When half the global Internet population already uses your app, it gets a bit harder to keep growing. Facebook (NASDAQ:FB) is rapidly approaching 1.5 billion users, and only 2.8 billion people use the Internet.
In the past year, Facebook has launched its Internet.org app in a dozen countries to improve Internet access and continue growing its user base. The service has come under fire recently, however, for violating net-neutrality principles with its limited Internet access.
Many other potential Facebook users have access to the Internet, but they can only afford limited-data plans on slow networks. That's why Facebook is rolling out a new app, dubbed "Facebook Lite," which uses significantly less data and bandwidth compared with its regular app. This app is aimed at the huge portion of those 1.3 billion people who use the Internet but don't use Facebook because it would take up too much of their data allotments.
We're not in Menlo Park anymore
In an effort to understand the limitations that Internet users face in developing markets, Facebook sent its engineers to developing countries. There they were able to experience firsthand the problems that needed solving and test their solutions.
Facebook Lite comes in at just 1% the size of the standard app -- less than 1 MB -- so potential users don't have to sacrifice their entire data quota just to try out the app. Additionally, Facebook doesn't preload images at full resolutions. If a user wants a clearer picture, he or she taps on the photo to load the image in full resolution.
If a user wants to upload a photo, it needs to be compressed first so it doesn't take forever to upload over a 2G network and use up tons of data. About a year and a half ago, Facebook acquired Onavo, which specializes in technology that compresses unencrypted data -- like photos -- on the fly. And although Facebook Lite doesn't support video, Facebook's acquisition of video-compression company QuickFire earlier this year could make it possible in the future.
The drawback to a data-lite news feed
While Facebook Lite may get hundreds of millions of Internet users in developing markets to try Facebook, the lightweight app presents some challenges of its own. Most notably, the lack of preloaded high-res photos makes it less attractive to advertisers.
One of Facebook's most popular ad units, app-install ads, won't be featured in Facebook Lite at all. Images for display ads will load just like other photos; users have to tap on them to load the full-res version. That could reduce conversion rates for Facebook, which would reduce potential revenue. The alternative, however, would probably result in even lower conversions as users would never see ad images, since they'd take so long to load.
Still, the focus of Facebook Lite is primarily on user growth and less on monetization. In fact, that seems to be Facebook's focus in the entire Asia-Pacific and Rest of the World business segments. Average revenue per user climbed just 14% in Facebook's Rest of the World region last quarter and 27% in Asia-Pacific. Comparatively, ARPU in the U.S. and Canada grew 42%.
So while the monetization capabilities of Facebook Lite will be limited, that's acceptable in the short-term, since the project is more about establishing a user base now that it can monetize later, as Internet speeds and access increase. Facebook is taking the same approach with Internet.org and its solar-powered Internet-carrying drone program.
Everybody wants it
Facebook started testing Facebook Lite in January, but only in select markets. Since then, the app has received 50,000 reviews on Google Play, but a lot of reviewers are asking when it will come to their country. Product manager Vijay Shankar says some people are getting their hands on the app by routing data to other countries using a VPN.
Clearly, there's a lot of pent-up demand for a lightweight Facebook app, which bodes well for user growth at Facebook as the app starts rolling out globally. Investors should see the impact on user growth in the second half of the year, but the revenue growth will probably lag behind, keeping ARPU growth in Asia-Pacific and the Rest of the World slower than more developed regions such as North America.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). 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.