Amazing how a website and a company that did not exist a mere ten years ago is so popular. There are some who cannot even start their day without logging in to Facebook and updating their status. Others criticize the site and boycott it due to privacy concerns. A lot of shareholders who bought Facebook shares at the IPO price are furious, while other investors and industry analysts are hopeful about the future and what the company may become. There is already a movie about Facebook out there, with rumors of a sequel. Not only are there hundreds of books about Facebook in bookstores, there are actual businesses out there that help you make your Facebook profile and photos into an actual, real-life book. There are songs about Facebook, even a mini Facebook musical! Facebook is all over the place and in our lives, whether we like it or not.
The latest Facebook news that had everyone excited was the 1 billion active users number. At the beginning of this month, on October 4th, Facebook announced that it reached another milestone with 1 billion monthly active users, according to an Amazon Web Services (AWS) factsheet. The previous milestone was on July 2010, with 500 million active users.
The active user term, which is different than registered users, is defined by Facebook as “the number of users who have logged in during the previous month.” While merely logging in doth not a truly active user make, the term is still a lot more interesting to me than a registered user, especially considering the many fake accounts created on Facebook for purposes such as increasing the number of “likes” for a specific piece of content. Facebook announced last month a significant increase in efforts to delete fake accounts and false likes.
Other than the 1 billion active users, the AWS factsheet lists a number of other interesting facts, some of which piqued my interest:
Age Demographics. Median age of users has been declining since 2007. On the milestone date of July 2010, the average median age of users joining that week was 23. As of September 2012, it went down to 22. This steady decline in median age is a good indicator of increased total user activity volume in the future.
Global Reach. The top five countries where people connected from at the time the latest milestone was reached were, the United States, India, Brazil, Indonesia and Mexico, in that order. (Turkey was Nr. 7) same top five in July 2010. With the exception of the United States, the top countries are all emerging economies, which is good for future growth expectations.
Location Based Content. There were 17 billion location-tagged posts, including check-ins, since the launch of the check-in capability in August 2010. That there were a simple average of 17 location tags per active user is good news for the future of location based services.
Mobile. Facebook now has 600 million mobile users. A 2011 year end report by ITU (International Telecommunications Union) that surveys the global mobile and online landscape puts the worldwide number of mobile phone subscriptions at 5.9 billion, which has probably reached 6 billion by now. That means roughly one out of every ten mobile users in the world is on Facebook via their mobile phone. That is also good news. Or is it?
Mobile has been a risk factor for Facebook for a while now. In February of this year, Facebook’s original SEC filing for its IPO listed mobile as a core part of the company’s strategy:
“We are devoting substantial resources to developing engaging mobile products and experiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Facebook experience on mobile devices and make Facebook available to more people around the world. We believe that mobile usage is critical to maintaining user growth and engagement over the long term.”
At the same time, the same SEC filing pointed out to risks to the company’s bottom line due to mobile usage:
“Our advertising revenue could be adversely affected by a number of other factors, including … increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content.”
Even before the IPO, Facebook had its eye on the mobile world. The company acquired Instagram in April of this year, for a cool USD 1 billion, although Instagram will remain independent of Facebook and will not be integrated into the company, at least not in the near future. Facebook CEO Mark Zuckerberg commented:
“Now, we’ll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests. … We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience.”
“Q: Is mobile a strength or weakness for Facebook?
A: There are more users, they spend more time on Facebook, and we’re going to make more money on mobile ads. … We’ve had right-hand-column ads and it’s been great, a multi-billion-dollar business. But on mobile, we can’t do that. It’s clearly going to have to be different. We’re seeing some great mobile ad products being developed. There’s a huge opportunity. The question is getting there.
Clearly we’ve had a bunch of missteps there. The biggest mistake we made as a company was betting too much on HTML5, because it’s just not there yet. … We just couldn’t translate it to mobile with the quality we wanted. We had to start over and rewrite everything to be native. We burned two years. It may turn out it was one of the biggest if not the biggest strategic mistake we made.”
“Facebook is doing a limited test of ads on mobile websites and mobile applications, displaying ads to people who are logged into Facebook. So, if you are logged into Facebook on ESPN, and you head over to ESPN’s mobile site, you might see an ad for Domino’s Pizza. That ad won’t say that your buddy Nicholas loves Domino’s, though: According to a Facebook rep, these ads won’t have the “social context” that ads on Facebook’s own website show.
An ad network could be a lucrative new source of revenue for Facebook. But the ad-network space on the Web is incredibly crowded and competitive, with Google dominating the business. The mobile-ad space is just getting started. And Facebook has a lot of data on users—not just demographic information, but the apps they use, and the apps their friends use. One pool of customers for a Facebook mobile ad network: app developers who want to get more people to install their software. Facebook is already selling ads on its own website and mobile apps that help encourage users to download new apps. Placing those ads on other Facebook-enabled apps and mobile websites could tap into big app-promotion budgets.”
“Right now on the web, the most successful advertising business other than search is advertising targeted to specific users based on lots of anonymized data collected about them. [e.g. location, age, gender, web surfing history, purchase history]. Web publishers know who is looking at their ad inventory and they can sell their inventory to advertisers looking to reach certain types of people. The problem that Facebook’s ad network will solve is that at the moment, mobile app publishers do not have the same amount of information about the people who are using their apps and looking at their ad inventory.
The reason that web publishers know who is looking at their ad inventory is that web users, in their surfing, download something called “cookies” to their browsers. When they load a new page, the publisher of that page can read past cookies downloaded, and build a data mosaic of the person looking at their ads. On mobile, apps are separate pieces of software from browsers. They cannot look at the cookies downloaded in the browser. iPhone browsers don’t download cookies at all, anyway.
So mobile app makers are flying blind. Right now, they are selling ads using a very old-fashioned model. They are guessing what kinds of people might like the content that their app offers, and then asking advertisers if they would like to buy ads to reach those kinds of people. Advertisers don’t like to buy ads this way these days, and they don’t have to.”
Last Wednesday, Facebook announced the rollout of its mobile app installation ads program to all developers. That means that all developers on Facebook can build ads that link from Facebook’s Android and iOS apps to either Google Play or the App Store, resulting in ad revenue for Facebook.
Facebook’s stock price will certainly benefit from any additional revenue the company can get. The company’s stock price closed last week at USD 19, exactly half of its IPO price of USD 38. There are two main reasons for this poor stock performance.
One of them is the expected and scheduled unlocking of shares over the next seven months. The current volume of 700 million shares is expected to increase to 2.5 billion shares. A Bloomberg article published mid-August lays out the schedule:
“The shares freed up yesterday represent 14 percent of the 1.91 billion that will become available for sale in the coming nine months. The next expiration date comes between Oct. 15 and Nov. 13, when restraints are removed on about 243 million shares. Lock-up expires on about 1.2 billion shares on Nov. 14, and for 149.4 million shares a month later. A final round comes May 18, 2013, with 47.3 million shares becoming available.”
The other reason is the uncertainty around Facebook being able to generate new revenue streams. Until now, Facebook had two main streams of revenue: Advertising and Payments. Advertising, as we touched upon above, is moving away from PCs towards mobile and how Facebook’s mobile strategy will play out remains to be seen. Payments, which until now really means Zynga, the social game developer, is not looking too great, mostly because Zynga is trying to move its gaming transactions away from Facebook to Zynga.com.
So Facebook really needs to figure out how to show its investors and the rest of the business world the money. The company is reported to be kicking a few ideas around, according to Erin Griffith who covers New York startups for PandoDaily:
“On its quarterly reports, “Payments” is the category of revenue that Zynga falls into. The hope is that Facebook will expand this category beyond small game-related transactions and into virtual wallet territory. The company has also said it will take its real time bidding ad exchange off its own site to be implemented across the web. It’s another ad-related product but unlike the Sponsored Stories Facebook is hand-holding its advertisers through, this opportunity has advertisers salivating, because no other site on the Web has as much data about so many people, voluntarily supplied with a real name attached, as Facebook does. There’s also dating, e-commerce, and search. Perhaps one of its acquisitions from this quarter–Karma? Face.com?–could create new streams of revenue.”
“Citing its unique ability to recommend products, Facebook opened an online gift store. The move edges the social network onto the turf of e-commerce king Amazon, but at an opportune time: Amazon is busy making movies, computer hardware, cloud computing services, and entering other markets far afield from its core business of selling physical goods.
Not that Facebook is trying to usurp Amazon just yet. The launch of Facebook Gifts is modest: Facebook is emphasizing sub-$50 products like socks, cupcakes, teddy bears, and Starbucks gift cards. The idea is that Facebook will see words like “happy birthday” or “congratulations” on someone’s wall and prompt friends to buy the person something through the new store.
It’s an obvious and proven idea, one Facebook acquired when it bought year-old mobile gifting startup Karma in May. In the ensuing months, Facebook has rebranded the service and created a desktop version of the app, which is what is being launched today as Facebook Gifts. (From 2007 to 2010, Facebook operated a store by the same name, but it only sold virtual goods.)”
Another idea is Social Search. Matthew Ingram of GigaOm explains:
“… The social network already handles about one billion search queries every day, and [they are] basically not even trying. For comparison purposes, that’s about 20 times as many as Microsoft’s Bing search engine gets — and about a third of the 3 billion queries that Google handles every day. But it’s not just about volume: the critical factor is that Facebook’s searches are all about finding socially relevant information, from people to brands and related topics. To give just one example, the Facebook CEO said a question might be something like: “What sushi restaurants have my friends gone to in New York, and liked?” This is the kind of answer that Google simply isn’t very good at providing — or at least, not yet. It can show you sushi restaurants within a few miles of your location, and it can show you ratings from Yelp and other services to help you choose, including reviews from its recently purchased review providers Zagat and Frommer’s, which are starting to show up in the “one box” results for restaurants. But it can’t really show you which ones your friends like, unless they all happen to be on Google+.”
The idea I really like is the Integrated Social Utility concept. Why launch a gift store instead of providing Amazon with the social customer data? Why go into social search, instead of providing Google with the relevant social activity and user recommendations? Why build an e-wallet instead of partnering with PayPal? Why create a matchmaking website and not leverage the experience of eHarmony?
Facebook is not an e-commerce site. Nor is it a search engine, a payment business or a dating site. It is a social utility. Just like other utilities, it is meant to work with other businesses, not compete with them. That means it can be the provider of all kinds of social data to whoever is willing to pay for it. Facebook has the ability to be the irreplaceable partner of every internet based business out there, integrated into their systems, providing them with data about their customers they otherwise would not be able to get. If the other businesses are willing to play ball, I believe that is the best long term strategy for Facebook.
But do not take my word for it. Zuckerman said it way back in 2007, at his first interview with TIME:
“Q: Why do you describe Facebook as a “social utility” rather than a “social network?”
A: I think there’s confusion around what the point of social networks is. A lot of different companies characterized as social networks have different goals — some serve the function of business networking, some are media portals. What we’re trying to do is just make it really efficient for people to communicate, get information and share information. We always try to emphasize the utility component.”
Well, Facebook, you clearly talked the talk in 2007. Now, five years later, please start walking the walk. Your investors and the rest of the billion people are waiting.