Last week, I took a look at Facebook’s financial outlooks, and why their upcoming Facebook Jobs product may not necessarily be the strongest competitor to LinkedIn’s extensive services. Today, Forbes continues that line of discussion with a bigger look at Facebook’s finances, and what they mean for the future of the product itself.
I received a few questions in my inbox doubting that Facebook could fail at anything, but I’m sticking by my predictions: Facebook’s outlook is not good compared to LinkedIn, and it definitely shows room for improvement by itself. How exactly they should make those improvements is what Facebook’s struggling with now, and they don’t have much time to figure it out before they slip behind in the tech market.
Facebook’s Advertising Habit Doesn’t Do Them Any Favors
As cited in my post and in the Forbes’ article, Facebook makes its revenues primarily off of on-site advertisements. The internet access landscape is shifting fast with the advance of tablets, smartphones and mobile devices, and many users now opt to use these devices as their primary “Facebook” device. This movement away from computers towards mobile devices is a major problem for Facebook’s bottom line.
Those on-site advertisements that make up 75% to 85% of Facebook’s revenues are only served to computer users sitting at a desk. The technology to do this has been around for years, it’s simple and easy to implement, and it has worked for Facebook up until now. The problem is that there’s no mobile equivalent to on-site computer ads: even CEO Mark Zuckerburg can’t quite wrap his head around this and how to do it without chasing users off of the service entirely. The fear is that devices with three to five-inch screens have no viable advertising space without making the ad obtrusive.
While the Market Moves Forward, Facebook’s Standing Still
Ever since Facebook’s IPO, there have been calls by professionals and tech analysts for Facebook to get their act together and actually produce some sort of reliable business plan. Even after their $1 billion-dollar acquisition of Instagram (which, by the way, wasn’t generating any revenue when they bought it and still isn’t) and their $60 million-dollar acquisition of Face.com that will give them the ability to recognize your face based on their own data, they still have no concrete plans for revamping and increasing their monetization options.
While Facebook sits on its hands and hopes that buying talent will squeeze them out of a slump, the rest of the market is moving forward. More than half of Facebook’s 908 million monthly active users at the end of quarter this past March accessed Facebook through their mobile devices via the official app. That’s 488 million monthly active users that aren’t contributing to Facebook’s advertising revenues because Facebook just can’t figure out how to monetize it. While this number is sure to increase in the short-term, home computer sales dropped 0.1% in the same quarter, with US shipments dropping almost 6% yearly.
Don’t Let Facebook’s Astronomic Numbers Fool You Into Thinking They’re Healthy
Even children can figure out how these numbers will play out for Facebook in the coming future. Home computers–Facebook’s primary revenue platform–are quickly being replaced by tablets and mobile devices throughout households. As more users ditch PCs, Facebook’s primary revenue stream will drop, while the number of monthly active users remains the same, if not increases over time. Costs to develop, maintain and serve out free, revenue-draining mobile apps will rise, and revenues will continue to drop as more users abandon computers.
Facebook has hundreds of millions of users and pays out millions and billions for big name tech companies with relative ease, but that does not mean that they’re a healthy company worth investing in. If Zuckerburg continues to flounder around and do nothing, Facebook is setting itself up to cannibalize its own revenue stream as more users flock to the official mobile app. What’s more, Silicon Valley and Wall Street will allow Facebook to fizzle out, because new start-ups will fill the holes Facebook refuses to patch up–if they can resist Facebook’s inevitable acquisition offer.
If there has ever been an absolutely critical moment in Facebook’s lifespan that will determine whether it succeeds or tanks, this is it. If they can’t figure out how to bridge the gap into mobile, not to mention branching out into other popular tech avenues, they won’t be able to stay afloat on their current revenue capabilities alone.
As Forbes says in the conclusion: “don’t confuse the products you love with the company’s stock.”Don’t let Facebook’s popularity fool you into thinking the company is actually a healthy, sustainable investment–if anything, Facebook’s future is riskier than many start-ups.
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