Jul 30, 2018 · 7 minutes

The bigger they get, the further they can fall.

Last week the media and Wall Street and Silicon Valley were all agog watching Facebook stumble… in fact, that’s the wrong verb. After revenue and user growth missed estimates, Facebook lost 20% of its market value-- a record making $120 billion rout.

When you’ve got no skin in the game, it’s entertaining to watch the reactions to such an event.

Since Facebook went public, a group of investors have seized on any weakness to insist Mark Zuckerberg has too much power at the company.

There are the enablers in the ecosystem who have close ties with Facebook and genuinely believe in the company, but are also invested in the Valley generally remaining strong. They pointed out Facebook’s 42% growth, dominance in digital ad markets is hardly a disaster of a quarter. Others celebrated it as the best buying opportunity for Facebook in years. Morgan Stanley, for one, remained bullish, noting, “Facebook has shown an ability to innovate and execute through previous challenges.”

Both arguments have merit. But both camps are too mired in drawing conclusions from Facebook’s past. Facebook is in uncharted waters now.

Take the issue around Zuckerberg’s leadership. After Facebook’s IPO, when people argued Zuckerberg should be replaced, they were mostly judging a young, inexperienced Silicon Valley founder. They were threatened by the cliche of the wunderkind, desperately wanting him to fail.

And with the benefit of hindsight, they were clearly wrong. Take just one example: It was Zuckerberg and Zuckerberg alone who convinced Kevin Systrom to sell Instagram to Facebook -- a company changing move, not only because of how it propelled Facebook and kept the company in the youth and influencer game, but because it robbed Twitter of a potential Instagram deal.

People tend to turn the argument over replacing a founder CEO into a simplistic religious argument. Either you are on the side against young leaders who have no checks and balances on their powers and wield too much control over a company as a matter of corporate governance, or you are in the cult of the founder cult and believe they should never be replaced. That’s been the argument around Zuckerberg’s control in the past.

At this moment in Facebook’s story, the argument has to be more nuanced. Facebook appears more leaderless than it ever has before-- this past month’s stunning defense of Infowars followed by then banning of several Infowars videos is just one example. Facebook seems caught unaware by the role it has played in subverting democracy in the last few years. It alternates between contrition and arrogance, showing legislators its belly and then rolling back to its feet and snarling.

If you are like me, and know many people inside the company, you tend to have the same conversation that ends the same way: All that matters is what one person thinks about this…

The view of many early investors I’ve spoken with is this: “Mark believes he has given the world an incredible gift and, flaws aside, the world isn’t sufficiently grateful.” Watching the company’s actions, that rings true. But I know as little as anyone what’s going on in his head. We’re all guessing.

And even senior people I speak with at Facebook are unclear where Mark Zuckerberg’s head is on issues around manipulation, division, and fake news. Stories like this are enough to spark concern: Facebook’s policy on white supremacy plays right into a racist agenda.”

That headline isn’t from some New York-based tech-phobic publication. It’s from TechCrunch. A publication that has historically so worshipped at the altar of Facebook, it changed its logo to blue on the day Facebook went public. Here’s what TechCrunch says now:

“By failing to recognize the political motivations behind white nationalism as an identity, Facebook legitimates white nationalism as something meaningfully distinct from white supremacy. While not all white nationalists call for the dream of a white ethnostate to be achieved through racial domination — and arguably the two could be studied distinctly from a purely academic perspective — they have far more in common than they have differences. Even with such thin sourcing, Facebook has devoted a surprising amount of language to differentiating the two.”

My point? The debate about whether or not Mark Zuckerberg should exert this much control over Facebook can’t be looked at as the same-old-debate, when even the most rabid defenders of the cult of the founder are expressing concern. Past is no longer prologue with this company. Everything has changed.

Many of the bull arguments are making a flawed argument by looking at Facebook’s past as well. Let’s start with Mark Mahaney who said, “Facebook still owns two of the largest media assets in the world and the two largest messaging assets in the world.”

Yes. That is true. And no one is saying Facebook is value-less. But in my history covering Silicon Valley, this is the go-to argument of the aging giant. As defenses go, it feels awfully Yahoo-y. It was only three years ago, Facebook had four of the five largest messaging apps in the world. That statement, meant as a defense, shows declining dominance.

The counter to that is the defense from Morgan Stanley, quoted above: Facebook has figured this out before and it will figure it out again.

This is the defense that deserves the most skepticism.

Does Facebook still have unprecedented media assets? Yes.

Do Facebook and Google still control a greater stranglehold over digital ad markets than anyone ever did in the offline ad world? Yes.

Has Mark Zuckerberg proven himself such an adept bobber-and-weaver that he probably deserves to retain his power at the Internet giant? If you aren’t looking at this as an issue of democracy, yes, maybe.

But those who argue that Facebook did it before and so it can do it again are missing a massive and glaringly obvious difference in Facebook now versus Facebook when it seemed to miss messaging back in 2012.

Companies and founders are much less incentivized to sell to Facebook right now.

The reason Facebook beat back Twitter, dominated Snap at its own game, kept a hold on youth and celebrity culture, and dominated global messaging all goes back to one factor: Facebook’s ability to convince companies that didn’t need to sell and didn’t want to sell to sell. Even homegrown Messenger was the result of essentially acqui-hiring the team running PayPal at the time. Acquisition has always solved Facebook’s existential problems. And Zuckerberg’s skill has been closing that deal.

That Kevin Systrom stayed at Facebook post acquisition, that Facebook appeared to keep all its promises to Instagram, that Instagram grew so massively once it was in the Facebook fold… this all convinced founders that acquisition by Facebook was different than acquisition by other tech giants. And because it paid such massive dividends, that over-pay/don’t meddle/keep your promises strategy changed how everyone did acquisitions: Look at how gingerly Microsoft has treated LinkedIn.

And then WhatsApp. Despite getting so much more out of Facebook, WhatsApp’s founders haven’t just left Facebook, they’ve done so aggressively, messily, publicly and expensively. It was so toxic, in fact, they left $1.3 billion on the table to get out of there. 

Unlike Uber, Facebook never set out to be hated. Facebook wanted to be beloved. When early founders, executives, and investors are calling you the new tobacco and saying they wouldn’t let their children use the products they built, you know the company’s image has forever changed.

You know who likely feels pretty good about his long-controversial decision not to sell to Facebook right about now? Evan Spiegel of Snap. Snap has hardly set the world on fire, but he did build a $16 billion public company-- about the valuation of Facebook’s largest acquisition and well more than Facebook ever officially offered Snap. And his ethos behind Snap was always around user privacy and against so-called “creepy” ads. Philosophically, he looks like “the good guy” right now-- a move no one could have expected looking at the history of Snap and Spiegel.