Facebook’s problem


Just in case you were confused: Facebook is an advertising company. Facebook used to be a social media company but now that they serve a different master – namely businesses that advertise – they’re an advertising company. Facebook is also a data company. They arguably know more about you that than the federal government. (In fact the CIA requested information so frequently, that Facebook built them an interface to look up information on their own.)

The other thing to know is that Facebook usage is on the decline. Specifically duration. Frequency has increased because of mobile usage (average of 7 seconds per session) increasing but overall, many are spending less time on FB. How do I know this? Because I’ve been conducting an informal poll with all of my students when they first arrive in any of my classes.

Another thing to remember is that Facebook is one of the most popular apps. It’s a gateway drug for the uninitiated to other mobile apps. Instagram, Twitter and Vine. It is, in essence, exacerbating its own problem.

What’s the problem you ask? The problem is how does a company sell ads if people are spending less time on their web/mobile web/app property? Facebook has a metric ton of data to create behavioral ads and its ability to utilize that data is diminishing because of decreasing usage. Yes, their mobile traffic numbers are increasing dramatically but the overall time spent on the site – I believe – is decreasing.

So what is Facebook going to do? They need to sell ads and they defined their future as a mobile futre in their IPO documents. I believe they’ll acquire their way into growing mobile revenues. They’ve already partnered with 60 apps in regards to collecting data on app users and their behavior and it’s easy to imagine they’d simply acquire their way into growth.

There are however, a couple of issues with this strategy.

  1. Paying $715 million for a company that has zero revenue probably won’t work again. And the thought of actually being able to monetize Instagram with ads is difficult to imagine. Maybe they will charge businesses for business accounts in exchange for analytics, etc.
  2. Over the last several years, there have been a couple high profile rebuffs when it comes to attempted acquisitions. Yelp and Groupon are prefect examples. I’m not exactly sure how the Groupon guys sleep at night. This trend could hit Facebook as well.

We will – as they say – see what happens.

By Michael Myers