Citing ComScore numbers, The Wall Street Journal published a story over the weekend pointing out how Facebook’s user growth is slowing in the US.It missed the point entirely.
Year-over-year growth for Facebook is slowing:
- From 89% in 2010
- To 24% in 2011
- To 5% in 2012
At first, this sounds like horrible news for Facebook and Facebook investors.
Even after a severe correction following its IPO, Facebook still trades at a generous revenue multliple due to promises of growth.
But the reason Facebook’s user growth is slowing in the US is that almost everyone in the US is already using Facebook.
158 million people – a full 71% of the country’s 221 million Internet users – visited Facebook in April.
These people spent a stunning six hours on the site in April – a number that is itself up 16% since April 2011.
Six hours is more time than the amount people spend on all of Google’s sites, including YouTube, combined.
So, yes: because almost everybody who uses the Interent in the United States already uses Facebook, and because these people are already spending an inordinant amount of time on the site, Facebook has little room to grow its US userbase anymore.
But the promise of Facebook as a “growth” company is not the increasing size of its userbase.
The promise of Facebook is that every day 500 million worldwide use Facebook as their online identity, and Facebook hasn’t quite figured out how to take advantage of that yet.
The promise of Facebook is that as it staffs up and its executives mature, it will figure out a way to take advantage of those huge user numbers by building several business that makes money more than Facebook’s rather underwhelming brand advertising business.
Remember, Facebook still has about 30,000 fewer employees than Google, ~55,000 fewer than Apple, ~13,000 fewer than Yahoo, and even ~10,000 fewer than eBay.
(That everyone agrees Facebook’s ad products stink and the company is still able to generate $4 billion in revenue from them is a testament to the possibilities of Facebook’s scale.)
The plan among Facebook executives right now is that third party companies – like Spotify, Buddy Media, or Zynga – will build their own business that leverage access to that userbase, and that Facebook will be able to tax them for the privilege.
So far, Facebook has been very patient in waiting for these third party businesses to develop.
But who knows? Facebook might soon decide that it needs to hurry up and build out its revenue-generating products. It acquired an e-commerce mobile app last month. We’re hearing rumours of another major acquisition coming in the next few weeks.
Mayble Facebook will unfurl a third-party ad network. Maybe it’ll buy Square and become the way you pay for your coffee. The possibilities are essentially endless.
And that’s the point. A site that 500 million people use for their online identity owns a priceless asset.
Imagine Facebook as an oil company that knows about a huge, world changing reserve, but hasn’t figure out how to tap it yet, and you’ll begin to imagine the growth story of Facebook.
The promise of Facebook is NOT that it might add a few more million users and go from 71% of all US Internet users to 80% to 95%. To say otherwise is pretty obnoxious.