Facebook’s Astonishing Milestone

Social Network Hits 2 Billion Users

 

In its last quarterly results, Facebook reported 1.94 billion monthly active users and tenfold growth over the past eight years. At the current growth rate, the company will reach 2 billion monthly active users this weekend, 10 and 11 June. This means that about 30 percent of the world’s population uses the site at least once a month.

Facebook’s recent growth is nothing short of astonishing. During the past six years, its quarterly revenue growth has never been less than 30 percent and has often exceeded 50 percent.

 

Figure 1. Facebook monthly active users and revenue growth rate

 

During 2008 to 2012, Facebook started seeing serious network effects, growing very rapidly, hitting critical mass and making life difficult for other aspiring social media sites. Remember Apple Ping, Badoo, Bebo, Diaspora, Google Buzz, Google Me, Hyves, MySpace, Orkut, StudiVZ, Tuenti and others?

As this happened, Facebook and Google — with its dominance of search in Western countries — became something of a duopoly for advertising dollars as online advertising grew. In recent quarters, the two companies have come to account for over 60 percent of total online advertising spending in the US and 20 percent worldwide. They took 99 percent of recent online advertising growth in the US. The remaining 40 percent of online ad spending in the US is shared between all the other rival platforms, so each one can only attract a fairly small share, and that remaining slice is barely growing.

Facebook’s revenue performance accelerated in the last six quarters since late 2015, thanks to gradual improvements to its advertising formats and its ability to finely target users. In its latest results, Facebook’s revenue growth rate dipped only just below 50 percent per year for the first time in 18 months.

But the growth of online advertising overall is slowing and it seems that the end of this phase of hypergrowth is in sight. There are two possible trajectories for Facebook’s development in the next five years.

Firstly, there’s still growth in the core advertising business, as companies continue to switch budgets from traditional forms of advertising to online ads. Facebook is working hard to take a large share of that, expanding advertising on Instagram and moving toward higher-priced video ads. We also expect artificial intelligence to play a growing role in improving the effectiveness of advertising.

At the same time, Facebook is attracting much more attention from governments, partly for its role in allowing terrorist messages to spread on the site, and partly for its role in shaping public opinion, especially during elections. In fairness, political parties are becoming adept advertisers on Facebook, exploiting the reach of the platform and targeting capabilities to shape opinion in their favour.

So, a crucial question Facebook needs to address is whether its core service is a pure platform, in which it has minimal editorial control, or whether the company is becoming a publisher, meaning it will increasingly need to take an editorial position and vet content appropriately.

Secondly, as growth of advertising slows, Facebook will need one or more of its potential growth areas to start on a hypergrowth course and to contribute meaningful revenue. There are several candidates within the company. They include WhatsApp, bots on Messenger leading to paid-for interactions with companies, Marketplace, its new Events app, groups, search, enterprise usage with its recently rebranded Workplace and Work Chat services, video content and virtual reality with Oculus.

However, one of the main problems these platforms face is that they are services operating in competitive markets and may not experience the network effects that social networking produced in the company’s core business. It’s therefore unlikely that they’ll be able to replicate the same level of rapid growth that Facebook witnessed to date.

As if to underline that point, Google used its I/O developer conference in May to announce that it had become the first tech company worldwide to hit 2 billion monthly active users with its Android operating system. This doesn’t detract from Facebook’s achievement, but it serves as a reminder that the next phase is going to be harder fought.