facebook’s needs — means their friends don’t reliably see their posts anymore, and demanding $7 to remedy this is just rubbing salt in the wound. Again, if customers were their users, this wouldn’t be true.

Similarly, sites that force users to login with Facebook to read articles send a message: you, the user, are the product, not the customer. And that’s a recipe for a short-term relationship (“it’s complicated”), not a lasting one.

Solutions?

What can Facebook do about this? Unfortunately, not much. They could, of course, turn users into customers by charging a straight subscription fee — but this might drive away the user-base that provides so much value. Otherwise, though, they’re going to have to innovate with their business model in order to figure out how to align the interests of customers and users, or risk becoming irrelevant.