The ‘network effect’ that made Facebook unstoppable has become a major threat, but the damage is happening in Facebook’s executive ranks
Facebook was shaken last week by the departures of two key executives — and it could be a sign of darker times to come.
On Thursday, CEO Mark Zuckerberg announced that Chris Cox, the company’s chief product officer and one of his top lieutenants who had served at Facebook for more than decade, was quitting. Chris Daniels, the head of messaging at WhatsApp, is also leaving.
The reason for their departures? According to multiple news reports and hints in Cox’s goodbye memo, it’s their disagreement with Facebook’s plans to shift to a more messaging-focused platform.
Their exits are yet another sign of upheaval at Facebook, which has been fraught with scandals over the past two years, and the latest in a growing line of execs to head for the exits. And, an analyst said, it could spark further departures and other issues down the road.
In a research note to investors published on Monday, Needham analyst Laura Martin said Facebook is at the risk of “negative network effects.” Network effects, simply put, are when multiple things reinforce one another, making the “network” stronger as it grows.
Facebook itself is a great example of this: As users flocked to sign up in the early days, the growing number of users made it more likely people you knew were on there, making you more likely to sign up, thereby encouraging others to sign up, too, and so on.
But network effects can work the other way, and in this case, one of Facebook’s famous strengths — its incredibly strong mission-driven company culture — could work against it, Martin said.
“The type of Network Effect under siege at FB is based on ‘Beliefs,’ whereby each additional person that believes something makes it more likely that the next person will believe the same thing,” she wrote. “When Chris Cox (Product Chief) and Chris Daniels (WhatsApp Chief) leave FB because they disagree with the strategic pivot CEO Mark Zuckerberg is instituting, this implies they no longer believe in FB.”
She continued: “The problem with this is: a) other people in the organization will agree with them and leave also, and each person who leaves makes it more likely that the next person leaves; and b) the Silicon Valley is a competitive place for top talent and losing these senior executives from FB may cause them to land at a company that competes with FB, and they may recruit others.”
In short: Facebook’s executive departures could have a domino effect, encouraging others from the leadership team to lose faith and bail out — and in doing so, creating more attractive alternative employment options for former employees.
Facebook’s stock dropped 3.5% on Monday after a slew of Wall Street analysts (including Martin) raised concerns around some of the issues facing the company — including privacy, the risk of regulation, and reputational damage caused by incidents such as the New Zealand shooting, which was livestreamed on Facebook’s app.
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