28 June 2017

Recode: “Facebook may finally have to compromise its user experience in order to keep growing”

Unlike intent-driven interfaces like YouTube, the News Feed is a passive experience, where it is easier to scroll than to engage. A News Feed consisting of an endless stream of autoplaying pre-roll ads would be an engagement nightmare that would compromise everything the News Feed team holds dear. Lacking the flexibility to compromise, they must give elsewhere. In February, Facebook embraced sound-on autoplay videos, just months before Google and Apple said they were banning these formats on their platforms as unacceptable UX intrusions.

Facebook is stuck between a rock and a hard place. As much as Facebook wants to create a better experience than the mobile web it disdains, the pressure to make these new inventory opportunities big enough and fast enough forces it down a road of increasing UX compromises by publishers who long since fought the war between short-term revenue and long-term user engagement, and too often chose the quarter over the future.

The very real fear for Facebook is that the publisher UX compromises it has watched from afar are not a path it has managed to avoid, but a vision of its future.

Tony Haile

A rather chilling analysis of Facebook’s future prospects, to dampen the enthusiasm about reaching 2 billion monthly users. The core weakness of Facebook’s ad business (a problem shared by its biggest rival, Google) is how little the rapid new growth in the developing world is contributing to revenues compared to the saturated markets of North America. To grow revenues in these lucrative countries, Facebook needs predominantly intensive growth (increasing ARPU, the amount of ad revenue generated per user) instead of the extensive growth (increasing the user base) it has relied upon until now.

The company certainly has many initiatives in this direction, from Instant Articles to Live Video and, more recently, Stories to encourage more sharing. Unfortunately, until now none of them seemed to have stuck with users. Facebook video ads reportedly have much lower viewability rates than video ads on other sites, which is another bad sign for future revenues. Still, the demise of Facebook has been foretold so many times before and hasn’t materialized yet; it managed to successfully pivot to a mobile-first experience and neutralize many rivals, so I’m pretty confident the managing team will come up with a reasonable solution.

Facebook historical user count graph as of June 2017

As a side note, many analysts are puzzled by the disparity between the ARPU in the US and Europe, despite comparable purchasing power. I suspect it’s another aspect of the language barriers in Europe. Even though the total population is larger than in the US, the addressable market for a given ad is limited by language and cultural difference, so the ad budgets available for online spending are proportionally lower.

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