And The Oscar For Business Strategy Goes To ....

Facebook just reduced its inventory on purpose — unleashing massive speculation on the real reasons why the noteworthy ad platform took this step.

In all the hubbub about Facebook’s “algorithm change,” few are talking about why reducing inventory is arguably a great business move for the company’s stockholders — rather than a gesture of goodwill to mankind, or an apology, we suppose, for that whole Russian thing.

The question remains, why all the machinations? Why would a perfectly good and profitable company attempt to take the moral high ground at the expense of shareholders? Altruism seems, well, out of character for a Silicon Valley behemoth, right?

So, why?

Theory One: It’s a magnanimous gesture to cause people to commune, network, interact, and generally love the site more than they did in prior algorithms. (The Public Posture). In other words, Facebook is gaining support for long-term strategy at the expense of short-term revenue. Normally, we would be grateful.



Theory Two: Artificial scarcity.

Think about who is complaining -- and about what. Big media buyers are complaining that prices are too high. Of course they're grumbling. They always do. How about marketers at smaller companies? Crickets. Those advertisers will use it if it works, and don’t have enough clout for a complaint to be meaningful.

For perspective, artificial scarcity is an important tactic in the television industry. I am not making this up. It’s a poorly kept secret. The posture is the same as airlines: Only two more seats available at that price, because, oh darn, we’re running out!

Facebook makes most of its money from long- and mid-tail customers, who don’t complain about prices. But how might they get the big brands to pay?  

Scarcity, stupid! It’s a time-tested method for getting customers to pay more per unit. When inventory is assumed to be infinite, that strategy doesn’t work at all.

Theory 3: A Get-Out-Of-Jail-Free Pass.

Anyone who grew up with siblings knows that younger sibs watch in horror as older ones get punished for something. What has Facebook witnessed recently? Lemeesee. How about Google gouged by the European Union?  How about China starting to actively invade U.S. markets? How about Uber getting raked over the coals for … just about everything?

Who could blame Facebook for feeling a little… vulnerable.

It’s feeling the inevitable consequences of a sneaky but common strategy called “monetize other people’s content.” It’s risking unprecedented backlash for being asleep at the guardpost as Russia invaded. There was passionate talk about social media “addiction” from the stage at Davos. George Soros went for the jugular, alleging monopolistic behaviors.

It’s already facing backlash for fake news, unsavory content adjacencies, bullying, etc. Moral high ground is a great posture from which to combat these soft allegations.

Theory 4: Elegant misdirection.

From Brian Wieser’s newsletter: “Specifically, core Facebook saw a decline in time spent per user of -7.0% and -4.7% in those two months. We can speculate that the concerns reflected in Zuckerberg’s post may very well have been driving these declines.”

In other words, numbers are going down!  What a shock. In the mercenary world of Silicon Valley, up and to the right gets polite treatment even for bullies, liars, and abusers. Conversely, the slightest sign of weakness brings the sharks. The NFL has never seen piling-on like what happens to a fading tech darling.

This is not happening to Facebook — yet. But how might it contain the possibility?

Easy. Create a valid, explainable, socially and financially acceptable reason that the numbers went down before any piling-on begins. Pure finesse! “Well, of course they went down! We did it to ourselves on purpose, you morons, to save democracy, the long game, God, and family. You do approve of those things, don’t you?”  Game over.

Theory 5: All of the above.

Net, it’s easy to imagine that a self-imposed sentence of community service might appease the growing lynch mob. Especially if all you have to do is act sorry, and then raise prices.... Oh, darn, we’re running out! A strategic grand slam.  Defense, offense, forgiveness, money, respect, and love, all in one deft maneuver.  If there were Oscars for business strategy, Facebook would get one.

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