In January 2008, whilst waiting to fly out to Hong Kong I wrote a blog post in the Cathay Pacific business lounge at Heathrow airport. The post was called Why Facebook is a dead man walking and was based on notes that I had been making for the previous three months. It was a combination of reading.
I was initially reluctant to write the post, after all I was taking a very bearish stance on what was even then, one of the biggest things to hit the web. I was also very conscious that consumers had often put their weight behind deeply flawed products made by companies with poor corporate reputations – indeed these very traits had made Bill Gates one of the richest men in the world.
I didn’t want to be the social media equivalent of the boy who cried wolf; so I worded my post very carefully despite the strident title.
In May 2010, I revisited my first post and by this time I was starting to see anecdotal evidence in my own behaviour and the actions of friends on Facebook. The numbers kept on getting bigger but the seeds of destruction were being sewn.
IPC Media’s ‘Mates And Girlfriends’ study made the point that young men saw Facebook in quite a negative and utilitarian light. This is a theme that has also been echoed in other research.
This was also somewhat reflected in consumer sentiment research by NetBase that showed consumers had a greater dislike of Facebook than a basket of other technology brands including Microsoft, Google, Apple, Intel and Twitter. I posted about this in a brief note called Why Facebook is a dead man walking part 2.5?
The speculation over the past few days about Facebook’s subscriber numbers struck me as particularly interesting. First of all, this isn’t the first time that Facebook traffic has declined in early adopter countries, usually it is seen as a seasonal blip and has returned.
If this was new to you; that in itself should tell you a lot about the interpretation of the falling user numbers in the developed world for Facebook. I think that this decline is considered important for a number of reasons:
- It was based on data from Facebook’s own advertising platform, which ironically added more credibility to the data. Facebook tried to rebuff this data by pointing to monthly data from Comscore. Back when I was at Yahoo! we used to look at rolling 3-month average of Nielsen Net Ratings (NNR) or Comscore data rather than the monthly data. The reason why we did this is that the data had excessive fluctuations in it due to the sampling size and data collection methods adopted. It also begs the question, if the data is that inaccurate, how can advertisers trust the data for campaign planning on Facebook?
- The focus of Facebook on emerging markets including the ethereal expected launch into the Chinese market. It was on this expectation that the wider world expected growth to continue at a break neck speed. And to be fair to Facebook, it has, even as it has ridden roughshod over cultural differences in privacy and reasonable behaviour – a greater example of American capital imperialism than brands like Coca-Cola or McDonald’s who have gone before it. The apparent decline of growth was seen as a brake on the Facebook juggernaut and the thought has slipped in to the digerati consciousness that perhaps Facebook’s global success isn’t pre-ordained after all
- The tall poppy syndrome. The decline numbers became public when rumours started talking about Facebook going to IPO in 2012 with a value of 100 billion US dollars. The declining numbers were tech news equivalent of US congressman Weiner’s public picture of his bulging boxer briefs
The question I’d ask is this decline in Facebook important at all? I personally think that there are other more meaningful measures that are far more important:
- ARPU – average revenue per user. As Facebook grows into emerging markets we can expect the ARPU value to decline. When I was at Yahoo! there was talk about providing services differentiated by country to better match the cost of service with the notional ARPU of that customer. What is more interesting is a country-by-country breakdown of ARPU. If you see a decline in the US ARPU or UK ARPU. That indicates a number of factors: a disengagement of advertisers, a disengagement of consumers who are taking a very mission-specific approach to their Facebook interaction and failing to click on sufficient adverts
- CTR – click-through rate. The less engaged a consumer is with a platform, the less likely they are to through on advertisements. If you looked at it from a below-the-line point-of-view it could be due to any number of factors from a change in consumer engagement with a brand or another tweak of the Facebook news-feed algorithm. So I think that advertising click-through rate is a better indicator. Facebook is likely to suffer without corrective action for longer, if it has a large barely active community that are a huge drain on resources, but offer little in terms of ARPU in the developed world; married with a highly active but largely unmonetised developing world community
Now Facebook has a 100-billion+ dollar valuation to protect, so I anticipate that they will be very opaque in terms of the data that they possess around these measures. The way that the Facebook communications team made such a ham-fisted rebuttal of the declining numbers issue makes me think that Facebook is likely to be very slippery when it comes to detailed breakdown of ARPU and CTR numbers.
As an advertiser, I would be concerned with the quality of the planning data that Facebook is providing me with, given that Facebook themselves consider it to be inaccurate. Lastly, it will be interesting whether Facebook tries to re-engage with its male audience. At the present time, young men are an hard-to-reach demographic with a premium placed on them by many advertisers.