The Problem With Facebook
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) has a serious problem. According to different surveys and media reports, many of its users are starting to lose interest in the social network and spending more time in networks like Twitter, Instagram and Tumblr among others. Although the Facebook won't disappear anytime soon, reduced engagement could be a serious setback when it comes to revenue growth and financial performance for the company.
Not So Cool Anymore
Facebook admitted in its 10-K that it may be losing some if its users to other services like Instagram which, fortunately for the company, is owned by Facebook itself.
“We believe that some of our users, particularly our younger users, are aware of and actively engaging with other products and services similar to, or as a substitute for, Facebook. For example, we believe that some of our users have reduced their engagement with Facebook in favor of increased engagement with other products and services such as Instagram. In the event that our users increasingly engage with other products and services, we may experience a decline in user engagement and our business could be harmed.”
And it's not only Instagram. According to some surveys Tumblr is above Facebook in terms of usage among the young, and apps like Snapchat are gaining a lot of ground too. It may be tempting to say that teenagers are always looking for the next big thing, but there is more to this shift than just the novelty factor.
Facebook has an identity crisis. Is it a place to have fun with your friends, to stay in touch with your family, to promote your professional work or to meet new people for a romantic relationship? Facebook would probably like to think that it serves all those purposes, but you can't do all those things at the same time and do them right.
Many teenagers are probably going toward other social networks because they don't appreciate the fact that their parents can see their activity on Facebook. By the way, those pictures in which you're drinking beer from a barrel don't reflect too well on your aptitudes as a brain surgeon. Facebook has some fairly customizable privacy options, but most people pay little or no attention to them.
That's a problem LinkedIn (NYSE: LNKD) doesn't have. Everyone knows that it is intended for professional networking, so you will find many resumes and professional articles there, but no “drinking beer from a barrel” pictures. Being more specific than Facebook, LinkedIn has less traffic, but that's not a big problem since the company has other venues to make money apart from advertising, such as hiring solutions and premium services.
Google (NASDAQ: GOOG) has developed a technically smart solution for this problem when it comes to Google Plus. People can assign their contacts to different “circles” and then choose which pieces of information they share with each circle. The beer picture would probably be shared with the “high school friends” circle and not with the “colleagues and patients” one.
In spite of this, Google Plus hasn't been able to generate the same kind of buzz that other social networks have achieved. It's not only a matter of privacy -- users need to have a compelling reason to engage. Tubmlr and Instagram allow young people to share images only with trusted friends and cool people, while LinkedIn provides a great platform for professional interaction. Facebook and Google Plus don't have such a well defined identity.
The newsfeed redesign that Facebook is implementing may be a positive when it comes to reducing the clutter in terms of information, but Facebook doesn't stand a big chance at becoming "everyone´s best personalized newspaper,” like Zuckerberg said during the announcement.
Such a thing already exists -- it's called Twitter, and it provides real-time information and interaction with journalists, political personalities, movie stars and all kind of influential people as well as friends and other users who are good at curating and publishing relevant information. Integrating with Twitter as much as possible would be a better idea than trying to replace it if Facebook really wants to become a relevant news source.
Bottom Line: Becoming a Utility
Facebook is not going to die; it’s not a transitory fad that will follow the same path as My Space or other failed social networks. It has become so big that everyone needs to be on Facebook, if only just to remain reachable and have access to the service, something similar to a utility in many ways.
Organizing events, congratulating someone on a birthday or uploading pictures from a wedding is where the platform becomes handy, since it’s an easy way to interact with lots of people. But such uses don't mean spending a lot of time on Facebook on a regular basis or constantly refreshing your news feed. For a business model depending on advertising, this could mean that growth will be materially slowing down in the middle term.
Andrés Cardenal owns shares of Google. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!