In an effort to generate money, Facebook makes it harder for brands

Ever since they went public back in 2012, Facebook has been getting a tough time from Wall Street. In the first few months, their stock dropped by almost 75% before slowly recovering; the stock currently sits at $27, down 29% from their initial price of $38. Facebook has been under considerable pressure to expand into the developing markets, such as Africa and Asia, as well as a developing robust monetization methods in places such as Europe and North America. Previously, Facebook made money through sponsored adverts in the sidebar, which were targeted based on a person's interests or "likes". Now, Facebook has developed a mechanism by which they will promote your content - whether that be an app, a post, a video or a service - through their "sponsored posts" ad units. 

It appears that Facebook has gone even further than just adding extra ways for advertisers to reach their audiences, however. The New York Times' Nick Bilton has noticed that his Facebook posts on his personal account have been seen by fewer and fewer people, a change that can only be attributed to a change in Facebook's news feed algorithm. Indeed, major companies and brands have seen a severe decrease in user interaction until they buy up a Facebook sponsored post. Bilton says that before Facebook changed their algorithm - something they deny - his posts were receiving around 500 "likes", now they are lucky if they get 20. To test his theory, Bilton paid Facebook $7 to "promote" one of his posts; the results are dramatic. User interaction went up by 1,000% as the post garnered 130 "likes" and 30 "reshares". Bilton reached out to Facebook and asked them why his "likes" dropped and why, when he paid, they suddenly increased. Facebook told him the two "aren't related" as Facebook has no "incentive to reduce the distribution that you send to your followers so that we can show you more ads."

Bilton isn't alone, however. Mark Cuban, who owns the Dallas Mavericks, stopped using his team's Facebook page after they proposed that Cuban paid $3,000 to reach 1 million of his online fans who he could reach for free before the changes. Interestingly, Cuban decided to shift his focus to MySpace and Tumblr, which have very little in the way of advertising tools for brands. Ars Technica, a popular technology blog, also noticed a lack of engagement on their Facebook page, which has around 77,000 "likes". The New York Observer speculated that the average Facebook page now only reaches 15% of their total likes, a pretty shocking statistic. "Sponsored posts" can be created by anyone who wants to pay, for example, I have a friend who is currently running for a position of power in the local area who used Facebook's promotional features to spread his message to his friends. 

The motivation for Facebook isn't difficult to spot: money. A public company must satisfy the demands of Wall Street if they wish to stay afloat, or the results are disastrous. If users are forced to pay $7 every time they want to spread their message, Facebook could be inline for a lot of money. Last quarter, Facebook reported a profit of just $64 million, a displeasing figure for many on the Street. Facebook is currently testing ways of generating an income off their huge mobile user base, without much success. Even Google, who have nailed the search advertising sector, struggle to make money from mobile users. 

Facebook's monopolisation of the online social experience - despite the fact it is slowly becoming uncool - let them get away with things like this, in the same way Google can get away with promoting their own products above other's in search and Apple can chain the iPod to iTunes. According to Facebook, the "impact ads are having on engagement is relatively low, and we’re really pleased with how low that is." Conversely, Facebook also admitted that there has been a 2% drop in interaction with items on the News Feed as original content is displaced by the sponsored variety. Facebook told Bilton that the "median amount of feedback" on posts was up 34% year-over-year for people who have more than 10,000 subscribers. 

Twitter now have a valuation of around $10 billion, and are looking to go public in late 2013/early 2014, which make them a potent force against Facebook. While the two are not identical in terms of intended use, they share the same category. While Facebook fails to monetize mobile - and annoys advertisers - Twitter generates a substantial amount of revenue from their mobile users, as advertisers pay to have their tweets and #trends pushed into a user's timeline. As many become annoyed with Facebook's malpractice, they may switch to Twitter which has a large, and influential, user base. 

Source: New York Times Image via Wbur.org 

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31 Comments

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It is the main reason why company can't invest in a private platform, specially if it is a "free" platform: the platform's owner can change the rules at whim!.

For some business, it is not as easy to create an account, put some stuff and nothing more, most business spend a lot of money keeping their facebook account. Facebook it is not a "free ride".

I stopped using Facebook for anything but posting heath and political updates to. Family? What family?!

Twitter all the way now.

Woe betide that businesses and brands actually have to PAY for advertising on a free service. What's next.... Google giving favorable search positions to people who pay.

The problem with Facebook is that the news feed is becoming less and less relevant. Most of the time it's plastered with advertisements from pages that my friends have liked, while the content being posted by my friends has shifted from status updates towards personal promos and internet memes.

Although the thing is with "friends liked a page" that most of the times I've asked my friends why they liked the page they will just respond "I don't even know what page you're talking about"

I've seen my friends mom (She's 50) "like" a PC component shop page, she has nothing to do with PC's except read online news from her laptop.

alwaysonacoffebreak said,
Although the thing is with "friends liked a page" that most of the times I've asked my friends why they liked the page they will just respond "I don't even know what page you're talking about"

I think it's more than people just don't keep track of what pages or brands they like. When Facebook started advertising to other people based on page likes that's when I went through and unliked most pages; when they announced Graph Search I then went through and removed every like I had ever made. I don't want other people being subjected to advertisements from pages I've liked, nor do I want Facebook exploiting that information for its own financial gain.

A lot of people are starting to get fed up with Facebook and if it's not careful it will end up just like MySpace.

"Facebook's monopolisation of the online social experience "

Facebook isn't monpolisating the "online social experience". Heck even in this very article you name Twitter a "potent force against Facebook" and "sharing the same category".

And the bulk of these news is about stuff that became known in November 2012 when they launched this new initiative focused on sponsored posts. I'm not sure why you write an editorial about that this late. It's well-known that Facebook is focusing quite a bit on sponsored posts now in order to finance the service better now that they've gone public.

Facebook has a monopolisation in terms of numbers. Where else, online, can you reach over 1 billion people? Twitter has just 200 million active users, for instance.

True, it was launched in Nov. 2012, but you have to give things time to settle. Now we are seeing the true effect of sponsored posts on the news feed.

"a change that can only be attributed to a change in Facebook's news feed algorithm"
Only? Sorry, no! Very poor article when it makes such a wild assumption and bases it's entire write-up on it.

Okay, explain it in another way. Facebook introduces a way of making money, then reducing the reach of brands so they are forced to use Facebook's method of making money.

Yes, but changing the news feed algorithm to force users to pay to reach their audience isn't exactly good business. That'd be like Apple charging to use Safari for longer than 30 minutes on the iPad.

Meh. Corporations using Facebook as an advertising medium is a massive abuse of the original intent of the site anyway. The whole place has been corrupted by the alure of cold hard cash, making it mostly useless for purely social interaction.

Besides, I actually go and see and talk to my friends and family, not leave it to some message on a crappy website. The sooner these places implode, the better.

What goes up.. comes down at some point specially internet bubble. Savvy investors will bail out long before looser investors even realize where their money went.

I have a FB page with 4000 followers.

When I post a photo the reach is 1/4 - 1/5 as some month ago. When I post just text the reach is 4-5 time higher than a photo post but 1/2 as some months ago.

maxslaterrobins said,
I bet if you paid to promote your page, the numbers would increase hugely (like Bilton saw).

of course the numbers would increase. money talks

I fully believe this is true. I have been seeing the amount of posts from brands in my news feed reducing steadily over the past couple of years. Disappointing but not surprising.

.Rik said,
I don't usual say this but...

tl;dr

I'm sorry...

For once I agree. At least a little summary at the top would be nice. I dont care much about Facebook to read a whole article about them.

...but I guess I'll do it since im already here.

Six paragraphs is TLDR? Where exactly is your cut-off? What is the minimal number of paragraphs or sentences that you are willing to read?

I don't think any news headlines is too long to read. It's only 3 minutes of your day. People now days are just so darn lazy

curme said,
Six paragraphs is TLDR? Where exactly is your cut-off? What is the minimal number of paragraphs or sentences that you are willing to read?

Like 3 paragraphs in a web article that I believe could be summed up easily. I see this all the time now in Neowin, long intro's that say nothing, and a big-ass meaningless image.
Years ago it was short articles and strait to the point.
I like the editorials though.

curme said,
Six paragraphs is TLDR? Where exactly is your cut-off? What is the minimal number of paragraphs or sentences that you are willing to read?

I think it depends on how much I care about the topic. I was interested to see what changes Facebook was doing, but it was only a passing interest, I don't care enough to devote 5 minutes of time to reading about it.

sphbecker said,

I think it depends on how much I care about the topic. I was interested to see what changes Facebook was doing, but it was only a passing interest, I don't care enough to devote 5 minutes of time to reading about it.

Exactly