Covering Facebook’s most recent earnings call.
In the most recent quarter, we witnessed a very mixed earnings report from one of the leading big tech companies in the world — Facebook. Within the earnings report, the CFO of the company, together with Mark Zuckerberg, highlighted key areas of concern:
- the increased competition in the space;
- supply shortages; and
- Apple’s new IOS update.
Within this article, we aim to give a basic overview of the current business model that surveillance capitalists implement within the digital economy that gives rise to unprecedented power of accurate prediction analysis and why distribution channels significantly mattered within this earnings call.
Surveillance Capitalism & How It Started
To understand the birth of surveillance capitalism, we need to go back to the early-mid 1990s when small internet companies emerging from Silicon Valley were being dubbed as ‘the next big thing’. Within the ocean of ‘hot tech startups’ existed a company called ‘Google’, whose prime aim was to organise the world’s information, and make it accessible to anyone who had a computer hooked up to the internet.
Google’s original business was creating algorithms to help people quickly sort through the rapidly growing amount of content being put online, through a search engine. However the path to monetisation, and even more so profitability was uncertain. When the dot-com bubble burst, Google’s founders were put under immense pressure from investors and impatient money to turn google into a money-making machine. This is when Google’s founders started to recognise the power of the data collection they possessed and started using that data to draw up predictive analysis from people’s searches.
Within the path to profitability, Google started investing heavily into the users’ experience, making Google the preferred search engine by the public. The more people searched for information, the smarter and more relevant the search engine became, and hence the more accurate Google’s prediction analysis became. This prediction model based on search, and perfected by algorithmic functions was the birthchild to Google’s success.
Once Google realised that it could predict the likely future of a person’s actions, it prompted Google to start selling its predictive analysis to advertisers through the use of AdWords. From a marketeer’s point of view, the guessing game as to whether or not a targeted audience will react to a campaign was now over. Through the predictions made from Google’s immense range of data, advertisers were hitting the nail on the head with fewer swings, thus making their campaigns far more cost-effective and also profitable. The more data companies like Google have, the more likely they will be able to predict users’ next site visit, purchase, and interactions. This has inevitably led Google and other surveillance capitalists to twist laws, regulations, and any situation in their favour in the pursuit of data extraction to perfect their predictive analysis — some of which are covered later on in this article.
Fun fact: it takes roughly 72 working days for an individual to read through the terms and agreements of most big tech companies making it extremely difficult for institutions to track changes and appropriately regulate the industry — however pressure in this area has been heating up in recent times.
Like Google, Facebook followed the same pursuit of data extraction from its ecosystems to understand the behavioural actions of users through advanced algorithms. The data extracted from Facebook early on within its lifecycle was deemed to be of extreme intimacy and accuracy. From the news feed, Facebook could oversee how a person (who has a social profile) interacts with information that is displayed through, clicks, likes, and comments.
In addition to this, Facebook was and still is, extremely sticky. The reason for this is that users see their friends, families, and so on, interact on their news feed, promoting engagement, thus spilling more data surplus onto Facebook’s servers.
Facebook and Google have pretty much the same fundamental business model (surveillance capitalism) which can be analysed in the diagram below:
information cited from Shoshana Zuboff.
So Who’s Winning The race To The Throne ?
If you’re still reading this I’d like to take you on a bit of a (controversial) history lesson, covering previous occurrences in our society’s history that shaped surveillance capitalism and helped these organisations thrive. In particular, Google, the current king of surveillance capital.
Before 9/11 the US government was seriously looking into regulating privacy laws and regulations on the internet over personal data of individuals with imminent implementation around the corner, however, after 9/11 the motives drastically changed.
Days after 9/11, in the name of national security, the Patriot Act was the first of many changes to surveillance laws that made it easier for the government to spy on ordinary Americans by expanding the authority to monitor phone and email communications, collect bank and credit reporting records, and track the activity of innocent people on the internet. As you can imagine, Google was to be the prime source of surveillance for the US government in a post 9/11 era.
The occurrence of the authorities that happened on 9/11 has opened many breathing grounds for surveillance capitalism to grow, and for new high profile relationships to develop between top government officials and Silicon Valley’s finest.
Transfer of directors from the CIA to Google and vice versa.
As you’d imagine, because the government was now working very closely with Google, close relationships had started to develop resulting in a transfer of googles top directors to work with the CIA and vice versa.
Google Earth was essentially a Military based satellite product that was used to take images of the world. In 2004 Google acquired ‘Keyhole’ from the US government and transformed it into the Google Earth we know today in the pursuit of data behavioural surplus-
Google’s Inclusion in Obama campaign
The Obama election surprise win was actually no surprise at all. Obama was the first politician to take advantage of the unprecedented power of predictive analytics. From here, Google and the Obamas presidency were able to assess who was more likely to vote for which party based upon the way voters would interact with political media being flushed through Google’s servers.
Then there were the floating voters. Jackpot!
From the way potential voters acted with media pushed onto them, Google could determine whether or not the voter was undecided. Once the platform confirmed their understanding, Google then pushed Obama’s media content forward in the hopes to alter the opinion of the floating voter.
When Obama became president you could see him standing side-by-side with Eric Schmid, the former Google CEO at the time, who acted as Obama’s chief corporate ally.
Google Maps Street View
Through many court cases and endless complaints raised over the concern of privacy issues with the Google cars, it was later found out that the cars were not only taking images of streets but also deliberately connecting to unencrypted wi-fi servers and sucking the data out of private wi-fi without any consent of the homeowner/business owner.
An Intentional Mistake: The Anatomy of Google’s Wi-Fi Sniffing Debacle | WIRED
Mobile First Approach
The reason that led to the immense success of Facebook later down the line is the importance they placed on building their businesses under a mobile-first approach. Information anytime, anyplace, anywhere. Google also did not fall asleep on this rising opportunity and thus created Android — with relentless force asserting its dominance throughout the mobile industry in the pursuit of data extraction.
I’ll keep this as brief as possible:
Google and Facebook have been forcefully extracting data without proper consent in very, very creative ways for a very long time for example:
- Visiting web pages would open up sub web pages and applications without consent. These web pages or applications would be tracking the sites you’re visiting;
- Using the permission of locations, microphones, and cameras, from applications to spill data; and
- Allowance of subsonic frequencies that allow applications to track you without your consent — The technology, called ultrasonic cross-device tracking, embeds high-frequency tones that are inaudible to humans in advertisements, web pages, and even physical locations like retail stores. These ultrasound, also known as “beacons” emit their audio sequences with speakers and almost any device microphone. This allows advertisers to track your location and the sites you’ve visited — pretty dystopian. Once this data is extracted, advertisers will be in a privileged position to better understand where you are and what you’re into, and there are loads more but we’ll cut the build-up short.
What Should Facebook Investors Keep in Mind?
Now that you understand how relentless these companies have been towards getting to know you as a consumer ( through their core business) better (with or without consent) one must ask the question, What has made Facebook a possibly unattractive investment when their business model is in line with Google and others?
Competitive Moats In Their Distribution Channels
The move towards obtaining predictive surplus is a hugely profitable business, so understandably everybody is in a race to the throne. Distribution channels really matter here in building a competitive moat.
During this earnings call, Facebook started to feel the pinch from Apple’s new updates (iOS 14 and above) that disallowed organisations like Facebook and Google, to extract vital data points from any Apple devices. However, google unlike Facebook owns android as software which provides them with an untouchable distribution channel when extracting data points, in fact, 70% of the total mobile market share is owned by android compared to the 25% of apple (which strongly pertains to Europe and America).
In this respect, there is no organisation that can restrict google from extracting data surplus from its android servers, which to the advertiser seems like a compelling reason to spend more of their ad budget on googles products as opposed to Facebook, in the pursuit of predictive analysis.
In addition to this, Gmail, Google Drive, Youtube, Play store are all privately owned servers of google, and therefore, also provide predictive data surplus to the organisation, giving google the lead to the throne by a long shot.
Facebook has been investing heavily in other initiatives (Metaverse) that are outside their core business model. This has led to large impacts on the organisations’ overall profitability and growth prospects, subsequently leading to investors thinking twice about their positions in the company.
Facebook does have significant challenges ahead, mainly but not limited to reputation damage and the ability to the extraction of data surplus from its servers with restrictions from companies like Apple and the government. Including this, there is a lot of speculation going on at this point in time as to whether or not the Metaverse will kick off the ground and take humanity to new heights (or lows).
The projected growth of Facebook has come in at approximately 3% — 11% per year. Should the organisation not surpass these growth expectations, then this would render the current pull-back to be relevant.
However, the only key positive takeaway is that Facebook is a company with some of the smartest minds that the tech industry has to offer, thus giving the organisation opportunities to develop new streams of income and to overcome the current hurdle (hopefully but doubtfully with the best interest of its users at heart).
Time will tell how things evolve but in terms of surveillance capitalism, Google appears to be the data king with the largest competitive moat
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Any views or opinions presented in this article are personal and shouldn’t be taken/used as professional advice as we are not qualified financial advisors.
Any statistics mentioned have all been linked to their respective documents together with their ownership.
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