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Posted on October 18th 2013
Last year prior to Facebook’s IPO, I had shared how the network is killing itself with the introduction of certain features such as sponsored ads in the news feed, trending articles, Facebook Offers, and so forth. Some of the features have been taken down since, while some ended up creating a new controversy. Today the social network is facing a new set of challenges that is making it sweat.
Facebook, the world’s largest social network, recently shared its Q2 results. The network declared that it is seeing 1.15 billion monthly active users (MAU) from web and another 819 million MAUs from mobile as of June 30, 2013. On the revenue side, the network hit $1.81B in revenue, up 53%, and mobile hit 41% of ad revenue.
With the Q2 results, Mark Zuckerberg not only made the Wall Street smile but also dropped the tension levels in the board room; it had already started making a good percentage of revenues from mobile. So what has been the present set of problems as the network has been growing along with its revenues?
Post PRISM problems
The biggest story of 2013 is definitely the ground breaking revelations of the snooping activities being carried out by the US government, all thanks to the whistle blower Edward Snowden and The Guardian daily that revealed non-stop coverage on the National Security Agency having obtained direct access to the systems of Google, Facebook, Apple and other US internet giants since many years.
It was also reported that the NSA access is part of a previously undisclosed program called PRISM, which allows officials to collect material including search history, the content of emails, file transfers and live chats.
Snooping by the NSA is not only limited to US citizens; it is also keeping a tab on international users by accessing data with the help of tech giants such as Facebook, Google, Apple, Yahoo, Microsoft, etc. In its reports, Guardian had stated that USA has collected 6.3 Billion data points from India in March 2013 through its PRISM program by tapping into the servers of tech companies for information including search history, the content of emails, file transfers and live chats.
While the tech companies initially rubbished the claims but as Guardian continued to release fact after fact, the companies including Facebook had no choice but to accept the truth. The word was out that the government was monitoring every other single person locally and globally with the help of the tech companies, who were even getting paid millions of dollars to cover the costs of the NSA surveillance.
Later along with Facebook, other tech giants started pitching for more transparency on government requests. Along with Yahoo, Facebook also released the first of its Transparency Report but it was a half baked effort from the social networking giant in comparison of the detailed insights companies like Google and Twitter have been providing its users. Even though Facebook promises to reveal such information regularly it really needs to provide more substantial data.
As of now Facebook and others are pushing the US government for more transparency in revealing government requests on personal data but the damage was already done for Facebook. Speaking at the TechCrunch Disrupt summit, Facebook founder Mark Zuckerberg said, “Frankly, I think that the government blew it. They blew it on communicating the balance of what they were going for with this.”
Facebook has always been in the midst of controversies related to user security from the very beginning and has been at the receiving end from media and users too. However, The Founder recently suggested that nothing has had as much of an impact on user trust as the uproar over reports of the NSA’s access to Facebook data. “That stuff tends to not move the needle much around the brand perception of trust,” Zuckerberg said, during an interview with The Atlantic in Washington, D.C., referring to previous criticisms on how Facebook handles user privacy. “The NSA stuff did.”
Zuckerberg further revealed that Facebook tracks “brand trust metrics” for a number of Internet companies and found that each took a hit following the NSA controversy. “The trust metrics for all of them went down when PRISM came out,” he said. “This is one of the reasons we are pushing so much for transparency.”
The Q3 numbers would be interesting to watch and the transparency push will have to be a big one to regain the lost trust.
Countries demand local servers
This is another challenge that has become bold after the PRISM revelations. India has been pushing for setting up local servers from the time it witnessed the India Against Corruption movement. Though the government was able to get Blackberry to finally set up its server in the country but it has somehow failed to get the giants like Facebook and Google to get a local server in the country, so that it can snoop on our personal data in the same way as the US has been doing or is doing in the name of national interest.
The bill that has been lingering in the lower house since 2011 has got a new interest after Globo television aired several reports about the NSA’s focus on Brazil, based upon documents leaked by Edward Snowden to American journalist Glenn Greenwald, who resides in Rio and has worked with Globo.
It would be interesting to see how Facebook tackles the demand from Brazil if the bill is passed and will we see more countries joining in with the same demand?
Facebook Ad network problems
The last quarter Facebook made $1.81 billion in revenues and with no surprises the major chunk came from advertising which was $1.60 billion, representing 88% of total revenue and a 61% increase from the same quarter last year. But the cash yielding source has now become a concern for the company.
Recently Facebook had to apologize for the dating ads that appeared on its service featuring Canadian teenager, Rehtaeh Parsons, who had hanged herself in April. The teenager had been the target of cyber-bullying because of online circulation of photos taken of her, after an alleged gang rape in 2011.
According to New York Times, one of the dating site had pulled the photos of the teenager and used them without authorization in the ad. The site has been shut down and Facebook has also blocked the company from submitting future ads. Even though Facebook had apologized, the damage was done.
The weak link in Facebook’s advertising system is not new and often you come across images that shouldn’t be approved. Facebook does have a system in place which scans for obvious violations of its advertising policy, such as ads that feature nudity or automatic weapons. Beyond this it relies on its users to report objectionable content, which is then reviewed by a team at the company. But the entire reviewing process also takes time and by then the damage is already done.
The news was followed by Russia threatening to block Facebook for allegedly publishing ads for illegal designer drugs on its website. After a complaint was raised by Ruslan Gattarov, a senator from the ruling party, United Russia, Facebook immediately removed the ads which led users to a site selling the designer drug “Spice” and other synthetic narcotics. Facebook has stated it to be a bug but Gattarov doesn’t seem to be a happy man since the ads apparently appeared on the site for some time, but authorities only acted after he complained.
If cases like this grow further then along with the pressure of having local servers, Facebook will have to set up local review teams for quick resolutions.
Coincidentally, the Facebook ad network loopholes come into the limelight at a time when the social network is trying to push a set of new changes to its data-use and user-rights policies, a move that the company positions as a clearer way to explain how Facebook uses member data.
However, the new changes faced a major road block since a coalition of six major consumer privacy groups has asked the Federal Trade Commission to block the coming changes to Facebook’s privacy policies that they say would make it easier for the social network to use personal data about its users, including children under 18, in advertising on the site.
Initially, Facebook gave users the explicit right to control how their names, faces and other information are used for advertising and other commercial purposes. The company’s new policy says consumers are automatically giving Facebook the right to use their information unless they explicitly revoke permission — and the company made that harder to do by removing the direct link to the control used to adjust that permission. This also includes children who might be unaware of the consequences of actions such as liking a brand page and thus allowing the network to use their names and photos for advertising.
Facebook had announced the changes on Aug. 28, to its 1.2 billion users as a result of a class-action lawsuit Facebook recently settled, where the company agreed to pay out $20 million and revise its terms of service to assuage concerns by users who weren’t aware of all the ways Facebook used their data in advertising.
After witnessing the overwhelmingly negative response on the official page from the users where the company’s chief privacy officer for policy, Erin Egan, announced the changes and opposition from privacy groups, Facebook for now has withheld the changes.
Meanwhile, The Federal Trade Commission has also started its inquiry into whether the social network’s proposed new privacy policies, unveiled just before the Labour Day weekend, violated a 2011 agreement with regulators.
Though there have been no new developments in the matter, it would be interesting to see what stance Facebook is going to take since it has been lobbying hard to get the changes out and have the ownership of all user data, which will not only keep its revenue growing but also save it from lawsuit pay outs.
Post PRISM revelations, there has been a trust deficit for the network from users and the proposed changes in the privacy policies have made matters worse for Facebook. One of the strong reasons for people leaving the network has been privacy and it has been a known problem from its inception. It’s about time Facebook gets its act right; otherwise, it will lose users to mobile messaging apps in this mobile first world.