Facebook (NASDAQ:FB) has been making some big changes to its news feed lately, and users have spent less time on the platform as a result. CEO Mark Zuckerberg says aggregate time spent on Facebook fell 5% in the fourth quarter -- about 50 million hours. The number of daily users in the U.S. and Canada fell about 700,000.
The biggest winner from the decline in usage of Facebook has been Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google. Google properties, led by YouTube, have seen a significant increase in time spent among U.S. adults over the past year, according to Pivotal Research group and data from Nielsen. Google's share of time spent on digital content platforms increased 5 percentage points year over year while Facebook's -- including Instagram, Messenger, and WhatsApp -- fell 1.5 percentage points.
No wonder Facebook is trying to copy YouTube
When Facebook saw other apps stealing its users' attention in the past, it made an attempt to acquire them. YouTube is obviously way too big for Facebook to acquire, with its $15 billion or so of annual revenue. Even if Facebook could afford it, it's not as if Google is looking to sell what's seemingly its biggest growth engine.
So Facebook is working as hard as it can to copy Google. It launched Watch last summer, but it's off to a slow start. The company may invest as much as $1 billion in content this year to help seed the platform, but it eventually wants to get to the point where it can simply share ad revenue with content creators the same way YouTube does.
Even with a $1 billion content budget, Facebook will have a hard time taking on YouTube. YouTube is much larger than any competitor Facebook's challenged before, with 1.5 billion logged in users spending over an hour per day on average streaming video on mobile. And YouTube's ability to monetize content is just as good as, if not better than, Facebook's, providing no reason for creators to switch platforms.
Facebook hopes to differentiate itself by making its content more social by showing comments from friends, making more interactive content, and offering features such as Watch Time, which allows users to stream shows at the same time and experience them together. But it still has to find content that resonates with viewers to draw users into the ecosystem in the first place.
Never count out Facebook, though. Its ability to copy competitors successfully in the past has often taken patience, but it ramped up quickly once it hit.
Does Facebook need to win that time back?
Facebook's management doesn't seem too concerned about the decline in engagement. Spending less time on Facebook won't necessarily have a negative impact on the company's ad revenue.
Advertisement impressions per user may even increase as Facebook focuses the news feed on native content instead of passively consumed articles and videos. Moreover, the ad impressions users see may become more effective as users become more deeply engaged with the content in their feeds.
But as ad budgets shift from television to digital video, Facebook may be missing out on a big revenue opportunity. The changes to the news feed put less emphasis on video with the hopes that users interested in video will use the Watch tab. For now, however, it appears users interested in video are instead going to YouTube, which stands to benefit greatly as more ad dollars flow from television to digital.
While the news feed changes might not exactly hurt Facebook, it's curbing a major opportunity. Google will happily take video ad budgets until Facebook can figure out Watch or another video ad solution.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.