Facebook & The Coherence Test

This week Facebook’s CEO, Mark Zuckerberg, appeared before committees in both the United States Senate and House of Representatives to testify about data breaches plaguing Facebook; whether Facebook is a monopoly; Facebook’s treatment of privacy rights; and Facebook’s role in the proliferation of “fake news” and scandals surrounding the 2016 U.S. Presidential election, including allegations that a British company, Cambridge Analytica, improperly accessed, stored, and used data from 150 million-plus Facebook users. While it is tempting to treat this testimony as a point-of-no-return for Facebook and assume Facebook will make fundamental changes to its platform, an equally interesting way to treat Facebook is through the lens of “The Coherence Test” as specified by Paul Leinwand and Cesare Mainardi in their article, “The Coherence Premium.” By using this lens, we will see that Zuckerberg’s testimony signals Facebook is moving in ways that continue to enhance its core capabilities.

A brief review of Facebook’s most recent 10-K shows the company easily passes Leinwand and Mainardi’s coherence test.

• It creates value in the marketplace by “building useful and engaging products that enable people to connect and share through mobile devices, personal computers, and other surfaces” (Facebook 10-K).
• Its core capabilities can be summarized as technological innovation, ad sales, marketing, and network effects.
• Its key products - Facebook, Instagram, Messenger, WhatsApp, and Oculus - leverage its capabilities systems by making it easy to share and connect, encouraging and prolonging user engagement, and constantly introducing new features.

Zuckerberg’s testimony provided details about the company’s path forward. This path builds on Facebook’s core capabilities in a number of ways.

• First, the company is relying on technological innovation by building new technology to spot and remove fake accounts easily.
• Second, the company is restricting developers’ access to private data and giving users better controls to secure their private data.
• Third, the company is altering advertising policies so that political ads will be readily identified and, hopefully, easier to spot as opinion and not fact.

It’s worth noting that the advertising changes will not affect traditional ads. It is a politically necessary change that does not alter the structure of Facebook’s business model. The other changes should encourage users to remain faithful to Facebook and feel more secure spending time on the platforms and sharing content. 

Whether Congress will choose to regulate Facebook and other social media companies remains to be seen but one thing is clear: these challenges haven’t made Facebook doubt itself. They’ve shown the company knows what it is and how it can easily adapt without changing its fundamentals.