You might expect to hear more about an app that reached 50 million users in just over four months, but it seems like nobody is talking about one of Facebook's (NASDAQ:FB) newest apps. In fact, it wasn't until I went back and read the transcript of Facebook's third-quarter earnings call that I noticed a small tidbit that CEO Mark Zuckerberg put into his prepared comments: "50 million people also use Facebook Lite, our app for people on low-bandwidth connections."
That app only rolled out globally in June, and appears to be one of the main reasons Facebook saw an acceleration in user growth during its third quarter. That feat is particularly impressive, considering Facebook changed its definition of "active user," removing those who log in only through third-party apps.
The next billion users
With 1.55 billion users, more than half the world's Internet population (2.8 billion) is already on Facebook. Going forward, the vast majority of Facebook's user growth will come from emerging markets, where Internet connectivity is sparse and slow.
Facebook Lite is built exactly for those conditions. Facebook sent its product developers to the countries it's targeting in Southeast Asia and Africa, so that they could experience the needs firsthand. The result is an ultra-light app (less than 1 MB) that doesn't require a lot of bandwidth for basic functionality.
As a result, Android owners with limited data plans and stuck with 2G connections now have access to Facebook where they didn't have it before. Likewise, the new app represents an excellent stepping stone from the free Internet.org service, which features access to Facebook, to a paid data plan.
Facebook says Internet.org is very good at introducing what's available on the Internet to customers and transitioning them into paid subscribers. In fact, when Facebook opened Internet.org to all carriers, it said that 50% of Internet.org users end up buying a data plan within 30 days.
Facebook Lite should help improve that rate as it becomes feasible for users to use Facebook on their own data plan. That, in turn, creates a virtuous cycle for Facebook, where it encourages more carriers to sign up for Internet.org. That means more Internet.org users, which means more Facebook users.
Focus on user growth
The biggest drawback with Facebook Lite is that it loads images with low resolution to save on data. If a user wants to see the picture with better resolution, he or she can tap the image and it will load. However, this feature could make advertising less effective, as ads will also load in low-resolution.
The alternative isn't much better. If Facebook tried to load ads with high-resolution images, a user would probably scroll past the ad without ever having it load. As you've probably guessed, Facebook Lite also doesn't support video or video ads.
The impact of Facebook Lite's users can be seen in Facebook Asia-Pacific and Rest of World regions. Facebook added 47 million new users in those regions sequentially, more than any other quarter in its history. However, average revenue per user in those regions continues to grow more slowly than in Europe and the U.S. and Canada.
Facebook's strategy for now looks to be to grow its user base as big as possible in those regions before focusing on monetization solutions. This is Facebook's m.o., building out products with massive user bases before figuring out how businesses can use those products. Facebook Lite solves a user problem, and users seem to really like the solution. As Internet infrastructure improves and Facebook's tech improves, I'm sure the company will find an effective way to monetize its growing user base in emerging markets.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.