Saturday, March 24, 2018

Why Facebook Is Losing Its Hold On Its Users

Facebook users were starting to tune out before the latest revelation, the news that it was Facebook itself that generated the core data used for micro-targeting U.S. voters on social media with fake news stories in the 2016 election. There was (and still is) no mass exodus of users deleting their accounts, and it is not that users were getting bored, but an increasing number of users were going out of their way to avoid opening the site and the app. The thinking, if I may attempt to paraphrase it, is something like, “I want to stay connected, but couldn’t I go for three weeks before checking in again? How about four weeks? Five weeks?”

This line of thinking is, obviously, a form of aversion. It is not the same thing I saw six years earlier when people were feeling hassled by propaganda directed their way by their psychopathic friends on Facebook, people who they either needed to mute or unfriend. No, the problem now is with Facebook itself. Facebook has become like that friend who isn’t really your friend anymore but is involved in a Bitcoin pyramid marketing scheme and is trying to feel out your level of interest in Bitcoin without being too obvious or owning up to any of it, except that they are being too obvious and you’re starting to feel creeped out talking to them. This is not what someone on Facebook is doing, this is what Facebook itself is starting to feel like to longtime users. It is trying just a little too hard to find out its users’ thoughts, opinions, histories, preferences. It is being a little too obvious about it.

Users feel a sense of apprehension on Facebook similar to the feeling of walking into a bar when you know your ex-spouse might be there and there are cameras in every corner. You want to be on your best behavior, say as little as possible, and get out as fast as possible before something bad happens. Yet as you leave, you wonder, did something bad happen? How would you know?

This kind of apprehension, the feeling that goes with an unsafe place, comes from an unconscious memory of bad experiences there, but it also reflects a sense of the roles in the place. Facebook users feel targeted. Or, to say it using another word, Facebook users feel preyed upon.

This is what they’re telling me. I have never been on Facebook myself except to assist users in deleting their accounts. I don’t believe any of my close friends are still particularly active on Facebook, so this is a summary of reports from less close friends, including some accounts that I have heard secondhand. But this is the consensus of what I am hearing. I think most Facebook users will acknowledge this view of Facebook, even if not all will agree.

One way of seeing how users feel about Facebook is hearing the reactions to the recent change in privacy policy having to do with face recognition. Facebook has long done its best to recognize everyone, registered user or not, who appears in a photograph posted on Facebook. Its facial recognition skills have only improved over the years. None of that is changing. But now Facebook is giving registered users the option to not have themselves automatically captioned in photos posted by strangers. Facebook still pretty well knows who every face is, and it will continue to identify you in photographs no matter what you do, but you can have it stop putting your name in the caption of a photograph. There are complaints that the world has come to this, of course, but some of the complaints are about the process of signing in to Facebook to turn off its automatic facial recognition photo captioning when your face is found in a photo. Facebook will turn the screws tighter just to get you to sign in so they can count you in their monthly active users. That is not a reaction a user would have to the action of a service that made them feel safe.

So Facebook is the wolf in the hills, users are trying to keep a safe distance, and then the news comes out about Facebook’s supposedly indirect involvement in the strategy of micro-targeting users for fake political news. There are several problems with this series of revelations, and the fact that Facebook threatened to sue a newspaper that wasn’t even the paper that broke the story is not even the worst of it. No, the worst is that there is no reason to believe Facebook’s assertion that it wasn’t directly involved and had no knowledge of the advertising-targeting algorithms. If that’s true, then why were Facebook engineers working onsite at the customer that was doing that analysis until the Monday after the weekend when the story broke? To a naive business news reader, it certainly seems like Facebook saw itself as a partner in a joint venture.

And it only gets worse. Users are downloading their data history from Facebook and are shocked at the extent of the data. It is not just a record of every click a user ever made on the Facebook site. There are records of actions on completely unrelated sites, dates and times of phone calls and text messages not made through the Facebook app or even with the app open, the names of every onetime Facebook friend. The text of messages that users thought they had sent privately to another Facebook user is in their permanent record. When people see this kind of thing, they can’t ever unsee it.

So in a few more days of this we will all understand that:

  1. Facebook is stalking its users with obsessive detail.
  2. Facebook is, at best, extremely careless about who has access to this data.
  3. This is not a safe arrangement for Facebook users.

This is why Facebook will not survive this data security debacle in its current form. A decade ago when the world was flocking to Facebook, it was for the sake of security. People were trying to get away from the security risks of the open Internet, particularly the overwhelming spam load of Internet email and the attack vectors built into innocent-looking web pages. Facebook offered a degree of protection from that.

By now, the shoe is on the other foot. Browsers have improved to the point where users can feel relatively protected from rogue web pages. Email services have done a reasonably good job at filtering out harmful messages, so that, believe it or not, there is actually less spam email than there was 10 years ago. People feel relatively confident about signing in to email these days.

No, now it is signing in to Facebook that gives people the jitters. In my opinion, the users who originally moved to Facebook for the sake of online security will not stay around now that Facebook is seen as possibly the largest privacy threat on the Internet.

The mere observation that Facebook is “losing its hold” on users contains the context that users feel like Facebook has its claws in them. Users feel like they are the object of Facebook rather than the agent of their Facebook experience. Facebook had already lost the hearts of users before they reached the question, “What will Facebook do to us next?”

Tens of thousands of users have deleted their accounts in the last five days. That’s not many, of course, though it is a number large enough to represent a measurable hit to Facebook revenue. The greater concern to Facebook, though, is the larger number of users who have gone silent. They still check in several times a month or at least several times a year, they read posts, but they are careful to avoid posting anything or liking anything. Maybe they’ll just post a holiday greeting in early December as a way to reassure relatives that they are still alive.

They’re still users, right? But for those with a sense of history, this is exactly how the old MySpace ended. It is not that users deleted their accounts in large numbers. They simply stopped posting. Once a site reaches the point where no one with any sense is posting new content, then there is nothing for users to read. They check in after three weeks and nothing has happened with any of their friends. “Maybe I don’t have to check in quite so often,” they think. Soon, they’re forgetting to check in for months at a time. By the time a user reaches this point, there is no possible way for the platform to win this user back. The user is no longer paying attention.

That was MySpace. But Facebook may already be far enough down that slippery slope that there is no realistic prospect of climbing back up.

Thursday, March 15, 2018

IHeartMedia bankruptcy

Another major bankruptcy filing today: IHeartMedia, the largest radio station operator, is in bankruptcy. This was expected and unavoidable as the company took on enormous debts to buy radio stations at the same time that radio is losing its reach. The interesting thing about this case is that it is not entirely clear that broadcasting licenses survive bankruptcy. Business leaders have always assumed so but this theory has not been thoroughly tested. The company says it will continue to operate normally and pay all its bills.

Trends are working against IHeartMedia in the long run, but for now it has cash flow and has some potential to cut costs through further automation.

The common element in the Toys ‘R’ Us and IHeartMedia bankruptcies is that both companies are swimming against the current when it comes to cultural trends. Radio is declining in mind share and cultural influence in much the same way that toys are.

Wednesday, March 14, 2018

Toys ‘R’ Us to Close All Stores

Word came this morning that the Toys ‘R’ Us U.K. subsidiary was unable to find a buyer and will close all stores within six weeks. From BBC News:

This announcement was expected after the subsidiary entered administration. Now that it has come to pass it carries the air of inevitability given the complexity of the Toys ‘R’ Us business arrangements and a wave of retail failures in Britain. Other reports from Britain indicate that layoffs at the stores started as soon as the announcement was made.

Meanwhile in the U.S. a bankruptcy liquidation court filing is expected early this evening. That plan would most likely lead to the closing of the remaining U.S. Toys ‘R’ Us stores and the web store.

There is a chance that stores in Canada could stay open. According to Bloomberg, toy manufacturer MGA (owner of Bratz) is trying to find investors to fund a bid for the Canadian operations, which are also in bankruptcy but have not faced quite the same level of operational stress as the U.S. and U.K. companies. Such a bid could also include a few U.S. stores and the web store. Time is short, though, and a credible bid might not be forthcoming if partners for the venture cannot be lined up by tonight.

Toys ‘R’ Us acknowledged the long odds it faces when it told employees late today that probably all U.S. stores, some 800, will close, and all employees, more than 30,000, will lose their jobs.

Update: Toys ‘R’ Us filed its petition to liquidate after midnight. The petition implies a quick liquidation of most stores. It suggests that there is a good chance that all Canadian stores remain open. USA Today:

Tuesday, March 13, 2018

Toys ‘R’ Us Stops Talking to Vendors

Sources associated with Toys ‘R’ Us suppliers told Bloomberg that payments from the company have stopped,

they can’t get anyone at Toys “R” Us to respond to questions [and the company] recently stopped negotiating settlements with vendors . . .

The Bloomberg story:

While nothing is definitive until it shows up in a bankruptcy court filing, this news is consistent with the recent narrative of a company on the verge of liquidation. There were rumors on Sunday that a liquidation plan would be filed on Monday, and that did not happen, but if a retailer is cutting off its suppliers, it cannot carry on for much longer than another week.

Update: Lauren Hirsch at CNBC writes of a Toys ‘R’ Us liquidation, “The retailer could file as soon as the end of Wednesday.”

Thursday, March 8, 2018

Toys ‘R’ Us Prepares for Liquidation

Toys ‘R’ Us is preparing to liquidate, according to sources who spoke to three Bloomberg reporters. The story posted this evening is “Toys ‘R’ Us Is Prepping to Liquidate Its U.S. Operations”:

Toys “R” Us Inc. is making preparations for a liquidation of its bankrupt U.S. operations after so far failing to find a buyer or reach a debt restructuring deal with lenders, according to people familiar with the matter.

Tuesday, March 6, 2018

Lego Decline Is Not a Trend

Sales fell at Lego, but it is not a trend. Lego was limited by excess inventories at the same time that Toys ‘R’ Us was careening into bankruptcy in two countries. Demand for Lego now follows a movie-release cycle, and the next Lego movie is still a year or more away. Over the next few years Lego will continue to benefit from the urge to build things that are material and three-dimensional to balance out a consumer experience that is increasingly digital.