Facebook is starting to get a taste of what it means to be the king of the social media hill as it is attacked by competitors on all fronts.
Small and more nimble competitors with novel ideas have sprung up and begun to entice young users away from the No. 1 social media platform – a bad omen for Facebook stock, which 11 months after its IPO still trades 29% below its offer price.
According to Piper Jaffray’s annual “Taking Stock of Teens” survey, teens are spending less time with Facebook and more with a vast array of alternatives.
The survey showed that just 33% of teens consider Facebook “the most important social network” compared with 42% last year.
Last month, the creator of social photo album app Albumatic, Adam Ludwin, conducted a focus group of users under 25.
Ludwin told Business Insider.
“They gave me the typical teenage response: ‘We’re bored with Facebook.’”
Anyone who doubts how quickly a social media company can become yesterday’s news need only look at MySpace, a once-dominant social media site that lost a third of its users in 2010 mostly as a result of Facebook’s growing popularity.
Piper Jaffray analyst Gene Munster told MarketWatch.
“History is not on Facebook’s side when the trend starts to move in the wrong direction.”
Facebook Stock Can’t Afford a Major Slip-Up
Facebook absolutely cannot afford to lose its grip on its youngest users, who often foreshadow which social media are on the way up – or down.
Although Facebook has 1 billion users worldwide, the company has struggled to monetize this vast audience; hence, lackluster performance of Facebook stock.
The company has experimented with various forms of advertising and more recently has taken steps to make its software more mobile-friendly, but with limited success.
The transition to mobile has worked to a degree – that’s certainly where users are headed – but ad revenue from mobile devices is less than that from PCs, and Facebook has just 13% of it.
That has left Facebook stock with a crazy high P/E ratio of about 1,800.
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And with 1 billion users, not only is growing the customer base very difficult, it’s going to be hard to hang onto all of them.
Especially the young ones.
Facebook even admitted as much in its annual 10-K report, in which it said
“Our younger users are aware of and actively engaging with other products and services similar to, or as a substitute for, Facebook.”
The company also acknowledged the threat to Facebook stock:
“In the event that our users increasingly engage with other products and services, we may experience a decline in user engagement and our business could be harmed.”
Facebook Faces Stiff Competition On All Fronts
Social media alternatives have shown up like flies at a picnic over the past couple of years, which tells us Facebook pretty much has no “moat” to deter rivals from entering the market.
And those rivals are rapidly gaining traction among teens.
- Kik - The messaging app Kik is extremely popular among teens and its founders claim it now has 50 million users since its launch in 2010.
- Whatsapp - Another mobile messaging startup, Whatsapp, claims to have more than 200 million users. At the AllThingsD conference today (Tuesday), Whatsapp CEO Jan Koum said he plans to keep his app ad-free, and instead is banking on a business model that charges users 99 cents a year.
- Vine - An iOS mobile app acquired by Twitter in January 2013 that allows users to produce 6-second video clips and share them with their followers on Twitter using their mobile devices. Vine became the No 1 downloaded iOS mobile app in March 2013, only six months after its launch. Since going live in January, Vine has grown its monthly active users by 50% in the last month, and it was used on 2.66% of all iOS devices in the U.S. by the end of February 2013. When an Android app comes out, watch out. See my blog post dated March 28, 2013 for more information about Vine.
- Reddit - a social news website where users can post links to content on the web. Other users may then vote the posted links up or down, causing them to appear more or less prominently on the reddit home page. Stats: 43 million registered users with 400 million unique visitors and 37 billion page views per month.
- Tumblr - World's largest blogging site with 170 million users and 100 million blogs. In January 2013, The Wall Street Journal recently reported that Tumblr's popularity among teenagers has skyrocketed, with about 61% saying they use Tumblr on a regular basis, compared with 55% for Facebook. The numbers are slightly lower for both for those aged 19 to 25.
Chinese teens have taken to Tencent’s WeChat app, which already has 400 million users. Two other China-based apps, LINE (120 million users) and KakaoTalk (80 million users) are planning to launch in the U.S. market.
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The top 5 social networking sites of China having the following shares of active users – Qzone – 44%, Sina Weibo – 19%, Renren -19%, Tencent weibo – 8%, kaixin -7%.
Tencent, one of the top most social website, accounts for 56% of the total social media users through its Qzone, Tencent Weibo and pengyou sites.
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The Chinese social media scene – with over 600.000.000 users – of course has shown tremendous growth alongside the growing internet penetration. China welcomed 50.9 millionnew netizens in 2012.
There are now 597.6 million people – out of 1.34 billion in population – active on the nation’s top social network, QZone, which is made by local web giant Tencent.
Facebook, Twitter and Google+ are all banned from China, and that's not going to change in the foreseeable future. Facebook had 1 billion users worldwide at the end of 2012, but being locked out of China places a limit on the number of users Facebook can win over from Asia.
And let's not forget Facebook major social network competitors like Twitter and Google+. Twitter now has 500 million registered users and 200 million active monthly users. Google+ has impressed everyone since its launch in June 2011. Google's social network now has an estimated 525 million registered users and 105 million active monthly user.
In spite of the huge gains in the number of users by it two major competitors, Facebook still leads the pack in minutes spent on social networks by users in 2012 with 405 minutes per month (January 2012). With the launch of Facebook's Home skin app in April 2013, Facebook hopes to dramatically increase those minutes. See my blog post dated
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One key factor most of these new social media upstarts have in common is that they encourage real-time interaction between users, a degree of intimacy younger users prefer to Facebook’s time-shifted interactions.
Rich Miner, a partner at Google Ventures who invested in messaging app MessageMe, told Reuters.
“True interactions are conversational in nature. More people text and make phone calls than get on to social networks. If one company dominates the replacement of that traffic, then by definition that’s very big.”
Worse still for Facebook stock, many of these rivals are turning their apps into platforms, just as Facebook did with games like FarmVille.
Charles Hudson, a partner at early-stage venture capital firm SoftTech VC, told Reuters.
“The tried-and-true approach for a social network is first you build a network, then you build apps on your own, then you open it up to third-party developers.”
Facebook’s response has been to cut off integration with some apps, like Snapchat, MessageMe and Voxer, while buying up others.
Facebook’s most notable acquisition, Instagram, cost it $1 billion last year – an indication that such tactics could get prohibitively expensive, particularly if such acquisitions contribute little to the bottom line.
The growing threat from other social media apps is just one more reason to stay clear of Facebook stock.
Piper Jaffray’s Munster told MarketWatch.
“Long term, it’s a problem if they don’t do something about it. It’s hard to keep things fresh with teens.”
COMMENTARY: From the look of things, the stock market also believes that Facebook's days may be numbered. As of 11:30 a.m. PST, its share price had dropped to $25.33, down 1.29 or 4.85%. (UPDATE: Facebook shares ended trading at $25.67 -- down $0.95 or 3.59%).
My gripe with Facebook has always been that it doesn't make or sell anything physical like an Apple, Amazon.com, HP or Sony. It's a user-free site, that makes its money from advertising. So in effect, you are the product. Anything that changes the Facebook dynamics and reduces the number of users or time they are spend on the site, will negatively impact advertising revenues. This is all reflected in the volatility of Facebook's stock price, and the ongong belief by many that when it had its IPO, it was over-priced, and truth be told, it was!!
It's just not the competition that is causing havoc with Facebook, but anything mobile. Mobile is becoming the channel of choice for accessing the internet and social networks in general. For the quarter ending December 31, 2012, Facebook reported it it now has 700 million users accessing its site using mobile devices. It has to find a way to optimize monetization of its mobile users.
Facebook had a late start when it comes to monetizing mobile. It's taken Facebook about 9 months to catchup with other sites when it came to "mobilizing" its site and squeezing revenues out of all those mobile users. In 2012, Facebook did about $500 million in mobile ads, and eMarketer forecasts that it will do about $1 billion in 2013, but Google is forecasted to remain the leader in mobile ad revenues through 2017, with Facebook lagging far behind.
Facebook's two biggest moves to increase site stickiness and user engagement for 2013 were as follows:
- Facebook Timeline - Officially launched for all users on December 15, 2012, after it announced Timeline at the F8 Conference in September 2012. Timeline was a new way to display a users updates in a timeline chronology.
- Facebook Home - A mobile skin app announced on April 7, 2012, that allows Facebook to occupy the home screen of Android mobile phones. HTC, the high-end smartphone maker, will be the first device maker to include Home. Users began downloading Home effective April 12, 2013, but marketers and users have given it a lukewarm reception.
Facebook fatigue among teens has been reported since 2011, but it now appears to be really cascading into a torrent of exits from Facebook by teenagers. The main reasons: Facebook has become boring, it's no longer their social networks, but the social network of their parents and elders, and there are a lot more interesting options like Twitter's Vine, Instagram, Whatsapp, Kik, Tumblr, Reddit, and foursquare.
In March 25, 2013, Zynga announced that it had launched its own social games site, and had unhinged itself completely from Facebook. Zynga still maintains a Facebook page, but its social game apps do not run within Facebook, but its own Zynga social game site. Many of Zynga's game players are teenagers, and they will no longer be spending as much time on Facebook, as they switched over to the Zynga social games site. Facebook will also miss its 30% cut of Zynga's social game revenues, which in 2012, were about $500 million, and mobile ad revenues from users playing games on mobile devices.
Courtesy of an article dated April 17, 2013 appearing in ETF Daily News and an article dated January 13, 2013 appearing in ViralBlog
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