For 40 minutes or so on Monday, Sept. 28, Facebook's (NASDAQ:FB) entire website was inaccessible. This was the third time in just 11 days that Facebook had trouble keeping its servers up and running smoothly. Angry users fled to Twitter (NYSE:TWTR) to share the news and their displeasure with the hashtag "#facebookdown."
Short-term investors dumped some of the stock on Monday, but long-term Foolish investors need to examine what's behind these outages, and how that will affect the company going forward.
$1,218,136.99 in lost revenue
Based on Facebook's second-quarter run rate, the company lost over $1 million in potential revenue from the outage. While that number might not be completely accurate because of time-of-day considerations and the potential for users to simply check back later, it gives investors an idea of the massive revenue Facebook generates every hour.
The outage didn't just affect Facebook; it affected every app that integrates Facebook's Graph API, which allows Instagram users, for example, to share their "grams" on Facebook. Facebook's developer website pointed out that the bug in the Graph API was the root cause of the outages. "A Facebookwide issue is causing the Facebook Graph API to be temporarily unavailable," they said. "We're working with our core infrastructure teams to identify the issue and will update you when we have more information."
There's no reason to believe there was any foul play with Facebook's code, and it was probably just a very pesky bug in the latest update. Facebook was able to identify the bug and push a fix to its servers within an hour.
But it was the third time in 11 days that Facebook saw its site go down. It was also down for about 10 minutes the previous Thursday and five minutes a week before that. Facebook never gave an explanation for those outages. The sudden series of outages has to make users and investors question the site's reliability.
Is this just a fail whale?
About six years ago, it wasn't uncommon to see a cute whale instead of your Twitter timeline when Twitter got overloaded with activity. For example, Michael Jackson's death or the 2010 World Cup drew so much activity on Twitter that the servers simply couldn't handle it. Twitter has since slayed the "fail whale" with more redundant servers and scale. (Keep in mind, Twitter was planning to grow its users much faster than it actually has.)
In August, Facebook CEO Mark Zuckerberg announced that the site had experienced its first day of having 1 billion users log into Facebook. Facebook continues building more and more data centers to handle all of that traffic. It's currently constructing its fifth data center in Dallas-Fort Worth to handle the load and increase redundancies. Twitter, by comparison, announced during its fourth-quarter earnings call in February that it plans to build a third data center.
Increasing data-center capacity is essential to keep up with demand for higher-bandwidth media such as videos and 360-degree videos and a growing user base. In the past year, Facebook video views grew from nothing to 4 billion per day, and monthly active users increased 173 million -- more than half the size of Twitter's total user base.
Facebook has already announced plans to increase capital expenditures this year, and that includes investments in its data centers and infrastructure. With the recent outages and consistent growth, investors shouldn't expect Facebook to let up on those investments, but they may provide leverage for Facebook to generate more revenue. In the long run, the capital expenditures now will allow Facebook to grow as big as possible.
As long as Facebook continues to invest in its infrastructure to support the expanding use of Facebook, investors don't need to worry about the recent outages. If Facebook can't keep up, or human error produces more outages like last week's, however, Facebook not only risks losing millions in ad revenue, but it could also permanently alienate users as they search for alternatives.