Facebook/Meta (FB)- The W Report

Facebook’s challenges are much larger than last year’s policy change by Apple towards greater consumer privacy. Facebook has a user value problem. And until FB executives recognize and confront the problem, the outlook appears dim. This report shows where Facebook should focus its efforts to create compelling value for its customers.

​In April 2021, Apple started requiring apps to request user permission to track them. Only about 16% of users agree to be tracked (according to Flurry), making targeted ads much less precise. As expected, advertisers on Facebook didn’t like it. Being less precise means they must cast a wider – and often much wider – net in order to track the customer they want.

Ironically, this reduction in precision is exactly what Facebook users desired, and what Facebook was not delivering. Users want the flexibility to control their information, and in 2020, Facebook was being far too strict in how they dealt with users. This was more than just app tracking, and extended into how Facebook would allow certain information in posts to appear while others were taken down.

Over the past two years, Facebook has made considerable strides to be more flexible, reduce strictness and improve their overall user experience. Yet even with those improvements, Facebook faces an uphill battle. For example, pricing power, which measures customer willingness to increase pay/usage if their ideals are met, has been cut almost in half since mid-2020 and continues to decline.

The lack of pricing power indicates that users are less reluctant to use Facebook. The app in North America lost ~1 million daily users in late 2021, which was the first sequential decline in the company’s history.

So where should the Facebook executive team look for ideas? With its 90% market share, Google remains one of the best examples of dominance. Facebook may have changed its name to Meta, but that doesn’t wipe away its current challenges to remain relevant.

Facebook: 2020-Q2 vs. 2022-Q2

If Facebook management only tracks user satisfaction levels, they would be thrilled with their improvement in the last two years. But satisfaction by itself as a metric does not tell the whole story of a company’s performance. We need to look at how satisfaction compares to not only past performance, but also future needs and desires of users/customers.

​Our Match Profiles compare 2+ customer profiles over time, with the lighter colored markers “fading into the background” since they are from an earlier time period. The darkest colors illustrate the most current time period, forcing you to look at performance front and center.

​In the Facebook Match Profile here, the lighter green bars and blue X’s represent Facebook customers from our online interviews back in 2020-Q2. The darker markers represent customers two years later in 2022-Q2.

What’s encouraging to Facebook executives is how all the dark X’s have moved in the direction they wanted, indicating that users perceive Facebook is performing much better than they were two years ago. Across every single functional and emotional needs, users are more satisfied with Facebook today than at the start of the 2020 pandemic.

But now take a look at the green lines, which represent the customer ideal from a media company like Facebook. They show what is most important to Facebook users when looking at functional needs, and how customers want to feel when using Facebook when looking at emotional needs. Here’s what’s happening: Customer expectations (their ideal) are rising across all needs except for Pricing, Innovation, Personal Relationship and Precision.

This illustrates quite the conundrum for the FB executive team: User expectations are shifting higher more rapidly than user satisfaction is improving. Over the past two years, the gap in what users expect and what Facebook delivers continues to remain large (~2+ points) even though Facebook has been performing better. Gaps are especially large for Quality Info, Safe Content, Culture, Reputation, Connection and Stability.

What this means is that Facebook is not moving fast enough to keep up with the competitive landscape. The way out of this is to get ahead of user expectations, figuring out where the next set of demand exists. Or better yet, be the company that creates the demand. No doubt that FB executives believe the metaverse is that answer. But until metaverse revenues can replace Facebook revenues, the company remains at risk of continuing to lose daily users (and likely will without a focused effort to understand/drive user expectations).

Competitive Profile: Facebook vs. Google & Twitter

Over time, customer value within any industry can drift or shift to change the competitive landscape. Drifting implies smaller movements and requires sequential change; Shifting implies larger movements and requires a more monumental type of change. The current social media environment continues to undergo shifts in value, often taking out losers and declaring others as winners, albeit temporarily.

We know that even prior to the pandemic, media companies were having to chase the value curve in order to meet the needs of consumer demand. Some companies, such as Disney, Google and Netflix, were doing much better than others. In this analysis, we are going to focus on how Google has performed versus Facebook. We are including Twitter to show how struggles are not limited to just Facebook. This is a social media problem.

Based on the above Competitive Profile, executive teams at both Facebook and Twitter face almost identical challenges: They lack any compelling value beyond “free” (i.e., Pricing). Not the best position to occupy in a market, but also not necessarily a death sentence.

Google provides an interesting contrast in performance. Across virtually every functional and emotional need of users, Google performs far superior to Facebook and Twitter (although Twitter slightly outperforms FB on a few needs).

Google’s dominance in online search is well-recognized (90% market share), although the company is not without scrutiny in how it displays results (anti-competitor bias) and consumer demand for privacy (they track you regardless of settings). Yet, Google has weathered the storm better than its media counterparts. Why is that?

In a nutshell, Google delivers value. Here’s what users believe about Google: The company has highly useful products, the products are simple to use, and the company is responsive to user issues and feedback. In turn, this drives a deeper connection between Google and its user community, which is something both Facebook and Twitter currently lack.

Predictive Power: Facebook

So where should Facebook executives focus their investments to maximize returns? To help understand how to get ahead of user expectations, we look for patterns in customer perception by comparing them to key metrics that drive company growth. By growth, we typically mean revenue and profits but growth can also be internal operating metrics.

When looking at the Strictness Level chart, users believed Facebook (blue line) was far too strict in how they operated back in mid-2020. Their ideal (dark green line) shows how far off Facebook was in their ability to be flexible. Looking at the Pricing/Usage Power (light green bars), customers were willing to pay/use Facebook a lot more if the company was just more flexible in how they dealt with them.

​Once we discover a pattern (strong relationship) between growth and a customer’s perception of value, we can then calculate its predictive power. This is what most executives want from their data. Analytics with predictive power give us confidence that decisions we make today to drive improvement will actually drive future revenue/profit growth. If Facebook were more flexible, growth could occur.

That was in mid-2020 though. Where should Facebook executives look today? The optimum way is to sift through all the functional and emotional needs to analyze which have the greatest contribution to growth. In the Predictive Analytics table, we see the relationship between a few user needs have the potential to drive growth in the next several quarters.

Facebook’s move towards more flexibility will contribute to revenue over the next three quarters, assuming the company maintains its current willingness to be less strict. But to turn user perception around, FB executives must improve their simplicity and the quality of information within the Facebook community.

As the Activity Level chart shows, this will not be an easy task as user needs and desires for connection continue to rise, while Facebook’s activity levels remain relatively stagnant and are not matching user expectations.

As hockey great Wayne Gretzky famously said, “Skate to where the puck is going, not to where it is.” Facebook executives need to figure out where user expectations are going before they can return to steady, consistent growth.

By Gary A. Williams
Founder & CEO, wRatings
Co-Managing Partner, G2 Equity Partners