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Who are Facebook’s customers? Users vs Advertisers

Facebook’s over 3 billion users are what makes it such a valuable business. This market presence was helped a lot by the “network effects” that make it naturally harder for users to leave Facebook for another platform.

Still, to keep its business model working, Facebook has strong motivation to provide users a great experience and listen to what they want and need. But there is another group whose needs and wishes are critical to Facebook, and those are advertisers.

Facebook obviously cares a lot about both its users and its advertisers. But when we look back at situations where those groups’ interests went against each other, it is clear that advertisers are Facebook’s primary customers and their interests have a more significant weight in Facebook’s decision making.

They are the ones paying the bills, after all.

The fact that more users make Facebook more valuable is nothing surprising. It is true for most businesses, especially the ones monetized by ads. What makes Facebook users much more valuable for advertisers are the granular user profiles that Facebook creates about us.

Advertisers can target their ads based on these profiles to specific audiences and vary the message based on what works best for a particular group of users. What is more, they can very quickly see if the ad campaign worked and made money or not.

Advertisers are Facebook’s primary customers, but Facebook’s relationship with them, mainly the bigger ones, is not a love story. They quarreled a lot in the past about Facebook’s flawed ad performance tracking, and most recent issues were around advertisers pushing Facebook to do more about hateful content on Facebook.

This content is not illegal, but advertisers don’t want to be associated with it.

Facebook’s advantage in these confrontations with advertisers is that it is not dependent on a few big companies. Its customer base is much more granular, consisting of a lot of smaller businesses.

When many household name companies announce that they will stop advertising on Facebook, as we could experience from time to time, it does not significantly affect Facebook’s revenue.

That being said, Facebook eventually does what any successful company has to do to stay successful, which is listening to its customers and making sure their needs are met. And in Facebook’s case, customers are advertisers.

At the end of the day, whatever Mark Zuckerberg and Facebook management say about wanting Facebook to have a reputation for privacy going forward, we need to realize that Facebook’s business is based on collecting as much data as possible without significantly alienating its users.

Apart from advertisers and users, another counterparty Facebook needs to consider when running its business are regulators and politicians. The issue is not only its antitrust lawsuit that is coming. It is also about defining the role Facebook, and other social media players should play in the moderation of speech on the internet and defining where is a line for content that should not be acceptable.

Facebook found itself in a very tricky position where there is general agreement that Facebook is doing things wrong. But different groups have pretty opposing views on if Facebook should allow more free speech or less.

Mark Zuckerberg gave a speech in 2019 in Georgetown, where he made good points about how important it is to protect free speech and committed to protecting it on Facebook as much as possible. He also took a lot of heat when he was protecting these views, particularly about his decision not to censor political ads.

More than one year after that speech, when we look at what Facebook actually did, we can see again that Facebook’s actions were far more pragmatic for its bottom line. It opted for less controversy, which is far better for business and advertisers, even though it was against the ideals, Mark shared during his Georgetown speech.

Facebook’s position is that there is no conflict of interest between users and advertisers, as you can read in Mark Zuckerberg’s post “Understanding Facebook’s Business Model.”

I beg to differ on this. Based on just looking at what Facebook does compare to what it says it wants to do when it comes to privacy, Facebook is on the advertisers’ side. They showed it on many occasions.

For example, recent full-page newspaper ads that attacked Apple changes that forced iOS apps to ask users consent before tracking them outside of the app clearly shows that when there is a conflict between what advertisers want and what users want, they chose advertisers. They even launched a separate campaign where Facebook promoted the benefits of targeted advertising.

That by itself does not make Facebook, an evil company. Many companies offer services for free and make money on the backend from advertising or other fees. Also, there are far more situations where users’ and advertisers’ interests are in line, like eliminating hateful content. But privacy is obviously not one of them, and we should be aware that if legally allowed, Facebook will most probably side with advertisers.

Facebook’s dedication to its around 10 million advertisers is even more striking and intriguing when we consider that Apple and Google’s decision to make it harder to track people on the internet outside of one app or service can actually solidify Facebook’s position in targeted advertising in the long run.

source: https://www.kamilfranek.com/