1. Facebook’s Demise
Grossly
Exaggerated
Norm Johnston
30 Jan 2014
@ntjohnston
Background
It’s been a tumultuous week in Silicon Valley. First, Apple reported disappointing results amidst lower than expected
iPhone sales and growing impatience over its next big product. Second, Google raised the white flag on its $12.5b
Motorola acquisition, keeping the patents (perhaps always the main reason behind the purchase) while selling the
rest to Lenovo for a bargain at $3b. Today it was Facebook’s turn to announce its 2013 Q4 earnings, and it didn’t
disappoint. Quarterly revenues were up 63% from last year driven by strong growth in mobile advertising. Overall in
2013 Facebook chalked up $7.9b in revenue and $1.5b in profit. Not bad at all.
Details/Implications
Facebook must have been pleased with its results, particularly given recent industry debate over the last few months.
There has been much discussion on Facebook’s repositioning as a reach proposition rather than as a pure play social
network. In other words, Facebook now sells advertising primarily on its ability to use its extensive scale and data to
accurately target vast numbers of people around most of the world; this is in contrast to its historical sales pitch on
building fan bases, engagement via newsfeed posts, and periodic paid ad boosts. While organic reach remains, it has
diminished significantly simply due to more people and more content fighting for an increasingly small space on your
mobile newsfeed. So the only way to guarantee what was previously free newsfeed reach is to buy Facebook ads or to
create incredibly compelling content that satisfies Facebook’s secretive and constantly evolving algorithm.
The second industry debate centers on whether teenagers are abandoning Facebook for other largely parental-free
social networks like SnapChat. According to the Global Social Media Impact Study, Facebook is essentially dead to
teens. While acknowledging some decline in usage, Facebook deny any such mass teen exodus. In reality, nobody
really knows but Facebook, although recent research from Pew and others suggests the answer may lie somewhere in
between, e.g., teens are still on Facebook. However, they’re using more social networks to socialize with different
people in different ways for different reasons. And regardless, they may all come back when they are older. Facebook
has simply become too ingrained in too many lives to totally abandon.
What’s a marketer to do? From a media perspective, Facebook will need to demonstrate better ROI than the other big
display networks fighting for online video and mobile budget. Facebook is arguably well positioned given recent
Datalogix and Kantar studies. And of course it still has some remaining albeit diminishing extra earned media
bounce. Marketers will also need to rethink their overall user experience architecture. Based on your target audience,
do you still want to drive people to Facebook from your TV ads, or will other destinations give you greater social
bounce and engagement? Should Facebook be your main online content hub, or simply another distribution
destination, supported by more cost-effective and integrated content management systems? If so what type of
content best resonates on Facebook and optimizes your chances of algorithmic success? As consumers, particularly
teens, evolve their usage of Facebook, how will you evolve your efforts? Ultimately it boils down to what are you really
trying to achieve, what do your customers really want, and is Facebook a good place to do it?
Summary
Facebook’s quarterly results indicate that it continues to grow despite recent noise around declining organic reach
and disappearing teens. In fact, Facebook enters 2014 as arguably the world’s largest scaled online targeting
opportunity across multiple markets, particularly in the mobile space, which now makes up over ½ of its total
advertising business. In fact, today’s earnings results means Princeton University’s recent report on Facebook’s
forthcoming demise may have been grossly exaggerated.