THE BLOG

Is Facebook Killing the Golden Goose?

06/28/2013 08:22 EDT | Updated 08/28/2013 05:12 EDT

In June, facebook CEO Mark Zuckerberg faced angry investors at the company's first stockholders' meeting over its flagging share price. Later in July, when second quarter numbers are released, that may seem like a walk in the park to Zuckerberg.

For the first time in the company's history, Facebook faces the real possibility of a decline in users. Yes, an actual decline from the vaunted 1.1-billion number of Facebook users.

Now, the bean counters and spinners will do their level best to present the numbers in such a way as to cloud over the decline. They'll use acronyms like DAU (daily average users), MAU (monthly average users) and MMAU (mobile monthly average users), but no matter how you spin it, Facebook is no longer the social network of choice. It may still be "of habit," but not of choice.

And the reason can be traced to the old fable about killing the goose that laid the golden eggs.

Long before facebook's IPO in May, 2012, I warned of structural problems, i.e. excessive greed and intrusive advertising, that ticks off users, threatens privacy, and impacts profits. What is most surprising is the expediency of the chickens coming home to roost. (How's that for a "fowl" attempt to mix metaphors with the goose and chickens?)

I am not saying Facebook is toast. There are too many of those "Facebook is dead" commentaries out there already. How can it be dead when it still has one-billion people on its network which is a reach greater than all the TV networks in North America and Europe?

But I am saying Facebook has some important corporate decisions to make and it must seriously change how it deals with its users. It has to step back and be less In-Your-Face on Facebook. Even though the advertisers are paying the bills, they should not be calling the shots. It's the users who are there to attract the ad dollars, not the other way around.

Facebook also has to somehow regenerate its "coolness" for young people -- or use a distinct asset, which it already owns, to carve up its audience between old fogies like me and young people. Netflix does this with some success, and Facebook could do it better because it owns the hipster social network Instagram.

In May, the Pew Research Center and the Berkman Center for Internet and Society released a report based on focus groups and surveys with 802 teens aged 11 to 19 years old.

Though the sample size wasn't huge, the findings ring true to anyone who has talked to a teenager about Facebook: there is waning enthusiasm for it, teens say there are too many adults or other intruders on Facebook, and young users are fed up with inane comments and bullying.

In other words, Facebook has become mundane for teens. They prefer Twitter and Instagram. Which may explain why Zuckerberg paid twice over value (about $1 billion in cash and stock) for Instagram in 2012.

Was the purchase made out of fear, or is Zuckerberg just that smart and he saw the writing on the wall? Instagram not only cracked the mobile code and created an app far and away better than Facebook's mobile platform, but it also created a community based on emotion. Users may like Facebook, but Instagram junkies "love" the mobile photo and video sharing social media site.

Which brings us back to Facebook's user numbers. If there is a second quarter decline matched with an equivalent uptick at Instagram, then Zuckerberg is the social media grand master; several moves ahead of everyone else. These diverging audience numbers could play out for several quarters before the picture becomes crystal clear.

But if Facebook culture of intrusiveness leaks into Instagram and it begins annoying its users for the sake of short-term advertising dollars, then Zuckerberg will be killing two birds with one stone. The next few months should be telling.

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