This article originally appeared on Drowned In Sound.
Its been a bumper year for Facebook, on paper at least. Recently they announced that year-on-year revenues were up 60%, with advertising revenue up to $1.8bn. Their daily active user count rose 25% to 728 million people. At this point then, you’d think it would be high-fives all round, with Wall Street giving Zuckerberg and co a hearty pat on the back.
And yet, shortly after this announcement, more than $18bn was wiped from Facebook’s stock value. The reason? One, short sentence: “We did see a decrease in daily users specifically among younger teens.”
Herein lies the problem for Facebook – and indeed any tech company looking to take the IPO path: when advertising is your core product, at some point the balance will tip, driving users – usually starting with the younger ones – away.
Put simply: in order to make money, Facebook must serve ads. In order to make more money, Facebook must serve even more ads – almost certainly putting them on a collision with a critical mass point, where people burn out completely on ads and, at the very least, stop clicking on them or, as is the current case among teens, find other services to use.