The Decline and Fall of the Facebook Empire

While the Facebook share price has shown a remarkable turnabout from its rather disastrous launching as shown here:

...a recent study by two graduate students at Princeton suggests that, over the longer term, Facebook usage has already peaked and is on the downslope, heading toward ultimate oblivion like its predecessor, Myspace.  While the study has not been peer-reviewed, it certainly gives us something to ponder.  

In case you've forgotten, Myspace, the wonder social networking site of the mid-2000s was founded in 2003, quickly became the world's most visited website, was purchased by Rupert Murdoch's News Corporation for $580 million in 2005.  By mid-2006, there were over 100 million Myspace users.  Myspace was sold for $35 million in 2011 to Justin Timberlake and Specific Media Group, a rather substantial capital loss.  Myspace went from around 1900 workers at its peak to around 200 in 2013. 

Authors John Cannarella and Joshua Spector used a model generally affiliated with the spread of infectious diseases to the social networking aspect of both Facebook and Myspace.  In the model, they make the assumption that there are three types of people:

1.) Infected people (I) who are using a social networking site.

2.) Recovered people (R) who have either stopped using a social network site or who refused to do so.

3.) Susceptible people (S) who have not yet started using a social networking site.

These three components make up the Succeptible, Infectious and Recovered (SIR) epidemiological model which can be used to predict the course of the transmission of an infectious disease through a given population.  The SIR model, which was first developed in 1927, has been modified by the authors and termed the irSIR model by incorporating infectious recovery dynamics that reflect the fact that contact between a recovered person and an infected person is required for recovery.

The size of each of these three groups changes with time; for instance, the number of people that are susceptible (non-users that may wish to use a site) drops as the number of infected people (users of a site) rises.  The difference from the spread of an infectious disease lies in the fact that the networking site has a social aspect; when an infected person (one of your friends) stops using a site and becomes a recovered person, you are more likely to become a recovered person (i.e. the irSIR model).  In this case, the number of recovered persons increases at a rate proportional to the number of infected people times the number of recovered people rather than at a rate that is just proportional to the number of infected people alone as would be in the case of the common cold or influenza.

By examining real world data consisting of Google searches of both Myspace and Facebook, the authors have come up with this graph:

By using Google searches rather than the actual number of users, the authors believe that they are avoiding any issues that are associated with users that have abandoned the use of either social networking site but have left their Myspace and Facebook pages intact.  Let's start with Myspace.  Myspace Google queries rose in 2005, peaked in 2007 and 2008 with 75.9 million unique monthly visits and declined between 2009 and 2011 to almost nothing.  This is a nearly perfect example of a full life cycle of an online social network.   In the case of Google, the number of weekly search queries peak at around 100 million in 2012 and the first half of 2013 and has defined to around 80 million in later 2013 and the beginning of 2014.  When the authors applied a best fit irSIR curve to the Google data for Facebook, this is what they came up with:

This suggests that, as in the case of Myspace, Google searches for Facebook will taper off to almost nothing between 2016 and 2018.  A recent study by GlobalWebIndex shows that teen users are abandoning the use of Facebook with nearly one third of U.S. teen users jumping ship as shown on this graph:

Another study by Statista shows that United States users between the ages of 13 and 17 have fallen from 13.1 million in January 2011 to 9.8 million in January 2014, a drop of 25 percent.  In sharp contrast, the number of older baby boomers that are using the site has risen from 15.5 million in 2011 to 28 million in 2014, a jump of 80 percent.  It's becoming increasingly obvious that Facebook has, in large part, lost its "cool factor" as oldsters adopt this means of social networking.

If, in fact, the authors of the study are correct and Facebook is about to follow the path to oblivion blazed by Myspace, I'm wondering how long it will be before the word "short" is closely associated with the trading symbol FB.