The Last Thing Facebook Needs Is Another Billion Users

By Sarah Lacy , written on October 5, 2012

From The News Desk

Yesterday the Atlantic had an article on how Facebook will get its next billion users. While it makes for an interesting thought experiment, that question also sums up everything that's wrong with how people are thinking about and building Internet companies today.

Facebook has many problems, but a paucity of users isn't one of them. To say Facebook needs to prioritize reaching a billion more people to get to the next level as a company is kind of like saying I need to birth five more children to be a better mother.

The problem isn't Facebook's size, it's that it isn't getting the most out of the users it has -- particularly the ones flocking to mobile. That's puzzling to people in Silicon Valley who see the immense power of the social network. Facebook isn't a property like Yahoo or AOL -- a legacy giant from another era simply holding on to users who are creatures of habit and in the case of Yahoo, haven't gotten around to changing email providers or in the case of AOL, don't realize they can stop paying $9 a month for dial-up Internet.

Facebook has immense value for many of those billion users. Even if they are increasingly logging on less than they used to, Facebook has become the world's always updated address book, photo album, event planning service and voyeuristic playground. If you prize staying in touch (or spying on) anyone you've ever met, the service has at least a tenuous value for you that no other social network is likely to replicate at the same scale.

To developers, Facebook has even more power. No other platform can deliver a robust social graph for a new application, and no other platform can take a service internationally so quickly.

Facebook isn't coming close to monetizing all of this; it's relying instead too much on dumb display ads. Consider LinkedIn as a counter example: It has far fewer users, who log in far less on average. And yet, it charges them when they need the social network most: When they need to get in touch with someone for professional reasons or post a job.

And if Facebook isn't even doing a good job of monetizing the value it provides for Western users -- it's barely even thinking about how to monetize users in more far flung parts of the developing world. Until recently, Facebook had never even sent a single executive to Indonesia -- nevermind it housed Facebook's second largest base of users at the time.

Perhaps Facebook has done the analysis and doesn't see much value in users in poorer nations like these. But if that's true, the next billion will be even less valuable on a per user basis to the social network. And at some point, trying to grow continually larger Web companies by simply adding another 500 million more users will top out. After all, there are only so many people on the planet.

If the question of how to get to 2 billion users is irrelevant to Facebook, it's even more irrelevant to the rest of the Web. The Web 2.0 wave has seen astounding inflation in Web eyeballs to a point where the numbers are almost meaningless. Global access to the Web via broadband expansion and mobile browsers, spammy viral tricks and platforms that give two guys in a garage a massive head start -- like Facebook and Twitter -- have continually set the bar higher for what "a large audience" is.

And while that's made some valuations higher, whether those valuations are sustainable just on gaudy numbers remains to be seen. The most valuable tech companies in the world -- Apple and Google -- have huge audiences, but not the biggest. Rather, they are valued so highly because they are better at extracting value from those relationships.

Several years ago, Yahoo was one of the largest home pages on the Internet with half a billion users -- and that seemed massive by media and advertising standards. If the new bar of a "large site" is 1 billion users, everyone other than Facebook will simply have to figure out a new way to make money, because few sites will ever reach that size. Entrepreneurs will have to stop prizing size at all costs, and -- like Google -- find a way to make money off of interaction, intent and the users' context.

As with so many trends right now, mobile is where to watch this battle unfold. New rules of monetization are being figured out for the first time on mobile, and new forms of user data like location should be able to make user engagement more valuable -- whether it's to subscribers or advertisers.

The question isn't how we hack our way to a site with two billion users. It's how we do a better job at making 1 billion -- or even 10 million -- have greater value.

[Illustration by Hallie Bateman]