This blog is a summary of an interesting internal discussion we had among analysts. I’d like to extend my thanks to Jessica Liu, Martha Bennett, Fatemeh Khatibloo, Brigitte Majewski, Sucharita Kodali, and Benjamin Ensor, who all helped with the thinking. I’m merely putting the pieces together for you here, because connecting the dots is where I come in at Forrester . . .
As I ramp up our effort to refresh our report on the top technology trends to watch, one of the things I find most interesting is how technologies build upon and accelerate each other (see the law of accelerating returns). As a society, we wrestle with a number of moral dilemmas that I consider part of digital ethics. Facebook, Inc. (including the Facebook app, Messenger, Instagram, WhatsApp, Facebook’s Audience Network, and its other apps, services, and hardware) is the best example. It has become a new world superpower; but instead of nukes, it combines technologies to accelerate disruption and expand its influence at a scale we simply can’t grasp. This is forcing us to pay attention to digital ethics and wonder what the new reality that Facebook is helping create means to businesses and consumers.
Here Are Some Of The Things We Discussed
- Despite fumbles, Facebook is growing because options are limited. In her excellent report, analyst Jessica Liu lays out Facebook’s dilemma: How can a company that repeatedly mistreats its users still be a growth darling of Wall Street? One problem is that consumer momentum changes slowly, and so many people (around 2.7 billion) used at least one of Facebook’s apps in December 2018. Another problem is that regulators move too slowly, letting the tech giant stay one or two steps ahead. While we know from additional research that marketers are frustrated with the monopolistic way Facebook deals with them, they feel they have nowhere else to go for reach and continue to funnel advertising dollars into Facebook’s family of apps. Net: Facebook’s revenue grew to nearly $17 billion in Q4 2018.
- Facebook achieved this dominance by combining social media, mobile, cloud, and big data technology. Facebook’s phenomenal rise to power happened on the back of emerging technologies, not individually but together. Cloud-enabled big data and mobile helped deliver influence through social media, all made possible by the internet and the World Wide Web. It’s a classic example of explosive growth on the back of tech-driven innovation that taps into an unmet customer need (see If You Want To Dominate, Then Disrupt).
- Facebook already has a bigger daily impact on the lives of some people than their government. In some respects, it has just as much influence. Now, what 2.7 billion people see and interpret as truth daily — and the approximately $40 billion that firms spend in advertising each year — will be “governed” by a single for-profit company. Compounding this concern, consider that Facebook, through preferred stock, is entirely controlled by one person. Today, Facebook’s skill in AI technology means that machine-learning algorithms decide a lot of who sees what, and these often unintentionally pick up the bias of their developer. See Brandon Purcell’s blog Facebook’s Most Recent Ethical tHUD as an example. Now Facebook is appointing what Zuckerberg calls a “supreme court” for resolving content censorship issues. This oversight board is supposed to be independent, but it will be appointed by Facebook and is thus fraught with conflict of interest. These moves challenge our notion of a free press and free speech and the role of companies and governments in protecting these rights. These move also contribute to the controversy made famous by Apple: Is code speech?
- Facebook’s foray into cryptocurrency is even more problematic that it appears . . . When I learned about Facebook’s plans for its Libra cryptocurrency, my first thought was, “This could make it the most powerful financial institution in the world” in addition to being the biggest media company. Then I dug into the actual technology and heard from a few colleagues, and my view turned even darker. To wit, our expert on distributed ledger technology, Martha Bennett, told me, “Facebook’s token will be backed by a basket of (real-world) currencies, short-term government securities, and other assets. That distinction is important because of the implications of Libra in the context of global financial stability.” As Martha explains, whereas Bitcoin, in its current form, doesn’t pose a direct risk to financial stability (indirect risk has been managed effectively by regulators), Libra, if successful, won’t be. Some commentators are even conjuring up the specter of Lehman Brothers. Instead of “too big to fail,” however, it would be “too big to bail.”
- . . . and this has implications on digital identity and privacy. Our privacy expert Fatemeh Khatibloo made an insightful connection between Libra and digital identities: “Facebook is saying that Libra will be linked to ‘pseudonymous’ wallets but later says it plans to do identity verification — which, of course, it must do, as it’s attached to fiat currencies. However, that also puts Facebook in the position of being able to police the digital identities of everyone who wants to play in its sandbox, and that’s dangerous for a whole host of reasons.”
Bottom Line: 20th-Century Tools For Protecting A Free Society Won’t Work for 21st-Century Tech Giants
In essence, Facebook is flexing its muscle as a new type of world superpower by adding AI and distributed ledger technology on top of social media, mobile, cloud, and big data. Their moves call into question our current stances on freedom of speech, freedom of the press, the role of financial regulation, the applicability of antitrust laws, taxation, and a bunch of other tools we have to maintain a free society. What happens if giants like Facebook that influence what we see and buy — and are willing to move fast and break things — now handle billions in payments with digital currency tied to our financial system? The downside of exponential business means potential global system failures at a speed we cannot comprehend. Our ethical norms and laws have never had to deal with the likes of Facebook. Now, they do.
This trend must be on your radar, because the decisions that governments make, customer trends in response to privacy concerns, and the new ethical norms that the digital era ushers in will create an environment in which you will either flourish or go out of business.