Facebook’s policy U-turn on News Feed makes long-term sense

Facebook saw its shares slide 4.5 percent on Jan 12, despite a broad market rally in the US that day, after the company announced major changes to its News Feed policy.

Chief Executive Mark Zuckerberg said the News Feed will begin to prioritize “meaningful social interactions” over “relevant content”. That means users will begin to see more posts from friends rather than advertisers. That marks a U-turn for the social media giant in just about three months. 

Facebook’s share price took a hit after the company decided to change its business model. Although the move may hurt short-term profitability, it is actually a necessary move for the company to sustain its success over the long run.

In the internet world, information is almost unlimited but users’ time and attention are limited. How to prioritize and determine which feeds users will see is thus critical.

In the early days, Facebook users used to find and read more information about their friends or followers. That has enabled the platform to quickly acquire hundreds of millions of users.
But as Facebook began to monetize its user base more aggressively, feeds from advertisers began rising while those from friends were reduced.

The move enabled the company to achieve dramatic growth in earnings over the past five years.
Facebook’s monetization effort reached the peak in October last year, when the company decided to further prioritize content from brands, media, politicians if they pay extra fees.
Such changes upset users, who want to use Facebook to get updates from their friends and share latest developments with each other.

Businesses have to balance between social benefits and commercial needs. For example, ICQ and MSN, two social networking softwares, attracted millions of users initially and even held dominance in global market at one point. However, both companies became too focused on making money. 

Eventually an overwhelming amount of advertising content turned users away, for good.
Fortunately for Facebook, its senior management is closely watching users’ satisfaction level using big data technology.

Apparently, Zuckerberg has noticed something wrong, which prompted him to sacrifice some short-term gains in order to cement the company’s position.

Although short-term share price movement is negative, investors should appreciate that Facebook can flexibly adjust its strategy based on customer behavior to preserve its most precious asset –customer attention.