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The start of the great Facebook decline

The start of the great Facebook decline

News this month that Facebook user growth has slumped for the first time in 18 years has wiped some 20% of parent-company, Meta’s share price (a drop in value of $175bn) and had everyone wondering, is this the start of the end for Facebook?

Competition for attention


The symbolic fall of about 1 million users doesn’t sound like a lot – given Facebook’s daily user base is 1.929 billion – but it does represent the first drop of its kind for Facebook in 18 years and is symptomatic of a wider decline. Not only that, but monthly active users, another key metric for Facebook, remains flat.

Over the last 18-24 months Facebook has been battling a new rival, TikTok. TikTok seems to have eaten Facebook’s lunch in terms of driving engagement amongst the important Gen-Z audience, with content creators continually generating high levels of engagement and attention.

This competition for attention has hit Facebook hard and it’s trying, and seemingly failing, in its traditional playbook of cloning the core features of its biggest competitor (as it did so successfully with its “stories” feature). The trouble for Facebook is that it’s no longer a new feature that is killing them, but instead a totally new way of consuming and engaging with social content.

Facebook, and by extension Instagram, are stuck in an old model of social media, popularised a decade ago and driven by connection. You see content that is relevant to you based on the people you know and accounts you want to follow. Like getting your news from the BBC? You’ll see it in your news feed. Want to stay up to date with an ex-partner who has moved to the other side of the world? You’ll see their glorious new life in your feed. But TikTok is different and it’s now changing user behaviour on a mass scale, taking social media from a connection economy to a content-driven economy.

Content-driven economy


With the growth of TikTok, Gen-Zs are now becoming accustomed to being served thousands of videos from people they don’t know, have never engaged with, but that make content that might hit a niche they like. As the algorithm works out what content drives your attention, it feeds you more and more of the same thing, like your own personalised TV channel.

In fact, TikTok is now being consumed as a first-screen. This is in stark contrast to how many users have traditionally engaged with Facebook, Instagram and other social platforms. 46% of TikTok users engage with content on the platform without any distractions, whilst 35% of users say they watch less TV, or other video content since they started using TikTok. Rather than switching off, or being sidetracked, TikTok users are engrossed in one screen only.

This is a huge challenge to Facebook and Instagram, and parent company Meta, which has positioned itself as a TikTok challenger. As Adam Mosseri, Head of Instagram, stated back in June 2021 “we’re no longer just a square photo-sharing app”, as the platform moved its attention to focus on making Reels.. Not only that, but Instagram recently announced a complete shift in the way that content will be served to users with an announcement in January. Again made by Adam Mosseri in an Instagram post, he said that the app would now have three feed options; Home, which would feature more recommended content in a similar vein to TikTok’s ‘For You’ Page, Favourites, a set of accounts you don’t want to miss content from, and Following, just the accounts you follow in chronological order (sounds familiar!).

Meta’s response to try and make Instagram more and more like the TikTok experience is straight from their copy-cat playbook. The challenge though is that in a content-driven economy, users don’t gravitate towards and stay with a platform because their close friends are using it, instead the platform with the best content wins, just like in the TV world!

This means creators have more and more power, which is where both TikTok and YouTube have a huge edge. TikTok has created viral, global stars who are growing huge audiences at record speed, in a way that has previously been much more challenging to do on Instagram. YouTube has more than a decade’s experience and an internal culture of supporting creators with a generous revenue-sharing model. Both of these platforms represent a huge challenge for Instagram, as creators look at the platform as a less attractive option to create content for, and are often simply replicating content from TikTok and YouTube for Instagram Reels.

Will the best content creators in the world gravitate to Reels and will they be able to scale a massive audience on Instagram the way they have on YouTube or TikTok? This very much remains to be seen. Part of the challenge may be financial, as Meta has offered up a $1bn creator fund. This may sound impressive but is dwarfed by YouTube which is said to have paid creators more than $30bn last year alone. It also recently set up a creator fund to pay $10,000 per month to those making popular videos on its TikTok competitor, YouTube Shorts.

Advertisers push back


Perhaps an even bigger issue Facebook faces, apart from the decline in user growth and a shift in attention to competitors like TikTok (!), is the fact that advertisers are now seemingly spending less on its once-dominant social platform. With the rise of TikTok and the continued strength of YouTube, ad dollars for Meta across both Facebook and Instagram are set to fall below expectation, down an estimated $3bn in the first quarter of 2022.

Part of Facebook’s challenge has been the rise in the cost of engaging users on the platform, given the changes Apple has made to its privacy settings. This in turn is seeing advertisers seek other alternatives and Google has seemingly benefited. Given that they are less reliant upon the data collected on Apple devices, Google has profited with its search business outperforming expectations with shares in Alphabet, Google’s parent company, up almost 8% last Wednesday.

Another hurdle Facebook needs to overcome from an advertising perspective is that in order to fight off competition from TikTok, it is placing Reels, its full-screen vertical video tool, at the centre of the experience both across Facebook and Instagram. The challenge here is that full-screen, short-form video has been less easy to monetise than in-feed or long-form content, which Facebook has mastered.

However, Facebook feels it can still see success with Reels whilst ensuring a fairly heavy advertising weighting. On the recent earnings call with investors, Mark Zuckerberg said “while video has historically been slower to monetise, we believe that over time short-form video is going to monetise more like Feed or Stories than like Watch (Facebook’s long-form video product)”.

This is telling and maybe Facebook’s biggest issue. If they succeed in winning over the attention of the key Gen-Z audience with Reels across Instagram, there is still an expectation from them that the platform can monetise this at the same rate as previous interactions of social engagement, when in reality the horse may well have already bolted. Users are being primed to see less advertising on the TikTok FYP or YouTube shorts, and the ads they are seeing are less intrusive and more native to the platform. The challenge for Facebook is to create the same experience with Reels whilst also continuing to drive a huge profit from ad revenues.

Facebook will need to do that to fund content creators to use the platform and to continue to fund their vision of a future metaverse, currently a $10bn a year investment with no profit in sight for years to come. With all these challenges mounting, it may well be the start of the great Facebook decline.

Tom Jarvis – CEO & Founder

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