John Lynch

Six reasons why Facebook wont make it to 1.5billion active users

Facebook is to announce its IPO dates this week with an asking price of reportedly up to $100bil. They are selling the future promise as profits were $350M last year. Tipped to reach one billion active users in August 2012 (see graph) will Zuckerbergs juggernaut continue unabated, or is that the ceiling even the beginning of the end? My view is that we will not see 1.5Billion fb active users.

facebook growth to date and guesstimate on future growth

How fast things change in the digital arena. facebooks IPO although smaller than predicted will still dwarf, the last poster boy of the dot-com age Google, whose IPO made a paltry $27Bil in 2004. Google is still the world’s most visited website with 1 billion UV’s spending nearly 2 hours on the site per month but the average Internet user already spends nearly 4 times that amount of time on Facebook. This dwel time and data facebook has on users seems to justify the $50Bil price tag alone, however its the prospects of a Billion plus active users thats really driving the frenzie. But will it make it to 1.5 Billion active users?

Momentum would suggest yes. Europe is dominating the Facebook numbers, currently standing at 223 million, followed by North America at 219 million, with Asia at 202 million users. Facebook’s growth has slowed or stopped in many of its early adopting countries such as the US and the UK. However, countries such as India and Brazil have shown strong growth. Asia however is where the great overall growth will come  as this is where growth in internet users alone is lifting all activity (see chart below). 

But is momentium enough? How long can this go on and when will we hit 1.5 billion active users if ever. Personally I think 1.5Billion will be too big ask for the following reasons.

1. Competition will hot up this year eating into growth: We are simply at the start of the social age. I believe what we see now is just the stone age versions of what’s coming. Google+ is having a dampening affect but its the small nimble pure players that are experimenting in their dorm rooms now that will make the big impact. Admittedly there are no obvious contenders but experimentation has started including 3Degrees, Pinterest , Path and Tumbler that i know of. lets face it, people are bursting to try something new.

2. Product Fatigue. As per point one, it’s that 'shiny new thing' syndrome. Facebook is already experiencing flat or decline in mature markets for whatever reason. I would suspect that the novelty has worn off with many.  Are we entering the through of disillusionment?

3. Privacy Concerns. Facebook is notorious for its poor stewartship (remember Beacon) of personal data. Its Terms Of Service are widely considered one-sided and some have gone so far as to say that they have declared war on privacy. Founder and CEO of Facebook, in defense of Facebook's privacy changes last January: "People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people. That social norm is just something that has evolved over time." The one thing about evolution is it never stops, An awareness of the value of this data may evolve to change people tune on openness or inspire companies to help consumer monitise this data?

4. Selective censorship- China keeps facebook out, others countries will beguin to cut back on ‘free’ access to facebook following the The Arab spring which highlighted the usefulness of facebook in toppling dictators. Don’t expect the remaining despots and demi-despots with big populations (Russia, Iran, Saudi Arabia, Egypt) to allow such frank politicking on their national networks. Watch out for selective censorship just as Twitter is already doing. This has got to have an impact on use.

5. Wallstreat Acquiescence: IPO really means you have to justify the valuation and drive growth. This means lifting earnings above the 2011 $350 Million. This opens Facebook up to risky methods of increasing their earnings by leveraging users data more. This increases the chance of it messing up as it starts doing dumb things to justify a $100Bil IPO. Does anyone remember Myspace?

google+ vs facebook6. Facebooks sucess is also the seed of its own destruction. Google+ took a mere 16 days to hit 10 million users. This was done off the back of its own audience but also the idea spread through the social networks. By comparison, both Twitter and Facebook took over 2 years to hit that 10 Million milestone, requiring 780 days and 852 days respectively. I am not saying that Google+ is the sucessor of facebook, far from it, but what I am sayings is ideas, good ones i mean, now move at lightspeed and this is down to facebooks own trail blazing success. So any real competitor to facebook will have the benefit of a free ride on the established Billion plus facebook social graph. So for them to reach 100,000,000 users potentially is a fraction of how long it took facebook. 

Combined, these factors will slow, possibly stop and in an extream situation even reverse facebooks rise, and Woooooh if it does. last week Google felt the result of this type of change stunning Wallstreat by missing its targets. This sent its stock into a nose dive and triggering a flurry of questions over what went askew. All of a sudden deeper qustions on past questionable management decisions are being re-examined, like building Google Buzz, Wave . How fast things change in the digital arena.


COMMENTS

Posted by Tarun S, 6 February 2012

Hi John,I sure do believe that competition & product fatigue will play major role in Facebook's downfall.Facebook keeps bringing some thing new every other day to keep people engaged.Facebook timeline is the most recent example of it.As far as privacy is concerned,i believe it is one of the safest(taking in mind the no.of users).

For me,facebook will be on a boom for a while more(especially in the Asian countries) & then it will fall flat in about 2-3 years time.

Posted by Jonathan Hale , 6 February 2012

It will foat now, grow a bit, sell out and run :) oh hang on, doesn't everybody do that? LOL

Posted by Steve Moncrieff , 9 February 2012

Can't disagree with any of the points, although I'm not sure there will be any credible competition, in the foreseeable future. Due to the lack of will of users to switch whilst their friends remain on FB, similar to the issues of Google+.

Posted by John Lynch, 9 February 2012

www.Pinterest.com seems to be the hot new trending competitive site. Three out of three featured articles on Linked In news was about it yesterday. . My feelings are that there is an underground competition that will pop up rapidly and gain traction very fast, ironically on the back of facebook. Come to think of it, a 6 point is that Facebooks success is also the seed of facebooks destruction...

Posted by Ryan Crawford, 21 May 2012

Tend to agree John.

Here's how a scenario could play out, assuming Facebook fumbles the ball (which it probably won't):

1. Advertising on Facebook isn't as effective for some advertisers as advertising on search, for the simple reason that people searching for information on purchase decisions are perfect targets for ads whereas people checking out message from friends are not.
2. Wall Street has frowned on the quality and performance of Facebook's ads, most recently in a critical note from BTIG analyst Rich Greenfield.
3. WPP, the world's largest ad agency holding company, is also probably one of Facebook's biggest clients. WPP's media buyers will spend a collective $400 million on Facebook this year. Yet WPP CEO Martin Sorrell has "fundamental doubts" about whether advertising on Facebook is a good idea, because it interrupts personal conversations with impersonal branding.
4. Sorrell is not alone. Execs on the client side are also asking questions about measurement and effectiveness on Facebook. "The question with Facebook and many of the social media sites is, 'What are we getting for our dollars?'" Michael Sprague, vp/marketing at Kia Motors, told the Wall Street Journal.
5. And some advertisers just don't get Facebook, and maybe never will.

In this scenario, with GM, P&G, Kia and WPP gone, it's not hard to imagine a full-scale turn away from Facebook by advertisers, as they head toward more effective, more measurable media.

PS i also agree even at 900M users today, its is phenomenal achievement.


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John Lynch Digital Ministry John Lynch
Company: Digital Ministry
Position: Editor
Involved in the digital media and Marketing industry for many years, through working at the Economist Group (uk), Universal McCanns, Zivo, emitch, OneDigital, IBM (client side), Agency.com & TBWA. Now in Bath, UK working as a consultant

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