Issue 114

Facebook's data problem

Delivered on 31 May 2021 by Justin Pyvis. About a 2 min read.

Facebook is a data leviathan, gobbling up anything and everything it can on its users and non-users alike. It does that for a reason – Facebook is not a social network but an advertising company. It needs as much data as it can get because it's competing with the likes of Google, Amazon and even traditional media for a limited number of advertising dollars.

Facebook has to prove that its adverts are better targetted than the competition – that its adverts are "useful and relevant", i.e. properly directed at the desired audience, generating more useful clicks. It has done a pretty good job of that over the past decade:

Over 97% of Facebook's revenue comes from advertising.
Over 97% of Facebook's revenue comes from advertising.

But recently the tide has started to turn and Facebook finds itself with a data problem.

The first blow was the immense backlash to Facebook's attempt to capture even more data from its messaging subsidiary, WhatsApp, which it acquired for around $US16 billion in 2014 but hasn't been able to monetise. That forced the company into two backflips: it delayed the planned February change to 15 May, then last week it announced that "we will not limit the functionality of how WhatsApp works for those who have not yet accepted the update".

In other words, WhatsApp users will still have to opt-in for Facebook to have access to their WhatsApp images and metadata (WhatsApp is likely end-to-end encrypted so the messages themselves are useless), limiting the number of users it can data mine.

The second blow was Apple's IOS 14.5 update, which starting rolling out to users in late April:

Since the update went live last month iPhone owners have been opting out of data tracking in their droves. According to Flurry Analytics, 85 per cent of worldwide users clicked 'ask app not to track' when prompted, with the proportion rising to 94 per cent in the US.

Now to be clear, Apple is no saint. It has been accused of using forced labour in Xinjiang and has been more than willing to sell its Chinese users down the river:

Mr. Cook [Apple CEO] often talks about Apple's commitment to civil liberties and privacy. But to stay on the right side of Chinese regulators, his company has put the data of its Chinese customers at risk and has aided government censorship in the Chinese version of its App Store. After Chinese employees complained, it even dropped the "Designed by Apple in California" slogan from the backs of iPhones.

Apple's attack on Facebook via the data tracking opt-out is not an act of benevolence but a strategic move designed to cripple a major competitor. If Facebook can't track Apple iPhone users (over 1 billion in use worldwide), it can't sell targeted adverts to them as easily. How can Facebook continue to pump development dollars into the likes of WhatsApp if they can't be monetised?

The short answer is it can't, which is why Facebook has a data problem. In an effort to offset Apple's move, Facebook recently increased the number of internal commerce products it offers, such as Facebook Shops and Instagram Shops ('other' revenue in the chart above). It has also been begging Apple users to "show you ads that are more personalised", to "keep Facebook free of charge".

But would anyone actually pay for Facebook? 🤔

Issue 114: Facebook's data problem was compiled by Justin Pyvis and delivered on 31 May 2021.