To maintain growth and avoid regulation, the embattled social media giant must look to emerging markets.
By Joseph Dana | March 21, 2018
Facebook has had a rough year so far. In February, the social media titan confirmed that companies linked to the Russian government had bought political ads during the 2016 American presidential election. These ads were reportedly seen by more than 10m people. This weekend, The New York Times and the Observer of London broke news that Cambridge Analytica, a political data analytics company based in the United Kingdom, had collected personal information from the Facebook profiles of more than 50m users.
Facebook’s share price has taken a hit, as investors expect the company to face some form of regulation in the United States and Europe as a result of these developments. Regardless of the complexion of the regulation, one thing is clear: Facebook will need to refocus its growth efforts on emerging markets. In Africa, India, and other parts of the emerging world, the proliferation of cheap smartphones has created an entirely new class of customers. Facebook wants these new customers to be users on its platform.
For those at the bottom of the income pyramid, economic migrants, and women-owned businesses, access to the internet has been life changing. These segments of the population can sign up for secure digital bank accounts that enable them to transfer money cheaply or start saving (Facebook’s messenger application offers mobile money features in some markets). Some are able to create businesses using Facebook-owned platforms such as WhatsApp or Instagram.
The startling revelation that Cambridge Analytica was able to siphon off data from millions of Facebook profiles should not come as much of a surprise to anyone who has closely reviewed Facebook’s business model. In order to remain profitable, Facebook must engage in sophisticated surveillance. The social network is, after all, the most extensive de facto surveillance project in human history.
Facebook’s business model is based on profiling users on its social network and then selling that profile to advertisers who are guaranteed maximum exposure for their products. In return for their information, Facebook gives users a messaging, photo-sharing, and community-building platform free of charge. This model has made Facebook into a tech giant due to the platform’s remarkable growth over the past decade.
To sustain this growth, Facebook must look for new users outside of the West. According to Forbes, seven out of 10 African internet users log into Facebook, and the company has seen growth rates hover around 42% for several years. Through seemingly altruistic initiatives such as high-altitude balloons equipped with free internet in rural parts of Africa and India or Facebook-enabled mobile devices that allow users to only access Facebook’s version of the internet, the company is signing up new users around the globe.
What does this mean for emerging markets? Access to the internet is helping millions lift themselves out of life on the margins. We have written extensively about how a mobile money account can be the first step towards financial security for millions of people. Operating a business on the internet is also dramatically cheaper than traditional brick-and-mortar shops. But the fact of the matter is that the means of production, namely the algorithms and technology that allow the internet to be so revolutionary, still sit in the hands of the West.
In the short term, however, Facebook’s push into emerging markets will be fascinating to watch for two reasons. For one, regulation in some markets in the emerging world is not nearly as stringent as in the West. In less-regulated markets, will Facebook be able to vigorously pursue its business plan with fewer hurdles? If the debate over the 2016 US election is any guide, this could be especially dangerous for delicate democracies susceptible to political manipulation on the platform.
Perhaps more interesting though will be how Facebook chooses to mold its new customer bases in the emerging world. The company’s primary markets in the West have well-established customers. Advertisers know how to tailor their products for key demographic and socio-economic backgrounds. But what about a rural farmer in Kenya who just received her first smartphone? She is a brand new customer that Facebook is able to capture right from the start. Maybe she is not interested in the social aspect of the platform, so what kind of services could Facebook provide? Could it pivot into an insurance business or see new revenue streams as a payment platform? How the company decides to target this consumer and retain her could encourage the company’s worst surveillance urges.
Or maybe I am off base and Facebook will be able to reinvent its business model in the emerging world. The company came of age at a time when regulators mostly left it alone. Now that it is sure to stare down the barrel of regulation in its home markets, what lessons will it take with it into new markets? It is anyone’s guess, but we do know that data is one of the world’s most valuable commodities. The manner in which Facebook is forced to change its relationship with data as a result of the Cambridge Analytica story will have a ripple effect across the world.