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Why Facebook Won't Go the Way of Myspace

By Mark Girland - Mar 12, 2014 at 2:00PM

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Two Princeton researchers predict that Facebook will go the way of Myspace. Will Google and Twitter prove them right?

Myspace grew to its peak of 300 million users by 2007. After 2007, the number of times the term "Myspace" was used as a search query in Google ( GOOGL -0.68% ) decreased as site started to lose users. Two researchers from Princeton University predict that Facebook ( FB -1.14% ) will suffer Myspace's fate due to the decline in the number of times the term "Facebook" is used as a search query on Google. However, the use of smartphones to access Facebook, and the company's purchase of WhatsApp, together with its initiatives in the video advertisement field, will ensure that it does not suffer Myspace's fate.

The mobile sector as a search driver
The mobile technology category is the biggest driver of numerous sectors in the technology industry. Facebook claims that more than 870 million people access its site via smartphones in a month. In other words, people do not need to type into the Google search bar to access Facebook. All signs continue to point to smartphones as a dependable medium to access the site in the next few years. According to IDC, total smartphone shipments in 2017 are expected to approach 1.7 billion units, resulting in a compound annual growth rate of 18.4% from 2013-2017. It is, therefore, not surprising that Facebook and GSMA announced a joint initiative designed to reduce the total cost of ownership of mobile products. This will increase the number of people using smartphones to access the site. If more than 1 billion people access Facebook through their smartphones every month, it will boost the company's revenue.

Purchasing WhatsApp was brilliant
Many reasons have been given to justify or criticize Facebook's purchase of WhatsApp. But, what is clear is WhatsApp provides a much cheaper alternative to SMS, which has proved indispensable to mobile phone users. WhatsApp recently announced that it will introduce a voice calling segment. With the development, Facebook will have the opportunity to disrupt the telecom industry. Bloomberg reported that free social-messaging applications like WhatsApp cost phone providers globally $32.5 billion in high-margin texting fees in 2013. With WhatsApp users expected to reach 1 billion in the next few years, Facebook may have gained an important source of revenue if it successfully monetizes its acquisition.

The potential in online advertising is enormous
Recently, news broke that Facebook is testing video advertisements that will show in users' news feeds. The video medium is attractive because online consumers are 27 times more likely to click video ads than traditional media. In July, there were approximately 48 billion video ad views in the U.S. Facebook accounted for just 741 million. Google had 17.7 billion views and will generate $5.6 billion in revenue in 2014. If Facebook can increase its share of video views, it will be a powerful catalyst to generate revenue in the next few years.

Competitors
Google's YouTube has been estimated to have close to 1 billion monthly users. Although Google does not give separate financial information about the social network site, YouTube was estimated to have generated approximately $4 billion in revenue in 2013. YouTube began a partner program six years ago for creators. It is doing this for a good reason. According to Cisco, there will be nearly 2 billion Internet video users (excluding mobile-only) by 2017, up from 1 billion Internet video users in 2012.

Twitter ( TWTR -1.36% ) is another popular social network, prominent in the news and commentary sector. Although it has not shown a consistent ability to generate profits, its revenue in 2013 was almost $700 million. It is expected to grow its revenue by 85% this year. Twitter has bought several social TV analytics companies to help it better understand how to drive its television viewership. Digital TV Research forecasts that TV sets connected to the Internet would soar to almost 760 million by 2018, up from about 228 million sets in 2013.

Foolish bottom line
It is not necessary to go into more details to show why the Princeton researchers are wrong. Facebook's initiative in the video advertisement field and the WhatsApp purchase, together with the company's expansion in the mobile sector, suggests that its life cycle will be very different from Myspace.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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