Facebook has been in the news a lot lately for various controversies and changes to their platform. Many users have complained about some of these updates and wondered why Facebook seems to be making so many disruptive moves. There are a few key factors driving Facebook’s recent “noise.”
Declining User Growth
For most of its history, Facebook saw rapid growth in its user base. However, in recent years, user growth has stagnated, especially in lucrative markets like the US and Canada. For example, this table shows Facebook’s declining user growth rate over the past 5 years:
| Year | Monthly Active Users | Year-Over-Year Growth |
|---|---|---|
| 2018 | 2.27 billion | 13% |
| 2019 | 2.50 billion | 10% |
| 2020 | 2.60 billion | 4% |
| 2021 | 2.91 billion | 12% |
| 2022 | 2.93 billion | 1% |
As you can see, growth slowed over the past 5 years from 13% down to just 1% last year. This stagnating growth is likely a major factor pushing Facebook to make changes to boost engagement and find new users.
Saturated Core Markets
In addition to declining growth overall, Facebook is also saturated in some of its most lucrative markets. For example, in the US and Canada, around 80-85% of the total population already uses Facebook. With few new users left to gain, Facebook needs to find ways to increase engagement and monetization of existing users in these saturated markets.
Shifting User Preferences
Younger demographics like teens are increasingly shifting away from Facebook in favor of other platforms like Instagram, Snapchat, and TikTok. For example, a Piper Sandler survey found that only around 30% of US teens considered Facebook their main social media platform in 2022, down from over 80% in 2012. Facebook needs to identify ways to either draw these users back to Facebook or at least better monetize its other platforms like Instagram that are more popular with younger users.
Increasing Regulatory Pressure
Facebook is also facing mounting regulatory pressure from governments around the world. There are several fronts where Facebook is seeing backlash from regulators:
Privacy Concerns
Regulators have raised concerns about Facebook’s data collection practices and how it shares or uses data from users. For example, the EU imposed strict privacy rules under GDPR. Facebook is attempting to give users more transparency and control to comply with privacy regulations.
Misinformation/Content Moderation
Governments are putting more pressure on Facebook to combat issues like election interference, anti-vaccine misinformation, hate speech and more. But aggressively moderating content also risks claims of censorship and bias. Facebook is trying to balance these concerns while satisfying regulators.
Antitrust Violations
Some regulators have alleged that Facebook uses anti-competitive practices to unfairly dominate social media and online advertising. This has resulted in major lawsuits, like the FTC antitrust case against Facebook. To avoid potential antitrust penalties, Facebook may need to make changes to its acquisition strategy and how it operates across its family of apps.
Revenue Growth Slowing
While Facebook’s core business is still highly profitable, its revenue growth has slowed considerably in recent years. Here is a table showing Facebook’s year-over-year revenue growth over the past 5 years:
| Year | Revenue | YoY Growth |
|---|---|---|
| 2018 | $55.8 billion | 37% |
| 2019 | $70.7 billion | 27% |
| 2020 | $86.0 billion | 22% |
| 2021 | $117.9 billion | 37% |
| 2022 | $116.6 billion | -1% |
Growth has slowed from 37% in 2018 down to just -1% in 2022. Slower revenue growth makes shareholders anxious. This puts pressure on Facebook to find new revenue streams and reinvigorate growth.
The Move to Short-Form Video
One major trend is users shifting to short-form, full-screen video content – the kind popularized by TikTok. Meta has tried to respond by adding TikTok-like short video features to Instagram and Facebook. But these efforts haven’t yet translated into significant revenue, so Meta needs users to continue migrating their video habits to Reels and Facebook Watch to open up new monetization avenues.
The Shift to E-Commerce
Social commerce also presents a big opportunity, as consumers increasingly shop directly on social platforms like Instagram. But platforms like TikTok and Snapchat are also investing heavily in social commerce. For Facebook to maximize revenue growth, shopping and “buy” features need to become ubiquitous across its apps.
Investments in the Metaverse
Mark Zuckerberg has touted the “metaverse” – immersive digital worlds accessed via AR/VR – as the next frontier. But Meta’s Reality Labs segment working on metaverse tech has lost over $15 billion since 2021, causing some shareholders to question this strategy. Meta may need to demonstrate concrete progress turning the metaverse into a revenue driver to justify its massive investments.
AR/VR Technology
Meta has invested billions developing VR headsets and AR technology needed for the metaverse vision. Products like its Quest headsets have seen some adoption, but remain niche. Lowering costs and making AR/VR tech more mainstream is key to widespread metaverse adoption.
Virtual Platforms and Digital Goods
New platforms like Meta’s Horizon Worlds aim to be the foundations for its metaverse vision. But so far, these virtual worlds lack compelling content, activities and use cases to attract large numbers of users. Developing engaging social VR experiences and figuring out how to monetize virtual goods remain challenges for Meta’s metaverse dreams.
Catering to Younger Users
As discussed previously, younger demographics have been moving away from Facebook’s core app and ecosystem. Meta needs to attract the next generation of users to stay relevant long-term. But doing so risks alienating older users. Meta has to carefully balance these dynamics.
Acquiring Trendy Apps
Meta has made acquisitions like Instagram and WhatsApp to maintain popularity with younger users. As TikTok surges, buying or copying rising platforms may help Meta regain its “cool factor.” But there’s no guarantee users will stick around post-acquisition.
Launching Experimental Features
Facebook is adding more Snapchat/TikTok-inspired features, like ephemeral Stories or the Watch video feed. These formats cater to younger preferences. But flooding Facebook with unfamiliar features risks confusing older users. There are also concerns it could degrade the core News Feed experience.
More Focus on Privacy
In response to growing data privacy concerns, Meta has announced a number of initiatives to give users more transparency and control:
Privacy Checkup Tool
An updated privacy checkup flow lets users manage what info they share and who can see it. This puts key controls front and center.
Encrypted Messaging
Meta plans to encrypt messaging across its apps. WhatsApp already uses end-to-end encryption. Ensuring private communications helps reassure users.
Less Data for Advertisers
Meta is restricting the types of user data shared with advertisers, like app usage or location. This limits ad targeting but addresses data privacy fears.
These changes could impact Facebook’s ad revenue. But prioritizing privacy may help rebuild user trust after recent scandals.
Conclusion
In summary, Facebook faces stagnating user growth, saturated markets, shifting user preferences, regulatory scrutiny, slowing revenue, and pressure to revitalize around younger demographics and new technologies like the metaverse. These forces help explain why Facebook is making so many disruptive and controversial changes lately across its platforms. Only time will tell if Meta’s gambles will pay off in the long run. But in the short term, they are creating significant noise and turbulence for users and shareholders alike. The coming years will be crucial in determining whether Facebook can adapt to the trends reshaping social media and maintain its dominance.