Facebook Post Earnings

There are narratives out there examining Facebook’s latest earnings and saying “see no impact on the business.” Any knowledgeable person would understand that recent events would certainly have no impact on Facebook’s business because any potential threats will take many months if not years to manifest. Even then, Facebook is unlikely to face any grave threats to their business. Our predictions were not that Facebook would see serious threats to their fundamental business any time soon. The big question is what, if anything, could impact the fundamentals of their model? I’ll outline a few things, but then also share why it will be easy for Facebook to navigate around such threats.

Changing User Behavior
I maintain a strong opinion that the Facebook product of today if launched today, would not succeed. This is, of course, a ridiculous statement, because Facebook ‘s product experience got to where it is because of years of evolution. The product of today could not have existed at launch. However, the point remains that it has degraded from where it was as a customer experience.

Many of our readers know we ran a consumer study on Facebook. The point of that study was more to gain insight into consumer sentiment and their mindset around Facebook, and look for any potential leading indicators of behavior change. The following data points are the most interesting from the perspective of potential changing behavior among Facebook users.

  • 34% of respondents said they have not stopped using Facebook but are using it less. Here is the first indication of a potential behavior change that could impact Facebook’s fundamentals. Advertisers need an ROI. Yes, they have very few alternatives to Facebook, but if consumers use it less and their advertising tactics on Facebook don’t work, they may consider spending some budget elsewhere.
  • 30% of respondents have already changed some privacy settings to limit the amount/kind of data Facebook can gather. Here is another potential threat to Facebooks proposition to advertisers. If 30% of consumers in our panel changed their settings already, at a point in time when it was very difficult and complicated to do so, how many more may change their settings once Facebook makes it very easy for them to alter their settings so Facebook can’t gather as much data on them? And if consumers do this in bulk, Facebook will inevitably have fewer data overall to build their profiles that feed their hyper-targeting value proposition to advertisers. Here again, it comes back down to advertising metrics. If Facebook is limited in the data it is gathering; then their targeting profiles will also be limited. This has the potential to limit advertising effectiveness and if that happens budget may go elsewhere.
  • 36% of respondents said they wished using Facebook was more like the experience when they first started using it. An interesting sentiment, but not one that poses any imminent threat. It is, however, some indication that the product experience has deteriorated and consumers are somewhat aware of that.
  • 29% of respondents said they feel like Facebook’s algorithm is causing them to miss out on things friends and family post. This is a data point I’m interested in tracking over time. We asked consumers what their primary motivations were for using Facebook. No surprise, keeping in touch/connected to friends and family was the overwhelming majority of reasons people use Facebook. Honestly, they have no alternative. I’d argue Instagram is becoming a better mechanism for this behavior, but that’s a Facebook asset so no threat to Facebook in that scenario. But the point here is a product experience point. The main reason consumers use Facebook is for friends and family connections. If the evolution of the Facebook product begins to impede om that in any way, as things like Fake news, toxic content, too many ads, etc., have the potential to do, then it’s reasonable to think these consumers will look to spend their time with other services that meet their goal of staying connected. Again, Instagram is a likely alternative.

The two big lingering questions remain centered on the customer experience of Facebook, and advertiser ROI. Interestingly, only 15% of consumers in our study said they found a valuable product or service via a Facebook ad. Now that 15% is way better than most other direct to consumer campaigns companies run in other mediums but this metric is an important one to watch. Advertisers need to feel Facebook is worth their money. While there are very little alternatives today, there will inevitably be more alternatives in the future. Which leads me to why Facebook will most likely be fine.

Facebook’s scale gives it an unprecedented advantage. Their ability to get an advertisement in front of billions of consumers has never been seen before. Advertising is all about reach, or impressions, and Facebook has it in excess. Which puts them in a good position to continue to acquire competing services, like they did Instagram, and ad those services to their advertising network. Baring any regulatory activity which will not allow them to purchase competing for social networks, Facebook will inevitably do so.

Consumers will not spend 100% of their social media time on Facebook assets. Other, more niche interest, solutions will pop up, and consumers will divide their time among many of these services. Should any other medium gain steam, Facebook will likely buy them and ad the service to its network, thus giving advertisers more avenues to connect with consumers based on their interests.

I reiterate, no threat to Facebook’s business will manifest overnight. I do firmly believe, and I think our research validates this, that there is an opportunity for competition. I’d like to say it’s SNAP, but I don’t think it is, at least not yet. There is no doubt, opportunity to innovate in the social app space, but Facebook is deeply entrenched as an incumbent thanks to their scale. And my main point about them being able to easily acquire competing social apps is ultimately why they will be fine.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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