Why do people read Greek mythology and enthusiastically watch movies on the based on these stories such as Titan? Gods and goddesses in the story are one of reasons that make it attractive. They have super power and they are immortal. In a business world, there are a few companies that are like the characters from Greek myths. One of the companies is Facebook, which has grown fast and is becoming the leader of social networking services. Most users of this service don’t seem to suspect the company’s success for the future. However, there is nothing that we can be sure of for the next 10 to 20 years. Some researchers forecast that Facebook will have trouble in growing further and may fall down from their present position in the internet service industry. Recently, researchers in Princeton released their audacious prediction result about Facebook. This interesting paper leaves us very important messages whether it will be realized correctly or not.
According to their result that they got from an epidemiological model, Facebook will lose their user base within the next two to three years (2015 to 2017). Researchers assume that time-series data of Google Trends explains the huge decline in the number of users in the near future. Interestingly, I also think that it is a very probable scenario if we only consider the regression data like them. Even though this model does not reflect any qualitative factors, scrutinizing the trend is very meaningful.
As you can see from the graph above, the trend of search queries about Facebook is going down. This pattern is unfortunately similar with that of MySpace, which was once a representative social networking service. On the contrary, Google shows a growing trend. What makes this difference? Every service has a business life cycle of start-up, growth, maturity, and decline. The pattern and duration of a cycle are totally different from one another. Some services grow very fast and decline fast. Others stay at the peak long enough to substitute main businesses before their break-down. Issues around the change of business status are whether we know what problems there are and which phase our businesses are in. BCG’s two by two matrix demonstrates how to approach this issue in terms of market growth and market share.
Back to the story, the difference between Google and Facebook is originated from their different characteristics even though they are the same network services with network effects, which have more impact on users as the number of users increase. Facebook is not a necessity for our living to most people. Some people feel distressed if Facebook is not serviced. Google is a little different. We will feel much bigger inconvenience from inexistence of Google rather than of Facebook. Also, services such as Facebook and MySpace tend to be dependent on actual relationships and social changes. In Korea, there was a huge success of internet alumni board service called “I Love School”. However, this service shrank a lot since it could not adapt to the social trend and changes of user tastes. We can see lots of services like I Love School, which were once a hit but did not keep their market leadership.
Let’s see the following graph. You will see other services including Twitter and Tumblr. There is one distinctive curve, which clearly shows a different pattern from others. This shows why messaging services like Whatsapp are recently hot. Also, these services seem to substitute VoIP (Voice over Internet Protocol) services. This is because most people, especially young people, are busy calling each other and prefer to leave messages freely when they want to.
Facebook recently celebrated its 10 year birthday. During a decade, they have established a concrete world of social networking that was unfamiliar to users. They have also opened their platform for other players to enter Facebook and improved their service by developing new features and acquiring competitive companies. However, what will happen if there is a completely different service based on photo or video instead of posting status? Will it be threatening to incumbent players if an instant messaging service successfully develops itself to a social networking service by utilizing a phone book or contact information. Facebook seems to acknowledge the uncertainty of the future whether they agree with the idea of Princeton researchers. As a result, Facebook internalized those core services and technologies through recent deals. I think that a series of acquisitions will be partly useful to raise their downward slope in the near future. The key point is how to approach with their newly obtained assets.