A string of capital letters won’t change Facebook’s fortunes – it needs a real makeover

Facebook’s dominance of social media will not go on forever. It is more vulnerable than the US high tech giants

So Facebook becomes FACEBOOK. Rebranding is the classic response when a company has a reputational problem. It is not just that it hopes that customers will somehow think of it as different, but it hopes that the change will lift the moral of its employees too. No one likes working for a company whose reputation is being trashed.

Facebook has known that it was in trouble since the Cambridge Analytica scandal, with founder Mark Zuckerberg putting on a tie for his grilling in Congress, and hiring Sir Nick Clegg in an effort to improve its standing in Europe. It is easy to jeer at this and people will make up their own minds whether using capital letters really changes anything. But it makes a nice change from the current fashions to put everything in lower case or sprout random capitals in the middle of corporate names.

The big issue here, though, is not branding but substance. It is a classic rule of marketing that changing the packaging won’t help if you don’t also change the product inside. You don’t have to make huge changes to the product, but you have to improve it in some sort of way, so that the new package signals that it is somehow better – hence the strapline “new improved formula” applied to so many products ranging from lip balm, soldierless copper bonding and sports drinks, to rug control spray and car wax. (Google that phrase and you will see what I mean.)

But is Facebook really going to be new and improved? Some thoughts.

First, the company’s earnings have remained strong. It reported a third-quarter increase in sales growth last week and the shares shot up by 5 per cent. It has kept most of that gain over the past few days, though it is worth noting that the share price is still below the peak it reached in July last year before news of the Cambridge Analytica scandal broke. If the company’s revenues continue to be strong, then that says something substantial about customer reaction to the reputational troubles. Put bluntly, they don’t seem to care that much – or at least not enough to stop using its services.

Customers are the most important single-interest group of any firm. But there are others, especially the regulatory bodies. Facebook, along with the other tech giants, is in serious trouble here. For politicians, it is an obvious target. Both Bernie Sanders and Elizabeth Warren, two Democrat candidates for nomination for the presidency are making a pitch for action to tame the titans. Project Syndicate has a thoughtful commentary on this here, arguing that politicians have to look beyond anti-trust legislation. One way forward might be to make the giants share their profits more widely, rather than try to break them up.

From a European perspective, there is a further level of concern. This is the inability of any European country to create high tech giants itself. Out of the top 10 social networks worldwide, six are American, with Facebook at number one, and four are Chinese. Europe, or for that matter India, Russia or anywhere else, is not in the game at all.

China has created competitors basically by keeping America out. But European governments cannot do that, or at least it is hard to see how they could even if they wanted to. This is something Europe needs to ponder: what are we (and for the purposes of this issue the UK is firmly European) doing wrong? Is it our education, our incentives, some intangible aspect of our societies? I wonder if we still have a problem in building what might be described as a “climate of enterprise”, in which we admire genuine wealth creation rather than just those people who make money by being in the right place at the right time – a subject to come back to.

Facebook’s dominance of social media will not go on forever. I think that it is more vulnerable than the other US high tech giants for two reasons.

One is fashion. It is vulnerable, capital letters or not, to the charge that it is losing its modernity. I suspect the biggest driver behind the rebranding is the desire to combat the sense that it is becoming a little staid.

The other is that the entry cost to social media is lower than in other areas of high tech. Microsoft is protected by its entrenched position, Apple by its flair, Google by the fact that its search engine remains better than anyone else’s, and Amazon by its scale. But Facebook? Not sure.

What is sure is that the best way Facebook can protect itself is by behaving better: by using the rebrand to make genuine improvements to the way it does its business. A new improved formula, but for real.