Date
18 August 2018
Facebook and Twitter saw their shares tumble last week after they reported sharp declines in active users and weak business prospects. Photo: Reuters/Bloomberg
Facebook and Twitter saw their shares tumble last week after they reported sharp declines in active users and weak business prospects. Photo: Reuters/Bloomberg

Time for Facebook and Twitter to return to basics

Social media giants Facebook and Twitter saw their shares tumble last week after they reported sharp declines in active users and weak business prospects. The immediate challenge for these tech companies is to win back the trust of their users and investors, who now seem to be questioning the credibility and long-term viability of their platforms.

The rise of social media can be traced to the fact that it caters to some fundamental human needs such as the desire for communication and recognition. Facebook users, for example, find satisfaction, if not fulfillment, from the number of likes and comments that their posts receive. 

The idea behind social media is to encourage people to interact and thus narrow the distance between them. But as the platform has been evolving for more than a decade, it starts losing its appeal.

Some users don’t like receiving negative comments on their posts, while others bewail the flood of advertisements and promotional materials that interfere with their enjoyment of following their friends’ news feeds.

Many users have also raised concerns over the use of their personal data by social media firms in order to generate billions of dollars of revenue, while they get nothing in return except free access to the platforms.

And so the business model that has transformed these young, aggressive companies into top money-making machines is now under scrutiny. The situation has become worse when it emerged that Russian operatives had used popular social media platforms to spread fake news and influence the outcome of the 2016 US presidential election, and the Cambridge Analytica scandal broke out, showing that Facebook users’ activity logs and profiles have been shared with third parties without the users’ consent.

For the most part, it is the fault of the social media firms that many users have become wary of using their platforms or have simply lost trust in them. 

The breach of this trust is the main reason for the decline in the number of users of social media platforms, the time they spend on these platforms, and their willingness to engage with others on these platforms. This, in turn, has led to a fall in advertising revenue for the social media firms.

Facebook management needs to fine-tune its business to strike a balance between users and advertisers for a healthy and sustainable model.

After Facebook delivered weak quarterly results and poor forecasts last week, a shareholder sued the company, accusing the firm of making misleading statements about its user numbers and operations.

The lawsuit, which is seeking class-action status, came just days after the company lost more than US$100 billion of its market value, the largest single-day drop in Wall Street history.

The plaintiff said Facebook’s “wrongful acts and omissions, and the precipitous decline in the market value of the company’s common shares” had resulted in significant losses and damages for him and other shareholders.

This was the second lawsuit faced by Facebook this year. In March, a group of investors sued the company for allegedly misleading shareholders over the Cambridge Analytica data privacy scandal, which had affected 87 million people.

Meanwhile, Twitter saw its market capitalization fall by 27 percent over two days after the company posted slightly lower than expected monthly active user numbers for the second quarter, and a disappointing guidance for the third quarter, as it tried to rid its user roster of fake accounts.

Twitter has been playing a key role in global politics since US President Donald Trump assumed office in January 2017. Trump has taken to using his Twitter account to make policy announcements and political statements.

Twitter can position itself as a platform for public conversation about global affairs, but the website itself is being abused by unscrupulous individuals and entities to spread fake news and spams. The company has acquired a startup that could help identify and thwart spam accounts, and those promoting abuse and engaging in online harassment.

After years of strong growth, Facebook and Twitter may need to return to the basics with a simple, fair and sustainable business model, rather than by pumping up user numbers and selling user data.

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CG

EJ Insight writer

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