The end for Facebook?
Its business model not sustainable for the long run, writes K Raveendran.
Predictions that Facebook will go out of business in the not-too-distant future appear more realistic than ever before, as the once darling of social media is increasingly getting into trouble with regulators for its unsustainable business model. There have been a number of forecasts that predicted its doom from time to time, the time range cited generally being 5 to 20 years. Facebook predecessors such as Yahoo and MySpace have nearly perished, although they continue to be around as a pale shadow of what they used to be. With its popularity among teens and young adults dropping consistently, Facebook has, however, managed to prolong its longevity by introducing new features and functionalities, but recent developments suggest that its inevitable demise looms larger on the horizon now.
The social media monolith has of late been floundering on growing privacy concerns with the backing of regulators which poses a question mark over its business model. Economic historian Niall Ferguson has warned that Facebook is vulnerable to a user revolt and government crackdown, which will make it hard to see the business model remaining intact over a five-year time horizon. The Cambridge Analytica controversy seems to have already set the process in motion.
In utter disregard to privacy concerns, the London-based data harvesting company is alleged to have acquired data about 50 million Facebook users and used the information to build psychographic profiles of users and their friends, which were then used for targeted political campaigns in favour of Donald Trump in the 2016 US elections. The company did the same for the Brexit referendum campaign. The revelation put Zuckerberg and his company on the regulatory radar for violating user data and privacy norms. Zuckerberg has apologised for the misdeed and offered to testify before the US Congress.
If that was not enough, news came out that the snoopy London company has been trying to influence election results in India as IT and Law Minister Ravi Shankar Prasad threatened to summon Zuckerberg to India for sharing data of Indian users with the meddlesome data harvesting firm. Analytica connection has snowballed into a major controversy, with both Congress and BJP accusing each other of ties with the offending company. The company had reportedly helped Congress in the campaign for the Gujarat elections in which the party did remarkably well and is said to be in talks over the coming Lok Sabha elections. The government has issued a notice to the firm, setting a March 31 deadline to clarify whether it was involved in misuse of data to profile Indians and influence their voting behaviour.
Ever since the controversy erupted, there has been a sell-off in the Facebook shares on Wall Street and the company lost $50 billion in market value in one day. Zuckerberg's apology and his promise of corrective action have not helped soothe the market's nerves and the stock continues to be pounded down. As the #DeleteFacebook hashtag continues to gain currency online, some of the major advertisers have suspended their ad service on Facebook.
Ferguson's prediction sounds more ominous In the context of stepped-up action by US and European regulators in seeking answers from the social media giant and the continued pounding of its share on the stock market. "The lesson of economic history is that companies like Facebook are very vulnerable to two things. One a shift in public sentiment where the users just say, 'We're not going to trust you anymore.' And No. 2 a change in the regulatory environment," Ferguson said in an interview on CNBC.
While the western regulatory moves are indeed a major threat to the Zuckerberg company, any adverse action by the Indian authorities will probably hurt Facebook more as India boasts the platform's largest country audience. India has, in fact, overtaken the US as Facebook's biggest market. By the middle of last year, the company reported a total 'potential audience' of 241 million active users in India, compared to 240 million in the United States. Also, the growth prospects in India are in no way comparable to those in the US as the market there is almost saturated, while in India it remains unlimited as the number of Facebook users here has not reached even 20 per cent of the total population.
With the privacy debate over Aadhaar hitting a peak, similar fears about Facebook have become all the more menacing. While data collected for the national ID is limited to certain types of information, Facebook's data chest covers extensive areas, including personal preferences and behaviour of users, which makes its leak or abuse really dangerous. Indian users of Facebook have the power in their hands to make it do things. By implication, this is a power that the government can bargain to force the company to behave. And this was obvious in Ravi Shankar Prasad's tone when he warned Zuckerberg.
(The views expressed are strictly personal)