While the market continues to debate the importance of Facebook's new features like Home and Graph Search, it continues to ignore the inescapable truth that teens are leaving the social network in the millions .
In a blog post dated April 7, 2013, Facebook Inc (NASDAQ:FB) announced the Home skin app for Android phones that loads and takes over the starting display when you turn on your smartphone. Facebook again grabbed the media attention similar to Graph search back in January and several other initiatives recently. The news that teens are exoding from Facebook is good news for Google and Yelp that could be impacted if Facebook was ever successful with these new Facebook features.
The Facebook Home skin for your Android will be available for dwnloading on April 12, 2013 or you can buy the HTC First smartphone and get it now (Click Image To View The Facebook Home page)
The leading internet social media firm had surged to a market cap approaching $70 billion back in January based on the expectations that these big initiatives will lead to surging revenue growth. What investors generally missed is that these new initiatives came with additional costs that will limit earnings growth this year.
On April 22, 2013, Forbes reported that in the first week since its launch, users downloaded 500,000 copies of the Facebook Home skin app, but it remains to be seen whether this was out of pure curiosity or the downloads were hardcore Facebook users who just had to be logged into Facebook everytime they turn on their phone. In my blog post dated April 7, 2013, I reported that there were some signs that some users are installing the app, but just as quickly uninstalling the app, because it gets in their way of doing other things with their phone.
While the market focuses on the monetization initiatives such as Home, the existing users on the platform don’t appear as eager to stick around for these new services. Facebook is not ensured to be the social media outlet of choice in the future. Back in January, the evidence suggested that domestic users had peaked. Now, it appears that the younger crowd is leaving the service in droves.
Is Home even important?
As with the Graph search function in January, the Home function is an attempt to place the genie back in the bottle. Initiatives such as home are possibly leading to the user base fleeing as Facebook quickly goes from a free service absent ads to one where the company attempts to hock every move made by a user.
Facebook claims that the Home function turns an Android phone into a living, social phone. It turns the focus of the phone to people and away from apps. The question is whether users actually want this service. Most people constantly use business, games, sports, and weather apps outside of Facebook questioning any desire for this new service.
The service appears to be another attack on Google similar to that of Graph search. While the company claims that the service isn’t an operating system, it clearly takes several steps towards overwriting Android. It could just be the first step to creating a full-blown OS.
Teen users plunging
The bigger issue not generally addressed is that all the new revenue monetization issues won’t matter if Facebook follows the path of all other social networks. Eventually users tire of the service and move onto the next hot social network. The new set of teens aren’t as interested in following the footsteps of the teens from 5 years ago akin to a nightclub typically having a limited length of popularity.
As the previous article pointed out, SocialBakers was already showing that users in the U.S. were peaking. Part of the problem is a matter of size as nearly 69% of internet users were on the site. In reality, the data now confirms that not only did the user base peak back at around 170 million, but also it is now dropping with the younger crowd leading the downturn. See chart below:
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The chart shows that the 18-24 year old group lost the largest amount of users in the last 3 months at over 2 million. The second largest group was the 25-34 year olds at nearly 2 million users. Ironically the only group to gain was the 65+ year old group that likely diminishes the younger groups desire to stay on the site. Its one think to deal with a nosy parent, but showing your wild party pics to your grandparents is a whole different issue.
As with all of the monetization plans of Facebook, the investment community always overlooks the number one fact. All social networks eventually die whether a virtual network such as MySpace or a real world network of high school or college friends.
Reduced competitive impact
The long-term impact to Google and Yelp appears to decline on a daily basis. Clearly Facebook will make some inroads into search and grab a minimum user base for search functions. No signs exist that users want Facebook to provide any services such as search and user recommendations.
Analysts still expect Yelp to grow revenue by 54% this year and nearly 40% next year. Both indications that Facebook is having no impact on the services it hopes to replace.
Conclusion
Remarkably, the analyst community and media outlets continue to fight over whether Facebook deserves the vast $61 billion valuation while ignoring the potential for the social network to face the typical demise.
The SocialBakers data is worth following as it suggests the network peaked in October. The desire for the company to increasingly monetize the massive network of users is only likely to push the average user away from the service.
It doesn’t appear that Google or Yelp have anything to fear. Google will remain the place to search for actual business-related functions. Likewise, Yelp collects data from users that voluntarily share in hopes of helping the community as a whole.
In the end, Facebook will never be able to monetize users that don’t exist in the future. If teens are fleeing the social network, the future doesn’t appear bright enough to justify a valuation of over 9 times the current revenue base.
COMMENTARY: In a blog post dated April 18, 2013, I reported that teenagers were fleeing from Facebook for other online social destinations, games and mobile apps. SocialBakers chart confirms this by clearly showing that just in the U.S. teens and Generation Y are leaving for the previous reasons, but also because they believe that the social giant has become bloated with too many features, concerns over privacy, and the belief that Facebook is targeting them with ads, and this will detract from the overall Facebook online experience. Facebook fatigue has also set in, with teens spending less time on Facebook, but making their presence felt on sites like Tumblr and Twitter Vine.
Ever wonder how teenagers spend their media and social lives online? This infographic by the folks at Common Sense Media will tell you.
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Courtesy of an article dated April 23, 2013 appearing in Insider Monkey
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