Facebook Traffic May Have Plateaued But Profit Potential Is Looking Up

The memory of Facebook's painful stock market debut a year ago today is at last beginning to fade. Not for investors who bought at the opening price of $38 – their shares are still trading 70% below that – but by other measures the world's largest social network has made seemingly unstoppable progress.

In October, founder Mark Zuckerberg announced in a status update on his Facebook page that the site had reached 1 billion monthly active users. The business will make $6.6bn this year, up from $5.1bn in 2012, according to research firm eMarketer. And the crucial transition from desk and laptop computers to mobile appears to be going to plan; after Google, Facebook is now the second-biggest mobile advertising publisher.

So was it simply sour grapes that led Rupert Murdoch to suggest yesterday that Facebook could follow Myspace into social oblivion? The media mogul bought Myspace in 2005 for $580m, but its users melted away as Facebook's popularity grew, forcing a selloff at the bargain price of $35m six years later.

"Look out Facebook!" Murdoch tweeted. "Hours spent participating per member dropping seriously. First really bad sign as seen by crappy MySpace years ago."

Murdoch may have an axe to grind, but his opinion chimes with anecdotal evidence that younger internet users are being lured away by a new generation of sharing software created specifically for mobile devices – apps such as Snapchat, which sends photos that self-delete after a few seconds, or messaging service WhatsApp, or photo-sharing site Instagram, which has 100 million monthly users and was bought by Facebook just 18 months after launch.

"It seems that Facebook is coming to a plateau," said Marco Nardone, a former trader at Credit Suisse bank whose student social site unii.com launched this month. "There is a feeling that larger social networks like Facebook and Twitter are now too big. The clear trend is towards more niche social networks or apps."

Measuring movements in Facebook's vast membership is tricky. As the smartphone becomes ubiquitous, users are switching their Facebook time to apps.

In the US the Facebook website has 142 million unique visitors a month, down more than 10 million in a year, according to research firm Nielsen. But the company's figures also show the Facebook app had 99 million unique users from Android and Apple smartphones in March, a rise of 37 million on a year ago.

What Nielsen does not know is the size of the overlap between app users and website visitors, which means it cannot give an overall traffic number.

Despite previously doing so, Facebook did not break out how many US-only usersit has when it reported its last set of financial results. It did share the fact that overall traffic in the US and Canada grew in the last year, from 183 million to 195 million users a month. But even Facebook's own numbers are not cast iron. Read the small print in the stock exchange filings, and the company admits that 7.2% of its monthly active members – about 78 million – may actually be duplicate accounts, or spammers, or pages set up for pets.

Murdoch's assertion that time spent on Facebook is falling is difficult to pin down. The average time people spend on Facebook's website, as opposed to its app, has fallen from just over seven hours a month last year to six hours 44 minutes this March, according to Nielsen. Time spent using the app in the US was six hours 50 minutes in March, but there are no numbers for a year ago to compare that with.

Zuckerberg himself said Facebook now accounts for 23% of the time people spendon apps. The next-biggest apps are Instagram and Google Maps, far below at 3% each. In the UK overall, monthly users are up from 33m in January to 34m in March.

"The quality of metrics out there is terrible, but if you decide to spend money on the web, Facebook is the least bad place to spend it," said Brian Wieser, at investment adviser at Pivotal Research Group. He does not believe the site will perish.

"There is a world of difference between Myspace and Facebook," he said. "Myspace went for aggressive commercialisation at a very early stage. Facebook has been much more patient. The depth and scale of usage dwarfs what Myspace ever had. Whereas Myspace was essentially closed to the web, Facebook has taken the opposite tack."

There have been hiccups. Facebook Home, the app intended to turn Android smartphones into a "Facebook phone" by feeding photos, messages – and of course advertising – straight to the home screen, took a month to reach 1m downloads. This is slow going for a major brand; Instagram's Android app hit the million mark within 24 hours of launching.

But Facebook's strategy of allowing other apps to use its platform to share content and advertise on it, as Snapchat does, should help to ensure longevity. It has become a repository of our social memories, a library of images and videos. Those who spent time over the years uploading photos and updating their status will not want to delete those records.

"There are other services popping up that teens are more excited about," says Clark Fredricksen at eMarketer. "But Facebook has become a necessity among all age groups akin to email. It's integral to the fabric of the broader web. The problem is that the fabric of the web isn't necessarily cool."

Facebook timeline

18 May 2012 Facebook floats on Nasdaq at $38 a share

19 May 2012 Mark Zuckerberg marries Priscilla Chan

June 2012 Facebook's first mobile-only ad product, sponsored stories, is served to advertisers. Advertisers pay to highlight something a Facebook user has taken on the social network

4 September 2012 Facebook shares close at record low of $17.55

6 September – Facebook seals purchase of photo-sharing Instagram for $1bn

Mid-September – Facebook Ad Exchange opens – advertisers track users' web browsing and then target them with ads when they log in to Facebook

4 October Facebook reaches 1bn monthly active users

16 January 2013 Launch of Graph Search, making users' photos, status updates and information searchable unless they choose to make them private

7 March News feed redesigned, with larger ads

4 April Facebook Home app that takes over Android home screens, is launched alongside the HTC 'Facebook phone'

13 April – General Motors returns to Facebook as an advertiser following public split

14 May AT&T reportedly ready to abandon the HTC Facebook phone after cutting its price from $99 to 99 cents

Powered by Guardian.co.ukThis article was written by Juliette Garside, for The Guardian on Friday 17th May 2013 19.38 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010


image: © West McGowan

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