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Don't dismiss social media companies' growing pains


Facebook, Twitter and Snap said or implied that the disappointing user numbers were the result of intentional decisions to improve their digital hangouts. — Dreamstime/TNS

Facebook, Twitter and Snap said or implied that the disappointing user numbers were the result of intentional decisions to improve their digital hangouts. — Dreamstime/TNS

The last couple of weeks have been rough for companies that own big digital hangouts. I have a lingering question: Are their popularity hiccups temporary or a sign of profound change in internet habits?

Facebook Inc posted the largest ever single-day market value loss for a US company after it gave a scary financial forecast and – most relevant for my purpose here – said the number of people surfing Facebook daily in the US and Canada flat-lined. Twitter Inc spooked investors with a slight decline in the number of monthly users and predicted the trend would continue into this fall. Snapchat’s parent company said the number of daily users dipped by about 3 million in the second quarter from the early part of 2018. Snap Inc also said its user pains would persist.

All three companies said or implied that the disappointing user numbers were the result of intentional decisions to improve their digital hangouts. A tightening of Europe’s privacy regulations pinched user growth, too. It didn’t seem fair that investors punished those companies for doing the right things to make their digital homes more hospitable. But what if that wasn’t a full explanation for the user growth problems?

Twitter’s monthly users essentially haven’t budged in the US for three years. At Facebook, US and Canada user figures have been roughly flat for 18 months. Snapchat is younger and still growing, but the trends are unsettling there, too. Since Facebook’s Instagram started to aggressively copy Snapchat in the summer of 2016, Snapchat’s user growth has slowed markedly. That may either be a coincidence or Instagram is stealing people away from Snapchat and they’re not coming back.

Twitter and Facebook continue to grow in some countries outside their home market, but those gains slowed long before Mark Zuckerberg started talking about “time well spent.” Facebook’s decision to emphasise a new user metric may reflect a desire to change the conversation to numbers that look rosier or that cannot be compared with headier days. To me, that’s a sign that Facebook doesn’t believe user hiccups are temporary.

Now that Zuckerberg and his peers have belatedly started to run their companies for outcomes different from growth at all costs, it is bound to affect user gains on the margins. But we should remember that it was already getting tough to lure fresh people to their digital shores.

You’d be right to ask, so what? Internet companies’ desire for more and more people helped turn the internet into a garbage fire. Fair enough. But strains in user numbers shouldn’t be dismissed.

For companies that make money by selling ads, revenue is a function of these factors: the total number of users, how much time they spend on the digital hangouts, how many ads they see and the price of those ads. If the number of people doesn’t grow much or declines, the companies must lean on other factors to increase sales. That might require creepy data-harnessing methods or forays into new areas such as online video.

If user growth is tougher, especially in the biggest ad markets such as the US, then life is simply tougher for the big internet companies. — Bloomberg

   

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