US social media giant Facebook is facing a new existential crisis. Coffee giant Starbucks followed the footsteps of several companies and announced a moratorium on advertising on Facebook on Tuesday. At the time of writing, 17 prominent multinationals, including Unilever, Coca-Cola and Honda, had said they would suspend advertising spending on social media such as Facebook. This has dented the social media giants’ revenue outlook and further weighed on their share prices.
Shares of Facebook fell 8.3 percent on Friday, their biggest drop in three months, while Twitter’s shares closed down more than 7 percent.
“Given the noise that this change has caused, Facebook’s business will be significantly affected,” said Bradley Gastwirth, an analyst at Wedbush Securities, a US financial services firm. The company needs to address this issue quickly and effectively to stop the potential loss of control caused by the withdrawal of ads. “
Facebook’s “Dead Sheep”
Unilever said its brands would stop advertising on sites such as Facebook, Twitter and Instagram, a decision that runs until at least December 31 this year. The consumer goods giant spent more than $11.8 million on advertising on Facebook alone this year, according to Pathmatics, a marketing analytics firm.
“Given our accountability framework and the polarizing atmosphere in the United States, we will no longer run brand ads on social media newsfeed platforms in the United States between now and at least the end of this year.” “Continued advertising on these platforms will not bring value to people and society,” Luis DiComo, the company’s executive vice president of global media, said in a statement. We will monitor it on going on and, if necessary, re-examine our current position. “
“There is no place for racism in the world, and there is no place for racism on social media,” Coca-Cola said in a statement. Coca-Cola will suspend advertising on all social media platforms worldwide for at least 30 days. We want greater accountability and transparency from our social media partners. “
The groups’ claims include demands for social media platforms to regulate hate speech and disinformation more strictly and take a series of actions. For example, create a “separate vetting channel” for users who claim they are being attacked because of their race or religion, or let advertisers know if their ads are often placed near content with misinformation or hate speech and get refunds based on frequency.
Facebook’s shares fell more than 8% on the 26th as a number of big companies took their say. Facebook’s market value has fallen by $56 billion, according to the Bloomberg Billionaires Index, and chief executive Mark Zuckerberg’s net worth has fallen to $82.3 billion, temporarily pulling out of the world’s top three.
The growing list of companies that stop running ads, coupled with the economic slowdown triggered by the new crown pneumonia outbreak, has increased the willingness of many advertisers to control marketing spending, so the threat to Facebook could become severe. What’s more, the company’s second-quarter results are already showing signs of weakness. Dave Wehner, Facebook’s chief financial officer, warned on a earnings conference call in April: “The advertising industry is likely to shrink even more. According to analysts’ forecasts, Facebook will barely achieve 1 per cent revenue growth in June and 7 per cent in the third quarter, which would be the smallest quarterly increase since the company went public.
Facebook said it would start marking all posts containing voting information with a link to encourage users to get more factual information from their newly established voting centers.
In addition, Facebook has expanded its definition of hate speech, increased its prohibition on such speech, and added a clause that says that if an ad calls another population group “dangerous,” it will be absolutely banned.
Growing regulation of technology companies
In recent years, pressure on technology companies to regulate content has increased. In 2019, Twitter banned political advertising in an effort to limit the spread of disinformation ahead of the upcoming presidential election, and Google announced it would limit targeting. Facebook’s response has been less positive, allowing users to post political ads without restrictions on the platform, but the platform could label unverified political ads, similar to photo wall companies that demote posts that are rated as false by third-party fact-checkers so that they do not appear on the user’s stream of information.
According tomedia reports, Mr. Zuckerberg has been reluctant to restrict political speech, saying he does n’etre that he does not want Facebook to be an arbiter of “what is true.” That prompted civil rights groups such as the Anti-Defamation League to urge advertisers to stop advertising on Facebook in July in protest at the company’s policies.
Mark Shmulik, an analyst at Bernstein Securities, wrote in a report that pressure is mounting on brands to publicly declare that their positions are aligned with civil rights groups. “The current environment is very different. It is very clear who is involved in the boycott and who is not, and now the brand’s silence is equated with being an accomplice. Smulik said.
Will Facebook give in all the way under pressure?
Over the years, Facebook has weathered a number of scandals and its business has continued to grow rapidly. Despite previous regulatory threats and a number of public calls for the removal of Facebook accounts, the company’s advertising revenue grew 27 percent in 2019 to more than $69.7 billion.
Facebook generated $69.7 billion in advertising revenue worldwide in 2019 through its 8 million advertisers, according to the company’s publicly released information. Moreover, while big brands such as Unilever and Coca-Cola make most of the headlines, the vast majority of the 8m advertisers are small businesses, many of which rely heavily on Facebook ads for their sales. As a result, some in the advertising industry believe that this part of the business and direct-to-consumer sales is not capable of stopping advertising spending.
But Facebook has tried to quell the boycott behind the scenes and responded to Facebook’s indifference to hate and misinformation. In an email to advertising partners, the company highlighted the software used to detect hate speech, saying it had improved over the past few years and was working to disseminate verified information in elections.
However, the advertiser’s departure will not end any time soon. “Advertisers see their ads being placed next to racist, anti-Semitic hate speech on Facebook, and they’re finally starting to say no. Jonathan Greenblatt, chief executive of the Anti-Defamation League, said, “Our phones have been blown up by advertisers. All I can say is that there will be more advertisers joining us. “