The internet went briefly aflutter on Thursday after some users discovered that the latest update to Facebook’s (FB) wall-sorting algorithm Edgerank had gotten even more restrictive, greatly limiting the number of posts users see in their news feed. A link to revert the feed back to an older, less restrictive version of the algorithm swept the internet, before it was quickly “patched” by Facebook. Which is of little surprise, since as a $120 billion megacorp beholden only to its shareholders, it’s in Facebook’s best interests to keep revenues as high as possible.
Facebook users seem to forget a truism of capitalism, a system in which Facebook is an adept player, that was well articulated in 2010 by MetaFilter user blue_beetle: “If you are not paying for it, you're not the customer; you're the product being sold.”
The average Facebook user isn’t paying for it. Since they use Facebook for free, their eyeballs are the product being sold.
Making and Using Facebook at the Same Time
But Facebook’s revenue does not come merely from the passive users looking at advertisements, like a TV show made up of wedding announcements and pithy one-liners. The content of Facebook is also largely produced by those same users, albeit for free. That’s where Facebook’s big second revenue stream comes into play. And the explanation of why Facebook has a vested interest in making the algorithm more and more restrictive.
By limiting the number of users a poster can reach with their free content, Facebook incentivizes people to pay to get their content seen as well. After all, what good is content if nobody can find it? It’s the model that Twitter (TWTR) already uses so well with their “promoted tweets.” That’s the sell of Facebook: it’s a place to see free content, but also a place to get your own content seen – ostensibly for free, but more and more, for a price.
Content = Every Site Interaction
To the Facebook algorithm, everything posted is filed under the monolithic term “content,” sorted by how often it is liked or commented upon, and given preferential feed placement for consumers (AKA Facebook users) if content producers (AKA Facebook users) either post regularly and have popular posts or pay to have their content highlighted. Additionally, just interacting with a post is considered content, as CEO Mark Zuckerberg highlighted for investors in the Q2 2013 earnings report that showed likes and comments were up 50 percent. Facebook posts that have the most content (in the form of likes and comments) are pushed the highest in the feed. A user wants to find more? They can use graph search to dig it up themselves and spend more time on the site. Another win for Facebook’s revenue.
All Facebook users are simultaneously producers and consumers, monetized at every step. From a capitalist’s perspective, it’s a coldly beautiful model. Users take care of everything. Facebook gets their taste at every point of the flow. To continue growing, all they have to do is adjust the funnel, make it continually tighter, and up the toll. And reward users who pay – either with money or with more content. Either way, a Facebook user, on both ends, is the product being sold.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer