Could Facebook Really Lose 80% of its Users?

It seems absurd to think that Facebook could burn out by 2017, but a group of researchers think it's not only possible, but likely.

Jan 23, 2014 at 3:12PM

Facebook (NASDAQ:FB) has so far been the only super-hot social media network to escape the fate of former top sites like MySpace, Friendster, or even GeoCities/Tripod back in the day. And with its now-successful stock offering and seeming ubiquity among nearly every age group (except perhaps teenagers looking to not be on a site their parents use), it seems impossible to imagine that Mark Zuckerberg's creation could crash and burn.

One group of Princeton researchers, however, not only see the site faltering, they see the social network (which inspired "The Social Network") losing 80% of its audience between 2015 and 2017. The researchers, who are using diseases to model the life cycles of social media, believe their study proves that Facebook will essentially become riddled with disease and rapidly die.

The study looks at the rise of social networks and uses "epidemiological models to explain user adoption and abandonment of [social networks] where adoption is analogous to infection and abandonment is analogous to recovery." The study explains that the researchers used data for MySpace as a case study of a social network that has exhibited "both adoption and abandonment phases."

When the same model was applied to Facebook, the researchers say the seemingly healthy company "is just beginning to show the onset of an abandonment phase. Extrapolating the best fit model into the future predicts a rapid decline in Facebook activity in the next few years."

Science is great, but...

MySpace may have been extremely popular in its day, but it never had the level of success -- either in audience numbers or revenue -- that Facebook has. In 2008, during the height of its popularity, MySpace brought in $800 million in revenue. At its user (but not revenue) peak in 2006, MySpace had more than 100 million unique users per month, a number that declined to 70 million in 2010, according to News Corp.'s SEC filings.

Facebook, on its investor relations website, claims:

  • 874 million monthly active users used Facebook mobile products as of Sept. 30, 2013.
  • 727 million daily active users on average in September 2013.
  • Approximately 80% of daily active users are outside the U.S. and Canada.
  • 1.19 billion monthly active users as of Sept. 30, 2013.

Those numbers dwarf anything that MySpace ever approached and the same is true on the revenue side, where the company reported the following for just the third quarter of 2013 (full-year 2013 numbers have not been released yet):

  • Revenue from advertising was $1.8 billion, a 66% increase from the same quarter last year.
  • Mobile advertising revenue represented approximately 49% of advertising revenue for the third quarter.
  • Payments and other fees revenue was $218 million for the third quarter.

And while it's not impossible for Facebook to fall apart, it seems unlikely that a company that in 2014 so dominates its industry -- to a much greater extent than MySpace ever did -- would lose 80% of its users in under three years. It's also important to note that while Facebook has made some mistakes (Facebook Home comes to mind), the company has navigated some tricky hurdles -- like the continuing growth of mobile -- and has stayed on a growth path.

And unlike MySpace, Facebook has moved past being the hot new thing and into an everyday tool. Of course, everyday tools can die too, but they are much more likely to slowly bleed to death -- like the label-based music industry or (perhaps) cable television -- than flame out like MySpace (which was purchased by News Corp for $580 million during its rapid growth phase in 2005 then sold six years later at a loss for $35 million in 2011). 

Facebook is not the norm

According to a study done by IDC in 2013 (which was commissioned by Facebook), smart phone users check Facebook nearly 14 times a day. The social network has not only become popular, it has wormed its way into people's lives. Perhaps most importantly, Facebook has moved from being hip with the kids to having a steady, stable audience of older folks. According an iStrategy Labs Study, the number of users 55+ has exploded with 80.4% growth in the past three years. Those older users may not be as desirable as teenagers, but they are less likely to leave.

Facebook may well be the exception that proves the rule -- a social media company that burns white hot but is not consumed by fever.

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Fool contributor Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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