Can Facebook stop its users from switching off ?
As people spend less time on the network and rivals tempt them away, Margi Murphy reports from San Francisco on the giant’s fightback
Ayear ago, Mark Zuckerberg watched almost $120bn (£96bn) wiped off Facebook’s market value in a matter of hours. The drop – the biggest single daily loss by a public company in US history – came after the social network revealed an unexpected growth slowdown, as users stayed away following the Cambridge Analytica scandal.
Investors questioned if Facebook’s days of supercharged growth were coming to an end. But 12 months later, those questions have receded. Shares have climbed more than 60pc, close to their peak a year ago.
“Facebook has rebounded and done very well,” says Debra Williamson, an analyst at emarketer. “Generally, Facebook is perceived very positively by investors right now, which is testament to their ability to turn around a negative story and make things seem like everything is going well.”
As Facebook prepares to reveal its second-quarter results later today, investors will be looking for signs that users remain engaged with the main app, as well as with its Instagram and Whatsapp services. Some believe Facebook’s rebound is an illusion. As Williamson points out, in reality, “consumers are definitely feeling restless about Facebook” – emarketer predicts that for the first time the hours Americans spent on Facebook fell last year. That contradicts Facebook’s own impressive growth statistics – the number of users who log in monthly or daily.
Facebook has faced intense media coverage highlighting its potentially negative effects on privacy and democracy, Williamson says. But a more concerning trend may be simpler: Facebook’s users could simply be getting bored.
The Silicon Valley company can handle slowing account sign-ups as long as it can ensure it is keeping loyal users engaged. But independent figures suggest that the world has tired of checking in, tagging friends in holiday photos or arguing about their political stance on their news feed.
Figures from emarketer suggest the average time US users spent on
Facebook a day will fall from 40 to 38 minutes – and next year it will fall again. This is backed up by data from analytics company Comscore that suggests Americans are spending less time on Facebook’s core product.
The company has long had a back-up if lucrative users abandon Facebook: its photosharing app Instagram has grown immensely in recent years while at the same time avoiding many of Facebook’s reputational problems.
The results tonight could give a better indication of how Instagram is performing, as well as new services such as Instagram Checkout, which lets users buy products within the app.
Such tools have helped the app carve out a niche for fashion, beauty, style and nutrition, making it a lucrative target for advertisers and retailers. Analysts at Deutsche Bank confirmed that “multiple digital ad agencies” are spending more on Instagram after taking part in a trial of Instagram Checkout.
But figures suggest that Instagram is seeing a similar drop in usage. Comscore figures show the average time US users spend on Instagram fell by 9pc in the second quarter of the year. The total time Americans spent fell by 2pc, after increases of between 21pc and 32pc last year.
Facebook’s data paints a different picture. The most recent report from Audience Insights, which it shows to marketers buying advertising, claims that more people posted photos, commented on and liked content on Facebook between January and July than the period before.
Users have noticed Facebook “nudging” them into interacting with the app more in recent months. If you scroll through Facebook’s video discovery feature, Watch, you are nudged to invite friends to a “Watch Party” in which you can comment while watching the same TV show.
It has added several prompts to learn more about an advert that is showing, or how to use a feature, which means users are more likely to navigate and tap through their mobile screen rather than passively scroll through the feed.
What counts as user engagement is a tricky question. Many of us will be permanently logged on to Facebook through its smartphone apps, but might only be checking when someone messages us. That is not the sort of meaningful interaction advertisers want.
Meanwhile, stricter privacy regulation has not only curbed Facebook’s potential to gather data about its users, but also made people more aware of the information the company has on them.
If both Facebook and Instagram are in decline, at least in its most lucrative market, then what about Whatsapp? The company’s messaging app has become one of the world’s main ways to communicate, replacing SMS and voice calls. Its group conversation function has become the popular method for families, colleagues and old school friends to stay in touch.
However, the app has become a victim of its own success in India where it has been highlighted as one of the main tools for spreading fake news, with health professionals warning that its use to spread anti-vaccination material may cause a health crisis.
Facebook was forced to limit the times a message could be resent after public lynchings followed rumours spread via the app.
The app is still yet to generate revenue for Facebook, five years after it was bought for $19bn. Facebook hopes that will change next year when it introduces adverts as well as its cryptocurrency Libra, which will allow payments through Whatsapp.
Facebook also faces resurgent competition, in particular from Tiktok, the popular video app owned by Chinese tech giant Bytedance.
Its primary function of sharing videos poses a distinct threat to Facebook, which is working on bumping up video advertising, and Instagram, which is trying to monetise through Stories and IGTV.
Jessica Liu, social media analyst at Forrester, says the rise of rivals should not worry Facebook: “It is not a zero sum game with social networks. If one social network wins, it doesn’t mean that the others automatically lose. All can theoretically experience success in today’s world.”
Other than user figures, tonight’s results could reveal details about Libra. Investors will be also be hoping to learn about the terms of the $5bn Federal Trade Commission fine that Facebook is preparing to pay to settle a US probe into the company’s privacy practices.
But behind the fine and Libra, investors will be searching for clues that any decline in user activity has affected Facebook’s revenue, or threatens to become more entrenched. That is likely to worry shareholders, and Mr Zuckerberg, more than any one-off financial penalty.
The Silicon Valley company can handle slowing account sign-ups as long as it can ensure that it is keeping loyal users engaged