The Beginning of the End of Facebook – Part 2

A long time ago, in 2011, I wrote an article for TIME called The Beginning of the End of Facebook. Regarding readership, this article is likely one of the most read things I’ve ever had published and was featured on TIME’s main homepage for a few days. I was so excited I took a screen-shot at the time.

While I can look back at that article, like one where I was entirely off base, I do wonder if my underlying thesis is still correct, but I was a decade too early in my prediction. My underlying thesis was that Facebook users would undoubtedly become fatigued with the service and as they did start the search for more niche alternatives. I attempted to map Facebook to a historical observation and philosophy that as markets become mature, they tend to fragment. This is a common business understanding of how markets becoming segmented over time away from a general purpose solution (which is what matures the market) then as consumers become more aware of their needs, wants, and desires, they start to move more toward specific solutions that provide better value for them then those that are general purpose (or watered down).

While I can draw many industry parallels of this observation at work, one of my favorites to use lately is dating sites/apps. When everyone was getting online, there were really only two dating websites and E-Harmony. Both those services initiated people to the world of online dating and as the market for online dating matured, and people started getting let down with a generic dating site, the door was opened for more specific purpose ones. Keep in mind started in 1995 and over the past 3-4 years, we have seen an explosion of more niche dating sites. Look around today, and you find dating sites for different ethnicities and races, dating sites for seniors, dating sites for plus size individuals, dating sites for people of specific religions, and my personal favorite whose name speaks for itself,

At the time, and this was 2011 mind you, I was seeing consistent data from behavioral researchers around Facebook that suggested the longest users of the service, largely younger demographics who were on it when it first launched in college, we already starting to see their overall usage of Facebook decline. This, to me, was the initial telling sign that pockets of Facebooks users, specifically those who had been on it the longest, were growing tired of the general purpose nature of it and wanting something more tailored to their interests and needs.

In fact, I would hypothesize the same dynamic that paved the way to niche dating sites has been subtly developing around the Facebook audience for some time, but there were not great specialized alternatives (and yes I know there were attempts but most were ill-conceived). Now, the title of my article in 2011 looks silly in retrospect because 2011 in no way was the beginning of the end of Facebook. In fact, it was the beginning of Facebook’s monstrous S-curve where the service would end up becoming the single most used internet service on the planet. Facebook ended up being very similar to a global version of America Online. It was the entry point to the internet for the global population. Facebook was the primary reason people all over the world started getting smartphones. The motivation was simple, connect to the world in ways that were never possible from inside their small towns, small countries, and even remote parts of the world.

What became clear to me since my 2011 article, and I alluded to this even at that time in that piece, was the dynamic I explained where those on Facebook for 3 years or longer saw their usage decline was masked by Facebook’s enormous global growth rate and the fact that new users tended to spend MORE time on Facebook during their first few years being on the service. So everything looked rosy in Facebook’s user metrics because they were adding new users at such a rapid rate who were all spending quite a lot of time on the service which masked the decline of the pockets of users who had been on the service for long periods of time. Couple that with a significant portion of the online population who got a computer (a smartphone) for the first time and discovering the Internet through Facebook, Facebook games, etc., and it explains why big parts of the world spent abnormal amounts of time using the service. All of that combined made for what may be an artificially boosted average time using Facebook.

Fast forward to today, and a few interesting things are happening.

  1. Firstly, Facebook’s earnings yesterday revealed that daily user numbers dropped for the first time in the US and Canada. Both markets with a large user base who have been on Facebook the longest.
  2. Second, Mark Zuckerberg made note that changes they made to Facebook led to a decrease in total time spent of 50 million hours. Average that out and it means about 2 minutes per user, however, I would postulate there were large groups of people who were the pockets of users who dropped their usage more than 2 minutes today, and I’d argue they are more consumers in western more valuable markets.

  3. Thirdly, Facebook saw their slowest QoQ daily active user growth since 2015. And I have a hunch this trend will continue going forward.

So Facebook is facing slower overall growth. This was inevitable as they have just about saturated the global online population. They are seeing usage decline in the US and Canada, their most valuable market by far with an ARPU of $26.76 per user, which is 3x the ARPU of any other market. Mark Zuckerberg alluded that this usage decline was a result of changes they made to Facebook, but I highly doubt that is true. I think this has been a long time coming and the recent toxicity centered on Facebook because of the elections only made the inevitable happen sooner.

So is this now the beginning of the end of Facebook? Well after that article I’ve learned to not make such bold claims. However, I do think these signs are confirming part of my original thesis that simply took longer to play out. Second, Facebook owns Instagram and will likely make more acquisitions to make sure they own any fragmentation which will come in social media. This is one reason they wanted to buy Snapchat, and will still try, and will likely pick up any other network that starts to grow even if it is niche.

Facebook, ultimately, needs to become the network syndicate of social media. Own every major social media property so that advertisers come to them and have opportunities to place ads in their network and target users of all kinds. The big question in all of this is will advertisers catch on over the next year that their ads are not as effective on Facebook and shift tactics. To my point above, if Facebook didn’t own Instagram I’d be a bit more worried. That being said, the declining time spent of western consumers should concern Facebook in light of Amazon’s serious ambitions to make a push to take a share of online advertising budgets in the US, Canada, and the UK.

I’m not going to be as sensationalist as my claim before, but I do think there are some cracks starting to emerge in Facebook’s position and we may look back in a decade or longer and point to this point in time as the inflection point which led to Facebook’s unraveling.

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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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