Why is Facebook in big trouble?

The most important thing in the social networking business model is the network effect: The more people join a certain network, the more people want to join. This is the “winner takes all” phenomenon and is why Facebook has been so strong for the past 18 years. The company is constantly accepting new users and using them for targeted advertising.

However, for the first time in nearly two decades, Facebook’s user base stopped growing and even declined in some markets. The news, combined with a lower-than-expected first-quarter revenue growth forecast, rocked the stock and pushed the stock price down 24% in after-hours trading on Feb. 2.

Meta CEO (Facebook parent company) Mark Zuckerberg has long warned about that moment. Internet platforms and trends can fade as quickly as they evolve, he explains. According to one source, he fears the network effect will go in the opposite direction.

Users have specific reasons to come to Facebook. Maybe it’s a group they want to visit, or a person they want to send birthday wishes to. Each person leaving is a reduction in the motivation of the other person to stay.

The source revealed, Facebook has previously seen a negative network effect on the platform when bugs in the product took too long to fix. The growth team keeps a close eye on user behavior to catch problems before they spread and affect Facebook. In addition, Facebook also relies on acquisitions, such as Instagram and WhatsApp, to breathe new life into its network.

Most of the Internet users in the world already use Facebook. Meta also has to compete for user time against competitors like TikTok. If Facebook no longer joins the network, the growth will come from the amount of content that existing users create and consume.

Facebook has applied some leverage to inject new types of content into feeds, even if users aren’t following or befriending new people. For example, Instagram now shows posts from accounts that users don’t follow, and Facebook pushes people to join groups.

During a teleconference with investors, Zuckerberg said Instagram’s Reel feature is the best opportunity to attract more young users to the platform. The company will invest in developing it as quickly as possible, despite the fact that it brings in less advertising revenue than other typical Meta products.

Meta doesn’t have many options, mainly because it faces increasing scrutiny from the authorities, which means big deals are hard to come by.

The factors mentioned above partly explain why Facebook is focusing all its efforts on the virtual universe. To succeed, efforts will take years. In the fourth quarter of 2021, the division responsible for Reality Labs reported an operating loss of $3.3 billion.

Former Facebook employee Nikita Bier wrote on Twitter: “Facebook has their hands tied. Please rest”.

According to Bloomberg