Facebook Will Decline Like AOL

Posted on August 22, 2012

Yesterday in my weekly Washington Business Journal blog, I suggested that businesses and marketers should start investing in networks beyond Facebook.

Having watched my fair share of social networks rise and fall over the years, I feel pretty safe in saying we’re looking at an AOL-esque decline for Facebook.

We watched AOL fall from its ISP and online community peak in 2002 to what has become a struggling content holding company with a diverse brands like the Huffington Post, TechCrunch and more.

I would argue that Facebook has peaked in developed countries. Further, Facebook’s public status has exposed many weaknesses that some investors suggest begin with Mark Zuckerberg.

Like AOL, because so many stakeholders are vested in Facebook’s success (Wall Street, corporate America and those who simply love the social network) the decline will be slow, but steady, just like sand falling through an hour glass.

Some data is emerging to substantiate this theory:

Forbes reported that Facebook saw a 1.1% decline in U.S. users, and that in the 23 countries where Facebook’s penetration exceeded 50 percent, only nine expanded their user base over the past three months.
A recent study shows that the U.S. population is growing weary of the ultimate social network with most Americans expecting to spend less time on the network in the future.
The Like culture has become so pervasive that has devalued the impact of a thumbs up on content.
Early investors are fleeing the company further dropping an underperforming stock, including one mass sale from Peter Thiel.

Posted In: Social Media

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http://richardrbecker.com/ Rich Becker

It’s hard to say because they have time to adapt. The question is whether or not they will adapt with intelligence. But like I’ve said before, the social world is likely to become more niche. People don’t necessarily want to do everything in one place. If they did, then social networks wouldn’t have any room to grow.
- geofflivingston
  
  They do, and Amazon adapted after a similar issue when they went public. But, like you I think it is becoming more niche and McDonald’s has its place… Which is not dominating the entire restaurant scene ;)
Dan Michel

It is still baffling to me that Facebook’s main function – to share content with friends – is not an immediate feature in their mobile app. I agree that they need to figure out mobile soon (and not just how to display ads) or they will start to decline.
- geofflivingston
  
  Yeah, and I don’t think carving up the network into niche apps is the answer a la Camera and Messenger, either. They need to figure out mobile.
http://www.billp.com Bill Pytlovany

I think it’s a little early to predict the demise of Facebook. The failure at AOL was not lack of consumer interest, it imploded from within. That said, I noticed since my wife started to use PInterest her Facebook usage has suffered.
- geofflivingston
  
  Well, I think broadband killed dial up, too. Good on your wife for pinning! Lots of folks love that.
- http://twitter.com/davidhmcguire David H. McGuire
  
  AOL was a virus that we all installed on our PCs that smacked the faces of our RAM and CPU while systematically sending private data for analysis in some data center on Planet Earth which also allowed us to access the internet. Just remembering it makes me ill!
- http://www.facebook.com/profile.php?id=585056448 John V. Hedtke
  
  I agree with you, Bill. There was all the consumer interest in the world (and fairly good marketing/marketing domination), but there were too many internal problems. Rather a shame, I always thought.
sohini

I agree. I’ve long maintained that if I didn’t manage pages for clients, I’d be off. I do think they have time to adapt, but you’re right that their mobile and interface is annoying. And they seem to default to noisier, busy-ness, and resetting your preferences. The problem of course, is I can’t g.e.t. people to move over to G+ where everything works. I’m not about to jump ship, but I’m also glad I didn’t set myself up as a facebook guru – I wonder how much those folks are wondering about whether and how quickly to rebrand themselves. Because how people use fb to market in the US may not apply to other emerging markets. Social isn’t the same everywhere.
- geofflivingston
  
  I am so with you. If my business wasn’t tied to
  Facebook, I’d be gone. Like you that’s my reason to remain. Great comment!
Matt Southern

I definitely aree that Facebook is in decline. It lost it’s ‘cool factor’ a long time ago. It used to be fun to jump on Facebook for an hour or two, now it’s cumbersome to use and filled with advertising. I think most people continue to use Facebook out of necessity not because they actually enjoy it. I trust that something will eventually take its place.
- geofflivingston
  
  Some people love it. I have a lot of friends who just LOVE IT! Then there’s me. LOL. I’m with you on it being about as unhip as it could be. Feels like Disneyland. Say one thing, and you eat grief.
http://twitter.com/Soulati Jayme Soulati

Whew; for a moment there, I thought Triberr was trying to take commenters away from bloggers by making it so easy for us to stick with one platform and do everything right there. I think, at least I want to think, I was mistaken.

Let’s remember one thing; the masses, for whom Facebook was built, don’t care about stock price. They just want to post their naked pictures and commune with buddies of yore.

The gazillion people on Facebook globally will not migrate quickly away unless there is another cooler hangout (and G+ ain’t it).
- geofflivingston
  
  I’d agree with that. I think the rise of Pinterest, Instagram, and others and the corresponding drop in engagement that’s beginning to be seen illustrates this is already happening, IMO.
  Triberr, though, flat out rocks. What a great idea!!!
Lauren Mikov

Interesting standpoint, Geoff, and directly in contrast with this article I recently read:
http://www.forbes.com/sites/ilyapozin/2012/08/20/game-over-heres-why-facebook-wins/

I’m curious why you describe Timeline as less business friendly?
- geofflivingston
  
  Sure thing, businesses need to pay to play. Fan page tabs are down, and generally half of businesses seen a drop in interaction. To combat that drop in traffic, businesses have to advertise. And as the link to the Madison Avenue story shows, that business offering is losing ground.
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http://susanbeebe.com/ susanbeebe

I think social media as a whole is in for a reality check. The hype is deflating and real business value is surfacing (or not!). This is where the smoke clears and we all see what remains… shall be interesting to see what is revealed in due time.
- geofflivingston
  
  I had an interesting conversation with someone last week in Silicon Valley. We could not agree on what makes a business viable. I kept coming back to revenue and people buying the product (or at least advertising). It was an interesting debate about this very philosophy.
  
  At the same time, Amazon struggled quite a bit to become profitable its first couple years as a public company. Look at them now.
  - AugustineThomas
    
    That’s quite a bit different. Amazon had to start by offering everyone who sold on them good deals so they had tiny margins. Now that like half of American commerce takes place on that website they make a fortune.
    
    No one has ever convinced me that the people advertisers want to attract spend very much time at all on Facebook. Other than advertising what is FB’s revenue model? Farm games? (I heard the farm game people are going solo.)
- http://twitter.com/jcunwired Jody Carbone
  
  I agree Susan! I’ve had this conversation frequently lately. The “Like” model for marketing has always been a minor annoyance (though YMMV). Too much focus in this area and too little in customer service, where social media can make a significant difference. The companies that adopt both equally will find success, those that don’t will continue to be frustrated. The best thing brands can do for awareness is to have open, communicative support models, and FB is far too clumsy to be the medium.
http://twitter.com/ladylucas94 Mary Lucas

It got too big and too messy it’s become a place to rant, ridicule and rehash horror ! But at least I got a way to keep tabs on my kids!
- geofflivingston
  
  LOL, it does seem to have devolved quite a bit. I don’t think Timeline has helped for those of us looking for a more thoughtful conversation.
http://twitter.com/ScottJGoldman Scott Goldman

While I believe that FB is in trouble it’s probably a bit premature to forecast their decline-and-fall for one simple reason: With 900M users they don’t have to make much $/user to be extraordinarily profitable. I view it, rather as a slow-mo free-fall.

There’s clearly a disconnect between their outlook and long-term strategy when viewing the mobile world as the center of their users’ universe. Unless they can crack the code of generating revenue from their mobile users they will, in fact, fail to deliver on anticipated revenue (much less, profit) which is, of course, what their stock price is based on.

I’m no fan of FB and see little use for it in my personal life, but I do think that we would be overlooking the obvious if we didn’t realize that with some simple math, the numbers are overwhelmingly in their favor. For example, with 900M users let’s presume that 20% of them (a number roughly equal to the people who, I am guessing, can afford to pay *something* for the service) are daily, active, can’t-live-without-it FB maniacs.

If FB can figure out a way to make a mere $1 in profit per user/quarter from this 20% it works out to $720M/year in profit. While that’s nowhere near the number they need to justify their hyper-inflated stock price (even at $19) it’s still a lot of profit. If they can figure out a way to make $2/quarter, or bump the percentage who generate profit up to 30%, well, you get the idea.

The ultimate question in my mind is whether they can crack the code about making money via mobile. Mobile ads have historically underwhelmed expectations so the answer isn’t there. Subscription services have limited success but some (see: WSJ online, et al) do prosper. Zynga, Instagram and other offshoots may generate a bit of profit from purchases of virtual or real goods and services but not enough to count on.

So, the code is still encrypted and until they decrypt it they’ll remain in that slow-mo free-fall. But if they do figure it out the numbers are on their side and they could be enormously profitable.

The compounding issue, however, is that Zuck isn’t the least bit interested in making money – he wants to change the world – and with 50%+ of the voting shares there’s little that anyone can do to force his hand if he chooses to stand firm.

Ultimately, the opportunity is still there for them – but not unless there is a substantial change in their mobile strategy… and soon.
- geofflivingston
  
  Scott: This is a great comment. Can I run it as a guest blog next week offering a different point of view? I owe you an interview anyway!
- http://www.facebook.com/profile.php?id=585056448 John V. Hedtke
  
  I agree with you pretty much across the board on your points. I am reminded of Microsoft’s slow decline: in the late 90s, the company felt like it gone from being a rocket under acceleration to a ballistic missile. It was still going up, but it was clear that things were slowing down even then. I think that the same might be true of FB now, although the cycle is much tighter, and, as you point out, there’s a lot of room for them to slowly drift downwards.
- Thinx
  
  A more important question (imo) would be how many of the claimed users are in fact real? It’s not a huge stretch to propose only 20% of them are actually real people. Another factor is the growth / conflict of ad-blocking and privacy concerns when balanced with the value of “free content”. I don’t see these kinds of issues resolved rapidly, or with huge step increases in advertising income. The very best scenario is throttled growth. More likely, it will devolve the same way MySpace did.
Cynthia Kocialski

I’ve been in the tech business for a long time and what I’ve learned is that you can’t count a company out until they decide to call it quits. Look at how Apple struggled before they hit upon MP3 player and then smartphone. I agree that the social media space will shrink down and colsolidate as the hype wanes and hope meets reality. But it’s anyone guess what the future will hold.
- geofflivingston
  
  True. But does that mean Zuckerberg will get outed and need to find himself in a zen like journey?
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David Foskey

No. He is the leader
http://twitter.com/rustyspeidel rustyspeidel

You said what I’ve been thinking here. I also think Twitter’s decision to start limiting the API access and getting in bed with big media brands will damage them as well.
- geofflivingston
  
  Yeah, I think Twitter could have made a counter play on this, but they blew it! They’re doing the same thing in some ways…
http://www.swordandthescript.com/ Frank Strong

I have a statistically valid (yeah, with an actual confidence interval) survey of SMBs I’m wrapping up the analysis on and soon to be released. One nugget that jumped out at me: just while upwards of 75% of SMBs are currently using Facebook, just 7% said they plan to begin using it next year. Of the 21 named social networks, just one network ranked lower than that: MySpace. My interpretation is that it speaks to you point of saturation.
- dustin young
  
  I’d be interested to see your study (current economics major).
  - http://www.swordandthescript.com/ Frank Strong
    
    Sure here you go http://www.vocus.com/blog/smb-social-media-influence/
    
    Separately, a strange thing, Dustin. Disqus is displaying Geoff’s advatar as yours on this post.
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Mick Gleissner

Trends come and go. People get excited about doing something new, and then this excitement usually fades. When I was young, there was Rubik’s Cube – everybody had to had one, everybody showed it off. Then, after one or two years, people showing up with their cube were told “hey, we get it, now get a life”. Same with FB. I do not post anymore, nor do I bother reading the posts, it is same old meaningless stuff – and reality is, people posting do so because they do not have a lot of stuff going with their life. So I’d give it 3-4 years and it is another “Myspace”.
Tom

Facebook used to be a place where I would meet friends. Now most of my socalled friends just repost meaningless pictures and links. Facebook has become boring and uninteresting