Facebook’s primary engine nears burnout

July 14, 2011

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Facebook has added 150 million members over the past six months, bringing its total to 750 million. The end of the social network’s rocket ride may, however, be in sight. The company’s growth rate has been slowing. It took less than eight months to go from 100 million to 200 million users. The latest doubling took about a year and a half.

New technologies tend to follow the famous S-curve. A few people try things out early, some late, while most pile on in the middle. If Facebook follows a similar trajectory — as appears to be the case — the company would plateau with about 1 billion regular users.

Of course, the game could change. Rivals could catch trends and erode Facebook’s market share. Or more positively, China could let the U.S. leader operate within its borders, opening up a huge new market. Moreover, about four billion people currently use cellphones but not the Internet. If hordes of them shift to Web-ready smartphones, Facebook stands to attract hundreds of millions more users to its network.

Yet there’s a second variable — how heavily a network is used. People share about 4 billion photos, status updates and chats on Facebook daily. Founder Mark Zuckerberg says the amount of information people share is doubling every year, and will continue to do so.

But for how long? The number of messages received per person, by whatever media were available, increased about a thousand-fold over about two centuries leading up to 2000, according to Andrew Odlyzko, an academic and former AT&T Labs researcher. That’s less than 5 percent per annum on average. Giant jumps that accompanied innovations like the telegraph or phone eventually turned to a crawl. Furthermore, Cisco says Internet traffic has grown “only” about 50 percent per annum over the past five years, and thinks the rate is slowing. Facebook can’t outgrow network traffic as a whole indefinitely.

Facebook is currently valued at about $80 billion in gray market trading, or more than 100 times last year’s earnings. It has said it’s likely to go public in 2012 at the latest. Zuckerberg might want to ensure that happens before the company’s booster engine shows signs of slowing, too.

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