Has Facebook Peaked?

The social network lost users in America last month. Should Mark Zuckerberg be worried?

Mark Zuckerberg

Facebook’s active user base grew by only 1.7 percent in May. That’s about half its usual growth rate, and it came after similarly slow growth in April. According to Inside Facebook, a blog and research firm that tracks the site’s traffic, most of the site’s growth is now coming in developing countries. While Brazil, India, and Mexico saw huge gains, Facebook actually lost users in established markets. The United States, Canada, the United Kingdom, Norway, and Russia all saw recent declines. The numbers in the United States are particularly striking. Facebook had 155 million active users here at the start of May and only 149 million by the end of the month. (Facebook defines an “active” user as someone who logs in to the site at least once during the month.) In other words, 6 million Americans decided last month that they had better things to do than check Facebook.

This sounds bad for the giant social network. You might even say it sounds terrible, considering that Facebook is reportedly planning a stock offering that would value the firm at $100 billion. Web companies, particularly Web companies that intend to make a killing on advertising, live and die by traffic; if a site’s growth stalls or seems to decline, that suggests something is seriously wrong with the business. The story looks doubly bad in Facebook’s case. For years, detractors have been predicting that the social network’s end was nigh. After all, users have always been quick to threaten to quit whenever Facebook altered its design or loosened its privacy settings. Sure, those threats looked empty—but were they just premature? The cloud of social-networking history also hangs over Facebook. MySpace was also once poised to rule the world. Could Facebook, too, prove to be a fad?

Don’t bet on it. There’s no sign that Facebook’s stateside slump was sparked by any recent changes on the site. There’s been no major redesign, and the only privacy outcry—a kerfuffle over the site’s opt-out plan for its new face-recognition system—occurred in June, after the period covered by the latest numbers. Nor is there any sign that Facebook is being eclipsed by some new upstart social network. Sure, there’s Twitter, but it has been around for some time, and it’s never threatened Facebook’s growth. Besides, the two sites work so differently that it’s hard to believe people would quit one for the other.

If it’s not privacy and it’s not a new rival, why is Facebook losing customers in America? Because there’s no one left to go after. As Inside Facebook’s Eric Eldon points out, Facebook’s growth always stalls when it hits 50 percent market penetration within a country. Facebook is now experiencing something unprecedented in the short history of social networking—it has captured every plausible user in several countries, and the only people who are left are folks without Internet access, people who do have access but don’t spend a lot of leisure time online, and the few lonely die-hards who swear they’ll never join the site no matter how many times I exhort them to do so.

This suggests that we should alter our idea of what a thriving social network looks like. We’ve always considered growth to be the primary way to decide if an online property is hot or not. Sure, Facebook is still growing; as it picks up new members in South America and Asia over the next year, it will likely cross the billion-user mark worldwide. But after that it will hit a wall. There are only about 2 billion Internet users worldwide, and the number of people with broadband connections who want to use the Internet to manage their social lives is some subset of that number. What’s more, about a fifth of the world’s Internet population—420 million users—is in China, which has blocked Facebook. Facebook is thus rapidly approaching its total possible market size, a point at which its growth will naturally begin to slow. Sometimes, in some places, it might even decline—as people get sick, die, take vacations, lose their jobs, or otherwise cut back on the time they spend online. Facebook’s user base will tick up one month and down the next. The graph will morph from a hockey stick into a pool cue.

And that will be OK. I once likened Facebook to an imperialist state—like history’s greatest conquerors, its rise was marked by ruthless expansion over the protests of millions of peons. But what does an imperialist do when it has conquered all there is to conquer? Now that the peons have submitted, Facebook will have to enter a new phase—governing. This means building more tools that make the site indispensible. Facebook recognizes this imperative. Over the last couple of years, it has masterfully pushed its services beyond its own site—with all those Like buttons and commenting modules proliferating across nearly every page on the Web (including this one), Facebook is becoming a kind of universal online log-in. Facebook also thrives on network effects. As it reaches saturation in any given place, its utility increases—when everyone’s on Facebook, it becomes the most convenient place to share photos or plan events. Even if it doesn’t keep getting bigger, its already-humongous footprint means that it won’t just wither away.

Instead of growth, then, what we should consider, now, is what Web stats nerds call “engagement”—how much time people are spending on Facebook, and how they’re using it. Inside Facebook’s Eldon points out that this is a tricky number for third-party traffic researchers to glean (Facebook itself says only that half of its users check in at least once a day). But he suspects that in established markets like the United States, engagement isn’t declining. “Every person has a reason to come back to Facebook pretty often,” he says.

Still, this won’t be as exciting a story to tell. If I told you that 600,000 people joined Facebook yesterday—which was true at its peak—it sounds like I’m describing an unstoppable force. If I told you, instead, that Facebook had 200,000 new sign-ups yesterday and 150,000 desertions—well, that sounds like just another day on the Web. For Facebook, the initial thrill has come and gone. “It’s not bad if you conquer the entire world and don’t have anywhere left to conquer,” Eldon points out. Still, it could be a bit boring. He adds, “I’m sure Julius Caesar felt a pang when he got Gaul and saw that’s all there was.”