I really love the symbolism in this image because I think it reflects what the future of Facebook looks like — Zuckerberg dwarfed by the brand he created.
The future of Facebook: Advertising
Ever since Facebook went public in 2012, pressures to produce revenue pushed the social network toward a business model relying more heavily on ad revenue and less on social interaction. As late as Aug. 2008, Zuckerberg is quoted as saying:
I don’t think social networks can be monetized in the same way that search did … In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.
Yet, now, in 2014, advertising revenue appears the exact model adopted by Facebook. Despite this, the average value of each Facebook user (to Facebook) is less than $2, with women being worth a little more than men and US users worth a bit more than users elsewhere, according to AdAge.
Driving Facebook’s advertising model, organic reach on the platform is nearly wiped out and, industry analysts and Facebook insiders, predict organic reach on Facebook to disappear later this year, according to a Facebook insider, Brian Borland.
Declining organic reach forces brands to buy advertising on Facebook, which is a good investment (especially giving the enhanced targeting opportunities through Facebook Ad Manager), but it’ll put tremendous pressure on smaller brands. Small brands are not only paying a higher percentage of their revenue on Facebook, but their smaller fan base likely translates into higher advertising costs as Facebook uses a bidding process similar to that used by Google Adwords meaning smaller levels of engagement result in higher bids to reach a brand’s audience.
Small businesses, who flocked to Facebook as a way to compete with the big brands despite limited advertising budgets will certainly feel the pinch under Facebook’s new advertising-driven business model.
The future of Facebook: Stores
Facebook tried Stores a while back, yet this form of e-commerce, F-commerce, never really took off because users go to Facebook to interact with their friends, not buy things. In fact, when you look at the top F-commerce storefronts, you find them heavily loaded with pop culture icons like Lady Gaga, Starbucks, Justin Bieber, and other entertainment properties, such as TV shows and movies, and sports. No big surprise there.
Smaller brands, under $100,000 have more potential on F-commerce sites than the big brands, according to the New York Times. So, while big brands are closing down their Facebook storefronts in favor of richer websites, small brands, especially those with a niche market and loyal following are doing well.
Of course, F-commerce happened by accident rather than design and it’s not clear how such sites contribute to the future of Facebook unless they support their stores with advertising.
Monetizing the future of Facebook
According to NASDAQ, Facebook’s future is bright. Facebook’s first-quarter profits jumped 72% mainly due to increased advertising revenue.
However, their recent acquisition of WhatsApp, for whom advertising is anathema, questions the stability of advertising on the platform. WhatsApp, which costs Facebook $16 billion shows no immediate signs of improving monetization at the behemoth.
And, while each change in the Facebook platform brought cries from users dissatisfied with the changes, usage is under increasing pressure as newer social platforms, such as SnapChat, eat into Facebook’s user base — especially younger users. Concerns over privacy and Facebook’s heavy-handedness in forcing users to adopt products, like Facebook Messenger, and new layouts, put pressure on consumer usage and point to consumers reaching a breaking point.
Time pretends an 80% drop in Facebook users based on a contagion analysis model from Princeton researchers. Certainly, the precipitous decline of MySpace, which dominated the social networking market before the ubiquitous availability of Facebook, followed such a pattern of rapid spread and an even faster decline.
So, what’s the future of Facebook. My own personal belief is that the Princeton researchers are likely right and I certainly don’t own any Facebook stock nor would I advocate purchasing any. I do, however, think the decline will not be as precipitous as predicted by the contagion model and will likely be slow attrition rather than an avalanche of users defecting to the next big thing in social networking.
What do you see as the future of Facebook?
Has your Facebook usage declined or increased over the last few months?
Do you find yourself spending more time or joining other, competing social networks?
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