In 2007, at a gathering of advertising executives and reporters in New York, Mark Zuckerberg said;
“Nothing influences people more than a recommendation from a trusted friend”.
He was unveiling his plan for ’social advertising’ that would spark the death of mass advertising and Facebook would own this space with recommendation ads being shown in front of people as content, using targeting from the demographic on their platform.
Fast forward to July 26th 2018 and Facebook loses over $120 billion from it’s market value, due to the extent of its recent scandals, which it reported in its second quarter financial results.
Is Facebook now a trusted friend?
I’d say it has lost the trust of the investors who buy its stock and the users in its audience.
Not only has it had to deal with fake news, privacy issues, fake accounts and election manipulation. But now the impact on customer trust, has led to reduced customer growth and usage.
Worse still, it has had to release the true cost, complexity and timeframe to fix the problems that it has uncovered. Further spooking out the audience and investors.
The impact of this to Facebook’s profit?
In the last quarter results for 2017, Facebook had an operating earnings to revenue ratio of 57%. A strong profitability measure.
In the 2018 second quarter results, this measure had dropped to 44%, and is expected to fall into the mid 30% range by the end of the year.
Thats a drop in profitability of approximately 40% year on year!
When people lose their trust in a brand, it becomes very difficult to regain that reputation and sometimes to the degree that it can wipe them out for good.
Look at the case of Gerald Ratner, where his loose humour at an after dinner speech over two of his products, wiped £500m off the value of the company and almost collapsing the world’s largest high street jeweller.
Will Facebook recover from this? Time will tell.
If they can do anything to recover the trust of its audience, it must accept responsibility, explain the path to recovery and then be transparent and honest with its communication updates.
Facebook is one of the world’s largest and most profitable companies. One which the media is itching to stab the knife into, given its impact on removing readers and advertisers from their more traditional channels.
So, whilst all good will be attacked, it only takes for the market to find a new trusted alternative platform and Facebook could be a distant memory in 5 years time.
Sharing the digital graveyard with Friends ReUnited et al!
Does the customer experience have a material impact on profitability? Damn right it does!
P.S. If you want to learn more about how to build a brand that people fall in love with, you can buy my No1 Best Selling book ‘Beyond Brand’ on Amazon now – http://bit.ly/AmazonBBB