Facebook is planning major changes to your News Feed. And that will likely mean big changes for the company’s business.

On Thursday, Facebook founder and chief executive Mark Zuckerberg announced the social media giant will prioritize the posts of your friends, family and other personal relationships over those of businesses, publishers and other advertisers. That means potentially more posts about dinners with friends, playdates, and family vacations and fewer suggested stories and ads from content producers.

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In recent years, Facebook had tended to emphasize articles, ads, videos and other kinds of marketing based on its relationships with publishers, brands, and other advertisers, using data algorithms that assess customer preferences.

By prioritizing personal posts over ads and other content, Facebook is making a gamble that the shift won’t hurt its profits

The changes come as Facebook, which has 2.2 billion users around the globe, has publicly acknowledged that it might be creating a social media environment that makes its users passive consumers of content, which can be bad for mental health.

It also comes at a time when Facebook has taken steps to weed out false and inflammatory news and articles, following fallout from its possible role in spreading misleading news during the 2016 election.

“The research shows that when we use social media to connect with people we care about, it can be good for our well-being,” and it can make us feel more connected and less lonely, Zuckerberg wrote in a long Facebook post on Friday. “On the other hand, passively reading articles or watching videos — even if they’re entertaining or informative — may not be as good.”

The modifications will be made over the next few months, Zuckerberg said.

Why does this matter?

  • Facebook’s revenue and profits–essentially the money it makes–are based primarily on advertising from other businesses. For the third quarter of 2017, the most recent earnings period reported by the company, Facebook’s profit of nearly $5 billion was largely driven by advertising revenue, which increased about 50% in the quarter.
  • By prioritizing personal posts over ads and other content, Facebook is making a gamble that the shift won’t hurt its profits, particularly as it pushes into video, according to reports.
  • Traditional magazine and newspaper publishers depend on Facebook to increase the circulation of their stories. It remains an open question whether the News Feed changes will cut down on their traffic, according to reports.
  • Two thirds of adults get their news from social media, according to the research group Pew, and Facebook is perhaps the most powerful distributor of media content on the web.
  • People may spend less time on Facebook as a result of the changes, Zuckerberg acknowledged in his Facebook post.

Company changes affect stock prices (sometimes)

When a public company decides to make important alterations in the way it does business, it can have consequences for the company’s stock price.

Facebook’s stock fell more than 4% on Friday morning, to  $179, following the announcement.* The stock price decrease also caused Zuckerberg’s personal fortune to drop by nearly $3 billion dollars to $74.4 billion, according to Bloomberg.

*Source: Yahoo Finance, January 12, 2018.