Ed Zitron thinks Social Media is dying partially because of this, but I think all of the US economy might be dying for the same reason:
This is in part because investors in the private and public markets value companies based entirely on growth. They believe a company is “bad” when it stays steadily profitable, because a “good” company is one that grows by double-digit percentages every single quarter for the rest of time. The result is that social media companies are incentivized not to find ways to make users happy, but to find ways to continually extract money from them in a way that may not be sustainable, but immediately placates those who demand eternal growth.
This has been true in the big social media companies. Still, this description also matches what has happened with Microsoft, Amazon, law firms, non-startup tech companies, eDiscovery vendors, retail and everywhere else in our economy. Companies that are profitable but not as profitable as they were the year before announcing significant layoffs. Companies doing whatever they can to increase the stock price, regardless of whether that action makes long-term sense or creates a sustainable business model. Social media has sold out to what advertisers want for years, making the experience of using these tools everything but “connecting with your friends and families.” Using online tools to connect with friends and family that are ad-supported is a sustainable business model. It’s not a “make me a billionaire” business model, and our financial sector is only interested in the latter.
Creating a businss in 2023 is not about making a living and providing a good or service that benefits society. It’s about getting VC funding to the tune of millions (billions?), going public and cashing out. The investors are focused on short-term profit of their investment, thus the constant, single-minded focus on growth. If you’re not growing, you’re dying. If you are making a nice little profit, but your investors aren’t getting rich off of their investments, they are gone for greener pastures. Seeking the large growth promises of the next startup that never had a chance to succeed in the long term but could increase in value and make a lot of money right now. That’s the goal.
While I would love to end this with a condemnation of venture capitalists and hedge fund managers, I think it’s important to point out that many of us are complicit. Fund managers seeking the best short-term profits for their investments run funds whose shareholders include most of us. When we log in and look at our IRA or 401(k) accounts, we look for how much the value has increased, not what makes the most sense for society. Our account balance looks a little nicer when a company lays off 10,000 employees and the stock price increases.
It’s all entwined. To paraphrase Michael Corleone – “We’re all part of the same hypocrisy.”
Correcting this won’t be simple, but watching a company as large as Twitter or Facebook implode might at least make us think twice about how we value companies. Though we’ve been watching a few crypto companies implode, I’m not sure we’ve learned any lessons from that.