The start of the great Facebook decline
Recent news that Facebook's user growth has slumped for the first time in 18 years has wiped 20% off parent company Meta’s share price (a drop in value of $175bn). Wilderness CEO Tom Jarvis looks into whether this is the start of the end for Facebook.
Wilderness consider whether Facebook can keep up with newer social platforms and the needs of its content creators.
Competition for attention
The symbolic fall of about one million users doesn’t sound like much given Facebook’s daily user base is near two billion. But it represents the first of its kind for Facebook in 18 years. Monthly active users, another key metric for Facebook, also remain flat.
Recently, Facebook has battled with new rival, TikTok, which is driving engagement among Gen-Z audiences and content creators. This competition has hit Facebook hard. Despite attempts to clone TikTok’s core features (eg ‘stories’), Facebook seems unable to match TikTok’s levels of engagement.
Facebook, and by extension Instagram, are stuck in an old model of social media, popularized a decade ago and driven by connection, where relevant content is surfaced based on the people you know and accounts you follow. TikTok is changing user behavior, taking social media from a connection to a content-driven economy.
The content-driven economy
TikTok has allowed Gen-Z to grow accustomed to being served thousands of videos from people they don’t know who make content that hits a niche they might like. The algorithm works out what content drives your attention, feeding you more of the same, like a personalized TV channel.
TikTok is being consumed as a first screen, sitting in stark contrast to the way many users traditionally engage with Facebook, Instagram and other social platforms. 46% of TikTok users engage with content on the platform without distractions, while 35% of users say they watch less TV, or other video content, since they started using it. TikTok users are engrossed in only one screen.
This presents a challenge for Facebook and Instagram. As Adam Mosseri, head of Instagram, stated: “we’re no longer just a square photo-sharing app”. In January, Instagram announced a shift in serving content to users. The app now has three feed options: Home, which features recommended content similarly to TikTok’s ‘For You’ Page (FYP); Favorites, presenting a set of accounts you don’t want to miss content from; and Following, with content from the accounts you follow (sounds familiar!).
Meta’s attempt to make Instagram more like TikTok is plucked straight from their copy-cat playbook. But the challenge in a content-driven economy lies in retaining users who don’t gravitate toward and stay with a platform because their close friends are using it, but because it curates the best content.
This approach returns the power to creators, revealing where TikTok and YouTube have an edge. TikTok has created global stars with growing audiences at record speed, in a way that is challenging to achieve on Instagram. YouTube has over a decade's experience and an internal culture that supports creators with a generous revenue-sharing model.
Instagram is no longer an attractive option for creators. Will Instagram be able to scale its audience by imitating successful practices on YouTube or TikTok? This remains to be seen. Part of the challenge may be financial, as Meta has offered up a $1bn creator fund. That may sound impressive but it’s dwarfed by YouTube, who paid creators more than $30bn last year and recently set up a creator fund to pay $10,000 per month for YouTube Shorts.
Advertisers push back
Will advertisers follow suit and spend less on the once-dominant social platform? Ad dollars for Meta across both Facebook and Instagram are set to fall an estimated $3bn in Q1 2022.
Facebook has experienced a rise in cost of engaging users, given the changes Apple has made to its privacy settings. This led advertisers to seek alternatives and Google to benefit. The search engine is less reliant on data collected on Apple devices and has profited with its search business outperforming expectations. Shares in Alphabet, Google’s parent company, went up almost 8% last Wednesday.
While Facebook places Reels, its full-screen vertical video tool, as its center point, it needs to consider this move from an advertising perspective. The challenge here is that full-screen, short-form video has been less easy to monetize than in-feed or long-form content, which Facebook has mastered.
Facebook believes Reels can be commercially successful, given Mark Zuckerberg’s remarks on a recent earnings call with investors: “while video has historically been slower to monetize, we believe that over time short-form video is going to monetize more like Feed or Stories than like Watch (Facebook’s long-form video product)”.
This may be Facebook’s biggest issue. If they succeed in winning the attention of key Gen-Z audiences with Reels across Instagram, they still need to be able to monetize it at the same rate as previous interactions of social engagement - but the horse may have already bolted. Users are being primed to see less advertising on the TikTok FYP, or YouTube shorts, and the ads they are seeing are less intrusive. The challenge for Facebook is to create the same experience with Reels while continuing to drive huge ad revenues.
Facebook needs to do that to fund content creators and their vision of a metaverse –currently a $10bn-a-year investment with no profit in sight for years to come. With all these challenges mounting, it may well be the start of the great Facebook decline.
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