Is the Facebook’s House of Cards about to Collapse (again)?

by Matt Klassen on January 11, 2016

house_of_cardsIt might be hard to envision the possibility that a company that boasts over a billion users/customers might be on the verge of self-destruction, but so it seems for Facebook, and other social network mainstays I might add, as 2016 (and several years beyond) will offer up far more obstacles than opportunities for the sustainable growth of the incumbent social network.

You see, much like when Facebook first hit the open market with its controversial initial public offering and its wildly inflated valuation, the social network’s empire is still a house of cards, built on the perception that users do in fact mean customers, and customers mean sustainable, long-term revenues. To put it simply, users see ads, users click ads, Facebook makes lots and lots of money.

Now granted that is exactly how things have gone since Facebook recovered from its IPO disaster, as the company has found a way to monetize its service, but with the younger generation of millennials turning away from Facebook en masse and the advertising industry collapsing, one has to wonder just how long Facebook, LinkedIn et al. can continue along this path, as what they need to survive are more users willing either to pay or to regularly engage with ads…and both of those sorts of people are truly in short supply.

Facebook in particular finds itself in a conundrum: There’s no way anyone who has enjoyed the free social network for all these years will be willing to pay, and the viewership of the company’s primary revenue stream, advertising, is on the decline, as intrusive, data-gobbling ads plus the ready availability of ad-blocking software has fomented an all out revolt against online ads. Combine these two together, and the established market of the developed world seems tapped out.

Of course it comes as no surprise that Facebook (and Google notably) have tried to expand its reach to the rest of the world, having to first solve the problem of Internet access to help facilitate the growth of the empire. But such a “people grab,” as DisruptiveViews Tony Poulos puts it, is exactly the same sort of strategy Facebook had when it first went public, impressing the market and investors with sheer user numbers, with little or no thought given to how those legions will actually help make Facebook money.

So although Facebook is aggressively expanding its reach around the world, in terms of duping the unconnected billions into paying either for Facebook, or seeing ads and subsequently buying said products, this truly is the long con, for not only does Facebook have to successfully deliver the Internet to the 2/3s world, it will have to develop it substantially in order for people to have the disposable income required for such frivolities.

Not to say that efforts shouldn’t be made to connect the unconnected billions, far from it in fact, only that Facebook’s not-so-subtle attempts at global domination will take years to pay off, and given the fact that millennials here in North America have largely turned their back on Facebook in favour of other simpler, more expressive options and its current revenue stream drying up at an alarming rate, and the social network may not have that long to figure things out.

Now, of course, we add to that the fact that regulators are becoming suspicious of Facebook’s true intentions in expanding free Internet across the developed world, and subsequently its initial efforts are already being stymied.

All that to say, given the trajectory of social networking it doesn’t seem absurd to ask, where do companies like Facebook go now, given that the old way of doing things, of duping investors with user numbers with a dubious growth strategy, is once again not working, or rather, will not continue working for long?

To be clear, it’s not that I’m saying social networking itself is going anywhere, just that the incumbents are in for a rough ride in 2016, particularly if their future rests on the global recruitment of people who by the simple fact that they can’t afford Internet to begin with, will have little to offer in terms of sustained revenues.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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