The End of Facebook's Easy Growth
Scandals have damaged the company, but the most pressing problem is that there aren't that many people left to convert— they’re all already on Facebook
After all the controversy Facebook Inc. has generated in recent months, it seemed almost inevitable that at some point, the social media giant would get what it had coming. A reckoning. Wednesday’s disappointing earnings report and Thursday’s historic 19 percent stock drop appeared to be a fitting conclusion to an easy narrative.
But the story isn’t that simple. Yes, the privacy protections the company put in place after a series of scandals played a role in the dismal earnings. But the company’s bigger problem is that the main social network— the invention that made it a corporate behemoth—simply can’t grow much more. And the new dollars Facebook will mint in the next few years will have to come from businesses that are less certain, like ads in chat applications, virtual reality, television-like video content and social media updates that disappear.
Facebook’s winning strategy has centered on advertising in its news feed. People come to the social network, scroll through, and see the ads between their friends’ baby photos and news links. Whenever Facebook needed to make more money, it just dialed up the frequency of ads, or aggressively courted more and more people around the world to sign up for Facebook.
But there are now 2.23 billion people using Facebook. That’s two-thirds of the world’s internet-connected population. That’s about the same size as Christianity. Who else can the company sign up?
It doesn’t help that some of the folks who do use Facebook are mad at the company for its various lapses on data privacy and content moderation. The social network’s user growth in the second quarter was its slowest ever, and flat in North America. It lost some users in Europe. Meanwhile, it stopped cramming more ads into the newsfeed. Too many ads, and people will be turned away. The only place Facebook can replicate its tried-and-true business model is its photo-sharing application Instagram, which also has a kind of news feed. The rest is still an experiment.