Ever since Facebook was put on the stock market, it’s prices have gradually devalued to the point that they are now close to half what they were valued at when floated. There have been several well known bloggers writing about this and ultimately predicting it’s demise, but why?
There are a lot of businesses out there, both internet based and traditional “brick and mortar” ones who have massive turnover and appear to be doing very well, but once you look at the lifeblood of any business, profits and cash flow, many aren’t doing as well as initial appearances would indicate, Facebook seem to be increasingly falling into this category. The numbers involved with a company their size are eye-watering, they are worth close to $100 Billion and have close to 900 million users (although undoubtedly this also includes the dormant accounts too). Their revenue was 3.7 Billion during their 2011 financial year, which again sounds pretty impressive. However when you consider that they had around 700 million users (this was last year remember), that equates to just $5 per user per year, of course they have massive overheads so the actual profit would be a fraction of this, then you need to also reduce revenue by 15% as this all comes from a single social game developer, the actual profit is nowhere near what it first appears. This could be why their share price is steadily dropping off, they just don’t seem to be able to turn the large profits which investors are always looking out for.
The problem seems to be their advertising system. I’ve both used Facebook myself and don’t think I’ve ever intentionally actually clicked on an advert, and run campaigns on there, which have been short lived and I’ve gone back to Google Adwords as that has proven to be more profitable. Combine this with the surge of people who now access predominantly from their mobile phones, which display less adverts anyway and you can see that unless they diversify quite extremely revenues will likely continue to fall.
The question is will future generations be interested in using Facebook? There was a time when everyone had an account and it seemed that social lives were organised on there, but I’ve seen a recent decline in this. Also as soon as people got back from holiday or had taken a picture of interest they would post them up to Facebook, however many people seem to be moving over to Pinterest for this kind of picture sharing. Then you have the games which at one time could only be played on Facebook, but as time marches on, more and more sites are popping up with similar game playing functionality, so where does all this leave Facebook?
I’m sure that before too long someone will come up with a new social platform and fantastic way of utilising mobile phones for accessing it (no, I don’t know what it will be, if I did I’d be busy developing it right now!) this will undoubtedly be another nail in the coffin of all the existing social platforms which rely heavily on advertising revenues. So the likes of Facebook, in my opinion, have limited time left, I would even go so far as to say it probably won’t be around at all in another 10 years.
Oh, by the way, while it’s still here, why not “like” this post from the button below 😉