Facebook’s Stagnation Interesting but Unimportant

Facebook’s growth has had its day. And that is a trend. For years, it experienced an increase in the number of users.

If Facebook were a country, it would be the third largest in the world, after China and India. Just under 700 million are members, nearly 200 million more than a year ago.

For the first time in its short history, its growth seems to be stagnating. And this comes at a very unfortunate moment — just as the company is preparing an IPO. Investors and possible new stockholders are not eager for bad news now.

According to figures from Inside Facebook, an organization that critically follows Facebook, about six million Americans unsubscribed in May. And also in Canada, Great Britain and Norway, the number of accounts has declined. This will somewhat worry Mark Zuckerberg, the praised and reviled CEO of Facebook.

Identity Crisis

It is little consolation to him that the number of users worldwide still increased by 11 million in May — thereby offsetting the decrease in the U.S. and elsewhere. But that compensation is drying up as well, because the pace of growth is rapidly decreasing. The trend during the past year was 20 million new users every month. In April, there were 14 million; in May 11 million. For a company that has known almost exponential growth since its inception, such a development is nothing less than an identity crisis.

Incidentally, as far as we know, Facebook has not reached its zenith in the Netherlands. Hyves is one of the few local competitors that still threaten Facebook, but here also it will not take long before the American company wins out.

Facebook says not to worry too much and, moreover, questions the accuracy of the figures. Inside Facebook, the source of the data, made assumptions from incorrect wrong data, according to Facebook. We are very pleased with our growth, is the official reaction. And they are right: Zuckerberg cannot complain about his members’ involvement.

Stagnation

The number of pages they view per visit is still growing at a constant rate. Users spend ever more of their scarce free time on the social network. By doing so they express that they value Facebook’s services. The advertisers — who supply the most important earnings — capitalize on this. They do not really care whether Facebook has 680 or 670 million users; they care about whether those 670 million people click on many pages and view many advertisements in a virtual environment in which they feel safe.

The imminent stagnation of Facebook’s growth is interesting for another reason: It seems to imply that there is a natural limit to the market potential of any social network — roughly half of the population. As soon as a company like Hyves in the Netherlands or Facebook in the U.S. approaches the 50 percent market share, growth stagnates; it is a natural boundary that is difficult or expensive to cross.

I suspect that potential investors will not be deterred by this stagnation. They pay attention to other matters: Is Facebook still able to create sufficient value for its users? Are the visitors’ numbers constant? Do all these visitors stay as involved as they are now? As long as these questions are answered in the affirmative, Facebook does not have to fear a failed IPO.