Facebook Is Failing In Europe — And It's All Russia's Fault

Zuckerberg europeFacebook’s Zuckerberg

Photo: BI

Facebook had a great Q3 2012, with revenue up 32 per cent to $1.26 billion, driven largely by a 36 per cent increase in advertising sales to $1.09 billion, and a new $152.6 million mobile ad business.But it wasn’t all good news.

In Europe, Facebook is sinking. It’s the only area of the world where Facebook appears to be in decline, according to the social network’s own numbers.

Here’s a look at how revenues have stalled in the old world based on active users, revenues per user, and a geographic breakdown of Facebook’s revenue sources.

We’ve also discovered the reason Facebook’s having such a rocky time in the Old World:

Pirates!

That’s right. Russian pirates have distorted the market in a way that has left Facebook at a disadvantage to domestic social networks in certain East European countries — and it’s wiping millions from Facebook’s potential European revenue base.

European user growth is slowing. On its own that's not bad news — Facebook is so ubiquitous it may be close to capturing all the customers it possibly can.

But European revenue is falling. It's the only geographic region of Facebook that is contracting.

This isn't a one-off result. Revenue per user has been in decline in Europe since 2011. Everywhere else, Facebook is still growing.

A big part of the collapse is in payments revenue, which mostly come from Zynga games. Zynga's problems are Facebook's problems, especially in Europe. Note, however, that payments went into decline in Europe a long time BEFORE Zynga's recent collapse.

The Zynga issue wouldn't be so significant in Europe if the ad business was healthier. It's not. In Q3, ad revenue was flat. It's still down 4 per cent from Q4 2011. All the other regions have grown since then.

While Facebook has maxed out its user-base in the U.S. and Western Europe, in Russia Facebook has only 5-7 million members, which is ony 12 per cent of the online population ...

That explains, in part, why CEO Mark Zuckerberg visited Russia at the beginning of the month, and had a brief meeting with Prime Minister Dmitry Medvedev. (Note that Zuckerberg even wore a suit). He got a lot of Russian media publicity for Facebook by doing that.

Facebook is getting its butt kicked in Russia by Vkontakte, a domestic social network. VK looks a lot like Facebook, but has one major advantage that Facebook doesn't ...

Pirates! There are thousands of free pirated movies on VK. Because many of Facebook's major customers are movie studios and other content creators who favour strict copyright policies, Facebook can't allow its members to share pirated movies with each other.

This Russian social media blog explains:

... Vkontakte offers a special feature which attracts more new members daily and makes them spend a lot of time online. Members are able to view thousands of pirated copies of domestic and foreign movies dubbed into Russian. In addition, it's possible to upload and download video and audio files via the VK Tracker application. This is the most significant advantage of Vkontakte over Facebook. It can be perceived that the majority of Vkontakte members will not be as easily persuaded to join Facebook and to give up their convenient online entertainment.

Now meet the woman who forced Facebook to grow up ...

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.