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Another blow for Facebook

Another blow for Facebook

The good ship Facebook has sailed into stormy waters recently and indications are that it might have found itself driven onto the rocks.

We all know the basic outline of the privacy scandal by now; Facebook’s total dedication to monetising people’s data combined with its total lack of concern about the security of said data has turned the tech company into something of an international pariah. And rightly so.

The majority know that the price for using “free” social media is that the people who run it will sell your data to advertisers – as the famous aphorism goes, if you’re not paying for the product then you are the product. However, few expected that data to be open to such wanton and dangerous abuse as was exposed by the Cambridge Analytica scandal.

Facebook has been on the defensive ever since, and today the technology and media giant has suffered another heavy blow as news broke that its shares fell in value by 20% following the recent second quarter earnings announcement.

On the surface this looks quite puzzling. The company reported a massive jump in year-on-year revenues and profit of 42% and 31% respectively. It seems slightly strange that this would prompt investors to be gloomy – after all, the point of investing in a company is to extract the profit from other people’s work without having to directly contribute to anything yourself. Surely a 31% increase in profit should be a cause for celebration?

It turns out that a headline profit announcement covered up something more worrying. A business like Facebook is fundamentally based on expanding its user base so that it has an ever-growing pile of data that it can package up and monetise. The issue for Facebook is that the growth of the user base has apparently slowed right down, and this has spooked investors who appreciate profits today but are more interested in long-term profits far into the future.

The aforementioned privacy scandal is a big reason why the user base has taken a hit. Young people in particular have been quitting the platform in droves, worried that their data is not being held or used safely. This has occurred mainly in the so-called developed world which Facebook considers its backyard and the foundation of its success.

The second issue is related to the latter point. The ‘developed’ world has largely been bled dry. If you are American or European the chances are that you will already have Facebook if you want it. The platform’s 1.5bn users are largely concentrated in these areas.

The big prize is the ‘unconnected’ world which is estimated to be made up of at least 3.5bn people who do not currently have a reliable, private internet connection. For this reason many tech giants have been coming up with schemes as varied as hot air balloons and solar powered drones to provide easy internet access to the world’s more remote places.

Facebook has connected approximately 100 million previously-unconnected people through a scheme called Free Basics where it partners with local telecoms providers to let users access a small number of pre-selected sites without using any extra data – including Facebook. In this way, Facebook gives itself access to a huge new group of people who, theoretically, come to see Facebook as the whole internet, rather than as one small part of it.

It is a good strategy, as its current success proves, but even this seemingly fool proof idea has run into problems. Some countries, such as India, have banned Free Basics on the completely reasonable grounds that it unfairly prioritises certain sites over others, in effect creating a two-tier internet where those with money can access whatever they want and those without can only access Facebook. Given that this was the whole, cynical plan to start with it is a fair enough judgement.

The second problem comes from the other end of the spectrum. Facebook has quietly been pulling its Free Basics service from several regions thanks to the users. The best example of this is in Myanmar where Facebook was buried under a tidal wave of hate speech in the wake of the programme of ethnic cleansing carried out against the Rohingya people by the Burmese government. As often happens when utopian tech companies encounter reality and actual living people, the company was seemingly surprised that newly-connected people might want to use the service for more than playing games, sending happy birthday messages and – crucially – clicking on adverts.

Overall, these are not insurmountable issues, but Mark Zuckerberg and his band of techies need to solve them sooner rather than later. Facebook is a business based on continual growth, and its investors seem to be coming to the realisation that there are a limited number of people on the planet, however slowly they have reached this epiphany. More inventive solutions from Facebook might be needed.

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