2 years ago
As Facebook continues to grow and expand its markets without much government regulation, they’ve managed to somehow create things the government already regulates, like planes. Additionally, there’s growing concern there should be more regulations in place to keep companies like Facebook in-check when they swoop into new markets and immediately take business shares from incumbents and newcomers.
Currently, Facebook’s focus on what the government cares about is minimal and mostly oriented toward data privacy. They introduced a Clear History feature to improve how users control their own data, and Zuckerberg admitted during his F8 Keynote that he didn’t know enough about Facebook’s data controls when talking to Congress.
However, the government’s concern about Facebook’s size has remained off its agenda, thus far at least.
As a result, Facebook has continued to expand into new areas which increasingly affect others. This month, they introduced a new platform feature called “Dating” at F8. Right away, shares of Match Group Inc. (Owner of Tinder and OkCupid) dropped 9.6%, so the impact is tangible.
It’s not clear what advice Facebook’s CEO, and primary stakeholder, Mark Zuckerberg, gets from the board of directors about the risks associated with the company’s growth strategy. However, a loose story emerges about the advice he could be getting when you look at board members, and contrast Facebook’s current situation with what Google did a few years ago.
Facebook’s board includes several venture capitalists who know what to do when companies mature, like Marc Andreessen from Andreessen Horowitz, Kenneth Chenault of General Catalyst, and Peter Theil who gained a fortune through PayPal.
But venture capitalists typically don’t hang on to companies. They scale, then harvest. They sell mature companies rather than stick around. These folks are probably telling Zuckerberg to divest some of their assets. It’s not clear what they’re advising now. Although, Theil convinced Zuckerberg to split Facebook’s stock in a way that leaves controlling equity in the same hands (namely the board, but mostly Zuckerberg), so there’s that.
Facebook’s board has had some serial entrepreneurs, too, and their influence on the company is not yet clear. Current board member Reed Hastings is the co-founder and CEO of Netflix, another top-performing company which has experienced the risks of becoming a monopoly (for 'killing' off Blockbuster, as was alleged).
So, could Hastings be advising Zuckerberg on the risks associated with growth? Perhaps.
And what about Jan Koum, who joined Facebook’s board after Facebook bought his company, WhatsApp? Koum grew WhatsApp and sold once it felt right. He may actually have some regrets about the deal now, given his costly disagreements with Facebooks's cybersecurity strategies. He’s actually leaving Facebook’s board.
It seems clear that Koum’s departure is a sign that Facebook’s majority stakeholder is selective about taking advice or working with the board on key decisions about cybersecurity. Security is being talked about, as evidenced by a new data control feature which is also receiving criticism for being something that should have been present all along.
It deserves mentioning that improved data security may appease some federal agencies, but it might not keep away regulators concerned about competitive markets.
Facebook’s tendency to have a presence in other industries was raised during Zuckerberg’s Congressional hearings in early April. The Chairman of the House, Greg Walden (R-ORE), asked Zuckerberg for clarification on what industry or industries Facebook falls under. Is Facebook a bank or a media company, or something else?
“You can send money to friends on Facebook Messenger using a debit card or PayPal account to, quote, “split meals, pay rent and more,” close quote… Is Facebook a financial institution?
“…Facebook has obtained exclusive broadcasting rights for 25 major league baseball games this season. Is Facebook a media company?”
In response to these questions, Zuckerberg repeatedly said “no.”
“There are certainly other things that we do, too… We build enterprise software, although I don't consider us an enterprise software company. We build planes to help connect people, and I don't consider ourselves to be an aerospace company.”
Representative Ryan Costello (R-PA) then asked if Facebook is a publisher: “Are you ever a publisher, as the term is legally used?”
Zuckerberg said, “Yes.” Sorta. Well, he wasn’t exactly sure.
Facebook is fully responsible for commissioned content, like the shows and movies they produce. However, the bulk of Facebook’s content is posted freely by users, not commissioned. So perhaps they are a publisher, in the legal sense, sometimes.
These questions about Facebook’s standing as a company carry huge implications, and beg debate as to what will happen if the company keeps operating as-is. Will Facebook break itself up before the government does?
Facebook doesn’t appear to be divesting anything, but there’s a strategy it could take. It could copy what other CEOs have done to maintain control of their businesses by reorganising and turning Facebook into a subsidiary of something larger.
Just like Google, Facebook makes or owns a ton of stuff, from planes and digital products, to web apps. Like Facebook, Google is huge. Google is much larger than Facebook.
Google’s CEOs clearly sensed they were growing in risky ways, across multiple industries, and needed to reorganise their company. In 2015, Google’s CEOs spun into a subsidiary of a new holding company called Alphabet. Google now operates under a different CEO and Google’s founders influence it and all other ventures and assets that were built at Google before applying this strategy.
So what’s next for Facebook? While we can’t say for sure, it could very likely become a subsidiary under a holding company run by Zuckerberg.
Justin S. Graving, M.S. is Senior Researcher at Smashing Ideas