In terms of profiting from the digital economy few (if any) have done it better than Facebook, but user numbers are starting to slow. Is Facebook focusing too much on advertising to the detriment of user engagement?
The Facebook business model is simple; make an engaging platform, attract users, build a wall around the community and charge third-parties to access this luscious garden though advertising. It continues to be immensely successful, but is mostly reliant on scale to be the profit-monster it is. Should user growth slow or stop it won’t be too long before the same happens to the advertising revenues.
While this does sound very gloomy such a scenario is not in the immediate future. User numbers are continuing to swell as the platform is being taken up in new markets, though in its most profitable regions growth is not as astronomical as previous years.
For the last quarter, Facebook reported its usual cash bonanza. Total revenues for the quarter stood at $12.97 billion, $12.78 billion was attributed to advertising revenues. $6.392 billion was made in the North American market, $3.25 billion in Europe and $3.33 billion everywhere else. Not a bad three months as it goes.
But when you look beyond the spreadsheets the numbers are not as promising. The number of daily active users in North America declined for the first time, in Europe this metric is slowing but it is growing steadily everywhere else. People are also spending less time on the platform each visit. The main problem here is that North America and Europe is where Facebook will most likely make more revenue per user. Should these users start becoming less engaged it is not a good sign for the long-term advertising business model.
From personal experience, the Telecoms.com team has commented it has been spending less time on the platform as it is becoming less interesting and engaging, and looking at these numbers, others are starting to feel the same. That said, Zuckerberg seems to have recognised the challenge.
“We’ve also gotten feedback from our community that these moments that lead us to connect are the unique experience people want and expect from Facebook,” Zuckerberg said in a Facebook post.
“But in the last couple of years, the ecosystem of public content like video, news, and posts from businesses has grown massively — to the point where it’s crowding out the personal connection people value most.”
For some people Facebook has lost its way. When it began it was successful because there was nothing else on the market like it. It was a platform where you could engage your friends irrelevant as to where they are. Your correspondent started using Facebook in university and it was a great tool to keep in touch with friends in other cities or even those on different campus’.
When scrolling down a newsfeed there seems to be nothing but irrelevant sponsored posts, news stories which have already been read and videos. There is little personal content from friends and family, which was the mission Facebook set out with. What started out as an excellent platform which engaged users has evolved into a marketplace to push brands into your face. There is a risk of people losing faith in the platform.
“News and video will always be an important part of Facebook,” said Zuckerberg. “But when people are spending so much time passively consuming public content that it starts taking away from the time people are connecting with each other, that’s not good. Let me be clear: helping people connect is more important than maximizing the time they spend on Facebook.”
This might sound like a bit of PR guff, but Zuckerberg is exactly correct. Facebook was an excellent platform for users and also a good springboard for brands and businesses. Now it has focused too much on the brands and not enough on the community. The community is the product it sells, not advertising solutions, so if people are becoming less engaged the product is starting to disappear.
Efforts are being made to correct this however. An initiative is underway to measure the trust of publications in light of recent Fake News trends. These titles will be less prominent, and more local news sources will be promoted to the user. These are two interesting ideas and could work very well to engage users once again. The team has also employed 14,000 people who have been tasked with ops, online ops, and security efforts to prevent false news, hate speech, and other abuse. Users need to feel comfortable on Facebook again.
While video is dominating the news feed, this is unlikely to change. But with its Watch offering, Facebook might be able to herd the video enthusiasts one direction while offering the more traditional feed to connect with friends to the rest. Right now the news feed is in the middle, trying to satisfy everyone. We get the impression this middle solution is not working so it’ll be interesting to see how Facebook nurtures the growing video consumption trends.
This is by no-means the end for Facebook, but it does need to figure out how to increase the engagement metrics otherwise it might walking the path to normality. Normality means more reasonable growth and profit margins which are more in line with the rest of the world. This would be a disaster for investors, advertisers and Zuckerberg; once you’ve got the bug for climbing mountains it is difficult to enjoy a calm, countryside walk.