Facebook is tough to quit, and investors like that
Published: Friday, May 18, 2012
Updated: Friday, May 18, 2012 13:05
LOS ANGELES — Slowing growth. A weak platform for mobile advertising. Privacy legislation that could hamstring profits.
With all the negative headlines, including General Motors Co.’s decision this week to pull its Facebook ads, why is there such a frenzy to buy shares when the company begins trading Friday?
The answer can be found partly in the experience of people such as DeAnna Stephens of Charlotte, N.C. The 36-year-old video producer quit using Facebook in December, deciding she was frittering away too much time reading about what her friends were eating for lunch. Then she realized that she had lost touch with 900 people.
“I couldn’t believe how out of the loop I was on things in life,” Stephens said. Tired of being the last to hear about new jobs, new boyfriends and new babies, she signed up again “simply to be back on the radar.”
Wall Street analysts and others have an array of concerns about Facebook Inc.’s ability to churn the kind of profit necessary to justify its initial market value of more than $100 billion. But the consensus is that, with no competitors of its size and nearly 1 billion captive users, Facebook will somehow find a way.
The social network now accounts for 1 in 7 minutes users spend online around the world, according to online metrics firm ComScore Inc. The average Facebook user spent more than 6 hours a month on the service as of October, up almost 40 percent from a year earlier.
What’s also attractive to many advertisers is Facebook’s broad appeal in key demographics. In the U.S., the largest category of users is those 25 to 34, ages when people are making spending decisions and brand choices they will keep for decades. That’s followed by people ages 35 to 44, when brand loyalties are largely established but when spending power has increased.
“Facebook is so big now that it has multiple core demographics,” said Debra Aho Williamson, an analyst at EMarketer Inc., a firm that tracks online advertising. “Not only do you have the original audience of young people that have now grown up, but you’ve got a whole slew of newer young users that are just as active, if not more.”
As its hundreds of millions of users continue to post about where they work, where they live and what they like to do, Facebook continues to gather what is widely regarded as the world’s largest cache of personal data — a treasure trove for businesses looking to reach their ideal customers.
Major corporations and corner drugstores alike have raced to establish a strong Facebook presence, and one of the hottest job titles in corporate America is some version of “social networking coordinator.” GM’s recent decision to pull its ads from Facebook is largely seen as an exception, and one that could be quickly reversed as Facebook improves its ability to sell ads on mobile devices.
Facebook executives like to portray their company as a utility, not just an advertising platform, and the claim is not without merit.
Like Stephens, Abhishek Rai tried to quit Facebook. The 35-year-old software developer from Pune, India, had grown weary of friends’ bragging about their children’s achievements or the new car they had just bought.
Then Rai decided to launch an online shopping business, and he realized that a Facebook profile page would help his fledgling company. So back to Facebook he went.
“In today’s changing times, one of the best (and free) platforms for start-ups to connect with their users … is Facebook,” he wrote in an email. “It would have been almost criminal not to have a Twitter account or Facebook page.”
Many people want to quit Facebook on grounds that the social network is quickly eroding personal privacy, giving employers, government agencies, con artists and others access to information about people that they should not have.
Matthew Milan, a 38-year-old Toronto marketing executive, set up a website, QuitFacebookDay.com in 2010. Nearly 40,000 people pledged to shut down their accounts on May 31, 2010.
Two years after Quit Facebook Day, Milan says nearly every quitter he’s spoken to has returned.
“It’s like quitting smoking,” Milan said. “It’s easy to relapse — you have the habits, the experience, and the comfort of having it be a regular part of your life.”
One of Facebook’s biggest advantages is that there’s really no other place to go. Facebook is by far the world’s largest digital gathering place, and since it vanquished onetime rival Myspace years ago, the only other contender has been Google-plus, the Mountain View, Calif., search giant’s attempt at social networking. But it has had trouble capturing the public imagination — or regular users.
“It’s so easy to quit something when there’s an alternative,” said Michael Pachter, an analyst at Wedbush Securities. “You can quit your health club and go to another one, or quit your job and find another one, but if you quit Facebook, where the heck do you go?”
Still, he said, if Facebook gets to the point “where a large minority of users say, ‘I hate this,’ somebody will come up with an alternative.”
Facebook won’t say how many people have completely left the service. But its once meteoric growth has slowed. In the first quarter of 2009, the number of users grew 20 percent from the previous quarter. During the same period two years later the growth rate dropped to 6.6 percent, according to the company’s regulatory filing.
Congress has sought to pass Internet privacy bills, including those that would prevent sites such as Facebook from tracking users’ activity around the Web. Facebook listed the prospect of legally mandated changes to its services among the major risks it would face as a public firm.
Nearly 60 percent of U.S. Facebook users say they don’t trust the firm to keep their information safe, according to a poll released this week by The Associated Press and CNBC. An earlier online survey by the British arm of advertising giant McCann Erickson found that most users believed that Facebook isolates people from one another more than it brings people together.