Facebook today saw a drop in two main metrics of popularity: number of friends and likability, which presents a particular problem for the social network because popularity is what it sells. Over the last month, Facebook has not only seen a 1.1 percent drop in U.S. users, but a decline in 14 of the 23 countries where it has 50 percent penetration, found an analyst using tracking software. Beyond numbers though, another metric, the American Consumer Satisfaction Index, found over the last year the users that have stayed are less satisfied. Facebook scored a 61, which not only represents over a 7 percent decrease from one year ago, but puts it well below Google+.
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The user contraction news was enough to put Facebook stock below the 30 mark -- above which it had stabilized over the last month -- because people are exactly what Facebook sells. If we learned anything from the recent sale of Digg, which went for the dismal price of $500,000, it's that a social network is only as valuable as its users. Its product value doesn't go beyond that, as The Atlantic's Alexis Madrigal explained following the Digg acquisition. "There is one clear lesson from Digg's sale: the technology that powered a once-massive social network is worth about $500,000. All the rest of the value derives from the people that use it," he wrote.
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The same goes for Facebook. "Social networking companies are not technology companies as much as they are community companies," continues Madrigal. Unlike Google, which provides a service via technology that other companies can't match (think: Search or Gmail) Facebook doesn't provide special technology you can't get anywhere else. In fact, at times, its tech pales in comparison to newer innovations. (Think: Instagram, which it had to buy to avoid competition.) What Facebook has that others don't is popularity. When the people start leaving, or start getting mad enough that they think about leaving a once multi-million (or billion, in Facebook's case) dollar company doesn't have value for users, who come there to connect with friends, or for advertisers, who at this point come to Facebook for its large user base.
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A 1.1 percent decline in the U.S. doesn't mean the end for Facebook, but they can't let it turn into a trend. Getting huger, a necessity for the company's financial growth, will be hard for Facebook, as we discussed. Facebook has seen fast adaptation in developing nations. But gains in those less developed markets is less lucrative than the user-base here. Trading users here for ones there doesn't even out.
- Social & Online Media