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Studies show that the average person knows about 611 other people, 300 of which make it to the status of Facebook (NASDAQ: FB ) friend. Interestingly, however, according to analysis done by the Pew Research Center, the average person only has about seven friends in his or her core network . The other 293 friends remain on what is referred to as "the edge." This is intriguing because it is estimated that mobile users spend 66%-97% of the time on their devices interacting with their core. As mobile becomes more ubiquitous, core group connectivity will become increasingly valuable, a trend that will have far-reaching impacts on many popular tech companies.
Mobile trends encourage core interaction
Currently, more than 1.4 billion people worldwide own smartphones, a 44% increase over last year's figure. As such, more consumers are accessing social networking platforms like Facebook or Twitter (NYSE: TWTR ) via phones and tablets.
When accessing these platforms, users spend the majority of their time interacting with only the core members of their social network. This is important to advertisers because it is this core that wields the most influence over any given individual. Psychologists have said this for years, but advertisers are only now catching on.
What it means for companies
In light of this, Facebook is in trouble. It is, primarily, a platform for maintaining edge relationships and is only beginning to devise algorithms indicating which seven friends fall within a given user's core. As such, its appeal to advertisers is decreasing.
Fundamentally, the site doesn't allow consumers to consistently see what their very best friends are interested in. Likewise, it does a poor job catalyzing local discovery. Consequently, advertising campaigns within the platform often yield less-than-favorable conversion ratios. If Facebook cannot figure out how to better access and expose users to their core's consumption habits, it may begin to see large decreases in value in the coming years.
Twitter faces a similar issue though it is poised to better adapt. On average, Twitter users follow about 102 individuals . This indicates that a given user's Twitter network is less "edge"-centric than his or her comparable Facebook network. As such, Twitter users see their core's content more frequently. Twitter is far better suited for mobile than Facebook. Whereas Facebook displays a complex assortment of content, Twitter provides only succinct, easily navigable information. As mobile becomes increasingly ubiquitous, the latter will prove more valuable, giving Twitter a competitive edge over Facebook in terms of both appeal to advertisers and mobile optimization.
The lynchpin in this situation is Snapchat. The app is perfect for connecting users with their core and enables companies to easily track core engagement habits. Further, it is extremely easy to navigate and simple to use and, consequently, is great for mobile devices.
Seeing its potential to compensate for the abovementioned issues, Facebook tried to buy Snapchat for $3 billion in cash. Unfortunately for Facebook, the owners rejected this offer. This is also unfortunate for Twitter, as a $3 billion price tag is out of the company's range. As Twitter has yet to turn a profit, it will have to focus on finding in-house ways to increase core engagement.
Google (NASDAQ: GOOGL ) , however, may win out. The company's social network, Google+, doesn't stack up to Facebook with most metrics. As such, it is actively seeking competitive advantages. Buying Snapchat could provide this edge and dish a huge blow to Facebook. Considering Google has $18 billion in cash , an acquisition may not be out of the question.
Ultimately, as the world goes mobile, engaging users with their core will become increasingly valuable. Popular tech companies must adapt to this trend or risk substantial decreases in advertising revenue. One way these social media giants hope to better cater to the core is through the purchase of Snapchat. Whichever organization can successfully make this acquisition will be poised to see great revenue growth.
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