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Facebook's Real Problem: the Trust-Based Internet

Synopsis: The currencies of Internet commerce are trust and utility. When you fully grasp this, you understand the true depth of the crisis gripping Facebook, and by extension every online venture.

Updated: 8/April/2018

The Situation

Malicious actors used sensitive data illicitly acquired from Facebook to micro-target tens or hundreds of millions Facebook users, and then used psychological manipulation techniques on those users to further political aims, including deepening societal divisions; generating community unrest; weakening democratic institutions; and altering the outcome of elections and so potentially alter the entire direction of a nation.

These malicious actors - including notably Cambridge Analytica but likely numerous other State and non-State entities - violated Facebook Terms of Service, of that there is no doubt at all. Facebook though does itself no favors by hiding behind this as a legal shield. Facebook's users have learned that the private information, personal activities and habits, and connections to friends that Facebook holds about them, and they've assumed are confidential, are protected by little more than an honor system backed by legal terms and some cursory reviews. The actions of Cambridge Analytica exposed this reality, and in the long run they did us a favor by doing so.

In the wake of this steady drumbeat of bad news, Facebook has lost thousands of advertisers, millions of users, tens of millions of engagement hours, and over $80 billion in market value. Their unwitting and perhaps careless enablement of the fake news phenomenon resulted in this bad real news.

The Development of Trust

In the early 90's, online commerce was in its infancy, to put it mildly. No one bought important or serious things online, and only a tiny handful of people were even routine Internet users. There was no online banking, e-Government services, medical services, or any of the other things we take for granted now. In short, nothing done online required much trust.

Then came Amazon. Everyone knows who they are now, of course, but at one point they were as new and unheard of as any startup. They launched by selling the simple book. Not electronics. Not food. Not consumer goods. Not medicine. Not sports equipment. The simple book. It was a relatively low cost product, and if you bought one and it didn't arrive or it arrived late, life went on.

People could order the book without being terribly concerned about trusting this unknown startup in Seattle. So they ordered books. And the books indeed arrived as promised. Every time, on time. And on those rare occasions they didn't, Amazon fixed it quickly and without quibbling. To a very large extent it is Amazon that created the trust basis of the online ecosystem.

Then Amazon started selling things other than books and made those things easy to find and easy to buy. They started selling things we needed, not only things we merely wanted, and they sold them at a good price. They had a platform we now trusted because they showed us they deserved that trust, and they started adding utility to that platform by increasing their product range and services offered.

To give you an example of how far Amazon has come from books, you are reading this article because it was delivered to you by Amazon Web Services' expansive global edge-caching network called CloudFront from an Amazon data storage service called S3 situated in their location in Northern California.

When Utility Comes Before Trust

Amazon was instrumental in developing the trust in the Interent economy then expanding that to utility. However it is still fundamentally a traditional business. It offers things; we pay for the things; they give us those things. It is not terribly different in that way from the mail-order catalogue business.

This is important to understand because you have to consider the limits of how much we will trust a mail-order catalogue company or online retailer. When people ordered from the Sears catalogue - Sears, for those too young, was a powerhouse in the US mail-order catalogue business - we would tell them certain things about us, especially our name and real, physical address. Those are the same things we tell Amazon, and we don't tell them much else.

Imagine if the mail-order form in the Sears catalogue, or the equivalent Amazon online form in the 90's, asked us our gender, religion, race, sexual orientation, or even our age. No way! That is private! Why do we tell Facebook and all these other Social Media companies things we never told Amazon, eBay, or any of the other eCommerce giants?

eCommerce companies started with trust and then we allowed them to add utility proportional to how they behaved with that trust. The Social Media companies subtly but undeniably reversed this process. They required more and more of our trust in exchange for additional utility.

The more of our personal data we entrust to Social Media companies, the more utility - value - they provide us. By knowing my interests, I get interesting article suggestions. By tracking things I click like on, they suggest activites in the real world that may interest me. By knowing my date of birth, I get little happy birthday notes from my friends at Facebook's prompting.

Social Media companies require us to provide our trust, through giving them our personal data, in exchange for them providing us utility through their platforms.

Customers are People that Pay You

It may be a pithy observation, but customers are people that pay you. With Amazon, eBay merchants, and all the rest of the eCommerce giants, we pay them and they do something for us. Never forget: a customer is someone who pays you for a product or service. All these trite corporate cliché involving labels such as "internal customers" have done us a disservice because they obscure that basic fact. Customers pay you for your product or service.

If you are not the customer, then you are the product. Who pays Social Media companies? Not the users. No one has ever paid for a Facebook user account. The people that pay Social Media companies are buying the advertising that you see, data that can be used to target you, information to learn more about you, and channels to (at best) inform you and (at worst) manipulate you. The users of Social Media are the product.

Is it bad to be the product?

The thought that the users are the product may cause most people a bit of distress. It shouldn't necessarily. In exchange for being the product, users are getting a very sophisticated, highly useful and ridiculously expensive to develop and maintain platform entirely for free.

When Trust Unravels

The business model of Social Media companies is entirely based on trust. Users (the products) trust the companies not to abuse the trust they've placed in them, and Advertisers (the customers) trust they are reaching real, relevant users, based on high-quality, accurate information to foster meaningful engagement.

The trust that users have placed in Facebook and other Social Media companies is unraveling quickly. The use, misuse, and complicit or illicit appropriation of personal data is the cause. The implications of loss of user's trust because of data misuse are entirely different for Social Media companies than they would be for a bank, government agency, or retailer. The threat of loss of user trust is existential in a way that it simply is not for any other business in any other industry.

Facebook and Social Media enterprises generally face an unprecedented, though well deserved, backlash for their lack of good stewardship of the private data user's have entrusted them with. For any other industry segment, they could answer the challenge by locking down the data and turning off the spigot to third parties. For Social Media enterprises though, that is the equivalent of taking all the products off the shelves. What will the actual customers be able to buy then?

Understanding the critical nature of trust on the Internet economy generally and Social Media companies particularly, you can understand the threat that Facebook and similar companies face, and why that is being so dramatically reflected in their plummeting market value. It is no exaggeration to say that, for them, this is life & death.


In upcoming articles, we will explore this topic further looking at mitigations and remedies. Stay tuned! And feel free to forward this on and share it with anyone who finds this topic interesting.