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Twitter and Facebook have differing business models

by Ace Damon
Twitter and Facebook have differing business models

June 4, 2020

The cutting-edge heads of BIG EGOS have been a constant theme in the technology industry. When the personal computer was still young, Microsoft's Bill Gates, a superpragmatist, was confronted by Apple's Steve Jobs, an extreme esthete. In commercial software, a later duel was fought between Larry Ellison, from Oracle, and Hasso Plattner, from SAP, who collided because they were so similar. The most recent confrontation takes place on social media, between Jack Dorsey, from Twitter, and Mark Zuckerberg, from Facebook – an intermittent newcomer with a taste for fasting and ice baths, the other an absolutist ruler on a mission to bring the world closer.

This difference in personality, as well as in his policy, undoubtedly played a role when Dorsey allowed Twitter to flag two recent tweets by President Donald Trump as unacceptable: one for its falsity and the other for glorifying violence. Trump immediately responded, threatening in a hastily executed order to control social media, but not before Zuckerberg appeared on television to protest that he did not want to be the "arbiter of the truth" and would never follow Twitter's example.

However, a lesser noticed factor that governed your responses is your different “business model”. In Silicon Valley, this is a more confusing concept than in the world, describing not only how a company makes money, but the fundamental functioning of its economic mechanism.

At first glance, Twitter and Facebook are similar. Each is a social network, connecting users online and presenting them with content in a "feed", an endless list of posts, photos and videos of pets. Each earns money by selling advertising and is therefore interested in using every trick to attract the attention of users. And each employs gobbets of data collected in user behavior to allow advertisers to accurately reach targets, for which they pay generously.

Take a closer look, however, and these combinations of similar attributes have created two very different companies, explains Dipayan Ghosh, a member of the Harvard Kennedy School and author of "Terms of Disservice", a new book on social media. Twitter is essentially a "Speakers' Corner" today, where anyone can take it and others can respond. Social media scholars refer to it as a one-to-many broadcast network. Facebook is, in essence, a one-to-one or a few network, replicating social relationships of the kind between friends, family or colleagues.

The difference may seem subtle, but it has several implications for the businesses of the two companies. For starters, Facebook is able to collect more data about its users because they are more involved with other users. This makes it easier to target ads. Facebook also benefits from stronger "network effects", which means that each additional subscriber makes the service more useful to others, which attracts more subscribers, and so on. Twitter cannot rely on such a boosted growth mechanism: although having friends is a human necessity, maintaining a box of soap is not essential, even for extroverts in the world.

This helps a lot to explain why in 2019 Facebook boasted nine times the users, 21 times the revenue and 12 times the profit of Twitter (see table). More importantly, strong network effects are a key asset that Facebook has vigorously defended: it has spent large sums on buying companies it considers likely future competitors, like Instagram, acquired in 2012 for $ 1 billion, and WhatsApp, for which he paid $ 19 in 2014.

Facebook's size has made it the dominant channel for political discourse in the United States and elsewhere. This means that you should be more cautious than Twitter when moderating content, as it is more vulnerable to accusations of political favoritism and, therefore, to the scrutiny of lawmakers. Like Twitter, it faces growing pressure to do more to combat illegal content, hate speech and misinformation on its platform.

The company that Zuckerberg runs also needs to manage the threat of becoming the target of antitrust investigations, particularly in the United States. The Trump administration would probably not hesitate to use this weapon if Facebook took discrimination against what the president calls "conservative views" – like checking facts from his statements online – especially during this year's presidential campaign.

Zuckerberg's caution is therefore part of his earlier decisions not to check political ads or to limit the targeting accuracy of these ads. Twitter, on the other hand, has completely banned political ads.

However, the two companies share a characteristic that can put them on a similar trajectory. Technology companies, more than other companies, need to be careful not to antagonize their employees, who are mostly millennials, especially the best software engineers, who can easily find work elsewhere if they are unhappy. Its workers, especially on the left, are increasingly upset that bosses are not doing enough to prevent the spread of wrong or worse information by politicians and others.

If Dorsey changed her mind and now allows tweets like Trump's to be flagged, this is partly due to constant pressure from employees. Zuckerberg is now facing the open wrath of his troops. On June 1, hundreds of employees carried out a "virtual standstill" (refusing to work and explaining it in automated email responses) for the first time, in protest against Facebook's decision not to take action against the president's posts. Perhaps Zuckerberg, like Dorsey, will change his mind – although he is likely to wait until he knows the results of the presidential elections in November. ■

This article was published in the Business section of the print edition, under the title "A tale of two social networks"

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