Facebook’s billion-dollar business: You

Opinion by Regan Pecjak
Oct. 20, 2017, 4:41 p.m.

What exactly is it that Facebook does? According to its mission statement, a set of platitudes essential for almost any technology company, it wants to “give people the power to build community and bring the world closer together.”

Somehow, this quest has led from a Harvard dorm room to becoming one of the most valuable companies in the world. Perhaps Facebook’s growth represents something significant about humanity, that we really do just want to connect with one another. On the other hand, maybe it represents something less wholesome.

For some companies, it’s more apparent what drives their valuations: ExxonMobil owns swathes of land, and, more importantly, the oil and gas underneath it; Microsoft sells hardware, software and services; Apple holds the recipe for avarice dust, which it dutifully employs every fall to make millions of people buy new phones that they don’t truly need.

Facebook is a different sort of company, one whose unearthly valuation comes from selling that rarest of commodities — you — through the medium of your time. And it’s worth so much money because it does that better than pretty much anyone else.

In 2016, Facebook told the world that the average user spends 50 minutes per day on some combination of its main site, Instagram and its Messenger application — keeping in mind that this figure doesn’t include the amount of time people use the Facebook-owned WhatsApp. That’s about the length of an average television show, and there’s no reason to think this figure will have decreased since then.

Considering that the average person sleeps for something like eight hours a day, this means that about one-16th of waking, alert time is spent on Facebook each day. When you consider the fact that many people work or are otherwise occupied for another portion of the day, the proportion of their “free” time that people choose to spend on Facebook becomes even larger. And the more time we spend on Facebook, the more money Facebook makes.

If you don’t believe me, let’s do a quick test. Open up your computer, go to Facebook and log in, and if you’re using an ad-blocker, turn it off. What do you see?

For me, there were a pair of ads, off to the side of the news feed, and more as I scrolled. Out of the first eight things that Facebook chose to show me, two of them were ads, meaning that in my first few seconds on the website, I was looking at ads for a quarter of the time.

The thing is that these two ads were what are known as “sponsored posts,” differentiated from friends’ posts only by the word “sponsored” written below the name of the company that’s paid for each ad.

To make these advertisements more effective and to lessen the impression that they are in fact ads, Facebook will often display the fact that some of your friends “like” the group that’s paid for the advertisement — exploiting the network that you’ve built on the site to provide an even more effective system for selling you something.

Selling these ads is how Facebook — a company with just over 20,000 employees — has made more than $3 billion in operating profit for the last three quarters. The reason why I mention these numbers is because they are unearthly. There’s really no precedent for the way that Facebook makes money.

The closest analogues are other forms of media: newspapers, radio and television. Each of these also sells your attention to advertisers, and much like Facebook, they do it by placing things that advertisers have paid for either next to the things you want to consume, like the ads around the stories in a newspaper, or in between them, like the commercials in a television program.

Historically though, buying advertisements has been a bit of a guessing game. A company that makes sausage-making equipment might take out an ad in Meatingplace, a trade journal for the meat industry, and feel assured that it would be seen by people in the market for such an item.

But when your product has more broad appeal, what do you do? The answer until about the 1940s was not much. You could have a general idea of who read a publication or listened to a program on the radio, but nothing too useful. For instance, you couldn’t know if your advertisement was being heard by younger or older people, liberals or conservatives.

The technology to change all this was invented by an MIT professor named Robert Elder and debuted in 1936. His device captured listening habits by marking on a scroll of paper when the radio was on and how long it was listened to. This may sound a little bit crude, but it was the first quantitative way to measure human attention — and thus how many people were hearing the advertisements companies were paying for.

Arthur Nielsen recognized that this could forever change advertising and started a company, Nielsen, that paid people to use a version of the device to track their habits at home. Knowing what sort of people were listening to any given program allowed advertisers to know the audiences for each of their advertisements and to have a degree of choice in the audiences to whom they wanted to present them.

What has allowed Facebook to become so profitable is its ability to present companies’ ads to precisely the type of people the advertiser wants them shown to. This allows Facebook to make, on average, just under $19 in advertising revenue for each and every user in the US and Canada. Worldwide, Facebook received $4.65 in advertising revenue for each user in the second quarter of 2017.

This makes the statement on Facebook’s homepage — “It’s free and it always will be” — a little bit ironic. It’s in Facebook’s best interest to keep the service free and easy to sign up for, because each user allows it to make more money by selling their attention.

Why is it that Facebook is able to target its ads so much better than just about anyone else? This is thanks to the sheer amount of data it possesses about you, both about your real life and your online one.

For example, when you sign up for Facebook, you give them four valuable pieces of information: your real name, an email address or phone number, your birthday and your gender. This information is only the start of it — under the auspices of allowing you to share more about yourself, Facebook collects even more data about you. A photo, so they know what you look like, and whatever information you choose to share to build a profile: things like where you live, what your job is and what you like to do for fun.

These are simple, valuable things which allow Facebook to build up an idea of the sort of person you are and the kind of things you might be willing to buy. If you like the pages of celebrities or brands, so much the better, because that tells them more. Have you ever checked in somewhere? Or browsed Facebook on public Wi-Fi somewhere? Excellent — Facebook now knows the sort of places where you like to eat, drink and shop. Every single thing allows for them to place you into more categories, which in turn allows them to peddle your attention to a greater variety of advertisers and make more money. The better their construction of you, the simpler it is to sell you.

And by simpler, I don’t mean the way you’re looking at something on Amazon and then see it pop up in an advertisement in your Facebook news feed. That’s simple: Facebook can just buy your purchase and search history from Amazon. I mean the way Facebook can look at how effective its advertisements have been on other people with similar characteristics and base the ads it shows you off that.

It’s really incredible, the amount of information we give Facebook for free and without thinking about it. The sheer amount of data they possess is matched only by government agencies like the NSA.

Do you ever think about the fact that Facebook can recognize you? Suggesting tags for friends in your photos may seem benign, but every time you agree to one of them, it gives them more information about you and your network of friends. Do you think Facebook forgets about it if you decline the tag? Probably not — and with this representation of your face, it would be simple to find you in the background of other people’s photos, say, those of a tourist on the Quad, and add that information about where you were, at that moment, to the digital file of all your data that Facebook keeps stored somewhere on its servers, in triplicate, because these pieces of information are what allows it to keep its place as the prime avenue for advertising.

More than that, it’s reasonable that Facebook can tell if you’re happy or sad from the way you use its apps: how long you attend to each story, the things you search for, the messages you send to your friends. There’s no reason why it couldn’t use this to tailor the advertisements you see to how you feel.

Let’s not forget: It’s already been shown that Facebook can influence the way you feel. A study published in 2014 by researchers from Cornell and the University of California showed that by altering the ratio of positive and negative content in the news feed, people’s moods away from the site could be affected too.

This presents a particular issue because the site is meant to be addictive, to provide us with the best possible stimulation so we’ll keep coming back for more. Some of its techniques are blatant: We add a new friend or “like” something from a particular person, and then it seems that every time we log in, we’ll see something new from them. Or see a “friendversary” with a video that likely features random, unflattering photos of you and your friend. Despite the transparency of these methods of engagement, it’s impossible to know what myriad subtler things might be occurring underneath your notice to keep you coming back for more — and that’s what’s frightening.

The problem of addiction moves from unfortunate-yet-benign to sinister when we see the stiff dichotomy between Facebook’s stated goals and its real ones. Facebook wants you to believe that its fundamental goal is connecting the world — maybe Zuckerberg even believes this himself — but this stands against its other goal, the necessary objective of any public company: to make phenomenal amounts of money.

Because Facebook’s goal is ultimately to turn a profit, it benefits from collecting information about you and making its services more and more appealing so that you choose to give it an ever-greater piece of your attention. The more of your attention Facebook has, the more it can sell and the more money it makes. The news feed algorithm is the first weapon in this battle. It’s what you see every time you log in to the site, so naturally, it’s made to be addictive.

What’s more frightening than the fact it’s meant to be addictive, though, is its inscrutability: For each user, from the outside, it’s impossible to deduce how it might be manipulating us. Add to this the incomprehensible amount of data about us that Facebook possesses, and it’s impossible to know how we might fall prey to its whims without realizing it.


Contact Regan Pecjak at reganp ‘at’ stanford.edu.

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