Facebook scandal

Prof. Howard Yu on BBC World News

On the 11th of April IMD Professor Howard Yu was interviewed on BBC World News. While Mark Zuckerberg  was recently testifying before congress in the US, scrutiny of Facebook had intensified in previous days, and the company's share prices went up. 

Howard Yu provided a business and leadership perspective of the situation. He stated that stock prices reflect investors perception of the underlying health of the company. According to Yu, investors believe the health of the business model mostly remain intact.

However, the next important indicator of the company's health is if big brand advertisers will remain supportive of Facebook, said Yu. With the company's biggest stream of revenue coming from big brand advertisers, whether they continue to spend money with Facebook is a high stakes issue. Since the scandal broke, there is certainly more perceived risk for advertisers, said Yu. This is a key discussion among big brand companies right now.

If advertisers scale back their spending on Facebook, it would destroy the company's business model. That would require Facebook to switch to a subscription or another type of business model. But according to Yu, a subscription model is very viable in the world of high tech. Amazon Prime and Netflix are good examples.