Facebook’s First, Second, and Third Billions
How Facebook got here, and how it’ll get there
Facebook today finally announced hitting one of the most obvious milestones in recent memory: two billion monthly active users. I predicted the timing back in early May, but that was fairly easy to do given Facebook’s recent trajectory. What’s more interesting is how Facebook got here, and how it might get to three billion in time too.
First Billion vs. Second Billion
Facebook’s first billion users took eight years and seven months to achieve, from its launch in February 2004 to hitting the milestone in September 2012. But of course until September 2006 there were significant limitations on who could sign up for Facebook, and it was still well under a hundred million when it removed those limitations in September 2006. So most of that billion happened in that six-year period from September 2006 to September 2012.
Conversely, the second billion took just four years and nine months, which is remarkable for any growth by a billion users, let alone an app’s second billion. But it’s also worth looking into where that growth came from, because in that sense the first and second billion look quite different. The charts below show the geographic composition of the first billion and second billion monthly active users added to Facebook:
As you can see, just over half of the first billion came from two very mature regions: the US and Canada, and Europe, each of which accounted for a little over a quarter of the first billion users. By contrast, the composition of the second billion was very different: nearly half came from Asia, a little over a third from Facebook’s Rest of World region (including Latin America and Africa), and just 16% from North America and Europe.
One of the most remarkable things about Facebook’s recent growth is that it’s actually been accelerating even as it reaches this massive scale and begins to reach saturation point in mature markets. Even though Facebook’s monthly active user total in the US and Canada is now equivalent to two thirds of the total population (including those too young to use Facebook), it’s still growing there. But by far the largest growth is in Asia and the Rest of the World, and there growth is not just remaining stable but accelerating quite significantly:
What’s driving that acceleration growth in these markets over the last couple of years? Well, the answer as provided by Facebook on recent earnings calls is that it’s been driven largely by its efforts to expand access in emerging markets. Though that includes Facebook’s Free Basics program, which offers free access to Facebook and limited other Internet services, much bigger contributions have been made by other initiatives, notably Facebook’s own Facebook Lite app for emerging markets, and various mobile operators’ promotional packages for accessing Facebook. On the Q4 earnings call, Facebook provided some commentary around all this:
Asia benefits probably more than any other region around the sort of three factors that I called out in my prepared remarks. And those are Internet.org efforts, Android product improvements that we’ve continued to make a big area like Android — Facebook Lite platform on Android has been a great grower for us. But then particularly in the fourth quarter, one of the callouts that we’ve seen, an increase in third-party promotional free data plans in places like India. So that clearly is having an impact in APAC and India was our strongest growth market.
Facebook says Internet.org has helped 50 million people connect to the Internet, so while that’s a contributor, it’s clearly not the largest. Facebook Lite, on the other hand, has over 200 million users, and those carrier promotional packages haven’t been quantified but I suspect they’re a big contributor too. The big benefit there is that Facebook can’t be accused of seeking to promote its own limited access to the Internet – these are third party plans it has nothing to do with – but the big risk is also its lack of control over those plans, which could theoretically go away at any time, a risk Facebook has explicitly if quietly called out on earnings calls.
Second Billion vs. Third Billion
So let’s turn to the theoretical third billion users. I’ve already shown how the second billion looked very different from the first, dominated by user growth in Asia, Latin America, and to an extent Africa and the Middle East. If we focus even more narrowly on the last few hundred million users, we see that this pattern is only becoming clearer: of the last 150 million or so users added to Facebook, 89% came from Asia and the Rest of the World and just 11% from NAm and Europe. In the most recent quarter, 91% of growth came from those two regions, and it’s safe to say that over 90% of Facebook’s future growth will come from those regions too.
That means that expanding Internet access will continue to be critical to Facebook’s future growth, but it will also continue to be heavily reliant on those promotional plans and packages from operators in countries like India. Given that the total number of Internet users worldwide is only around 4 billion, Facebook will need both to improve its penetration of that base and to keep growing it.
Breaking into China, of course, would be a huge boon to Facebook’s user growth, something which helps to explain why it continues to put out feelers and play nicely with the Chinese government even as it doesn’t have a formal presence on the mainland. But that move is fraught with risk and ethical compromises even if the Chinese government decides to let Facebook back in.
The other big thing to note about where the growth is coming from is the financial picture associated with a shift in the geographic source of new users. Facebook’s average revenue per user continues to be very different in the US and Canada, Europe, and the rest of the world:
US and Canada ARPU is now well over $60 per year, while the European number is over $20, but Asia and the Rest of the World come in at well under $10. All are rising, but at some point it will be tough to keep growing those numbers as new users increasingly come from poorer markets, and Facebook reaches ad saturation in the News Feed, with other, image-heavy, products like Instagram less popular in these bandwidth-constrained markets. That’s not to say that the growth isn’t worth pursuing, but it is to say that neither Facebook nor investors should expect the next billion users to add nearly as much revenue to Facebook as the last billion did.
To conclude, it’s worth stepping back a bit and examining the number. As I wrote earlier today for Tech Narratives subscribers, there’s nothing magical about two billion as a number. Like a person hitting one of the big birthdays, there’s no physical significance to such a milestone, but there’s often emotional significance nonetheless. Such milestones cause us to become reflective on what’s come before, and what might come next.
But they also cause self-evaluation, and it feels like that’s very much the mode Facebook and especially CEO Mark Zuckerberg are in at the moment. Both he and Facebook’s corporate PR team put out messages today acknowledging the milestone, but Zuckerberg’s was short to the point of being curt, while the corporate blog post moved quickly on from the number to some new features Facebook has launched thanking people for their engagement on the service and referring back to Facebook’s recent emphasis on community. That feels reflective of a recent recognition by Zuckerberg and the company that Facebook’s influence in the world hasn’t been all positive, despite their early naive belief that merely connecting people would be a universal good.
That’s a good thing – tech companies should take more responsibility for the unintended consequences of their actions, and it feels like Facebook is finally doing that, although as I’ve argued elsewhere it still seems to see more Facebook and not less as the answer, suggesting the self-awareness still has a way to go. I’m seeing others suggest that growing by another billion is dependent on this community focus, but I disagree: if anything, I think Facebook will grow by another billion despite and not becasue of the community focus. The community emphasis feels like an effort by Facebook to change the way its existing members use the service so that it and its employees can feel better about the product they’ve created and work on every day, not a way to attract new users.
Lastly, as far as I can tell, Facebook is the first single company and product ever to reach two billion regular users by any reasonable measure. Google famously has several products with over a billion users, while it recently announced that YouTube has 1.5 billion, and Android has 2 billion active devices, which is not quite the same thing. Google search must be close to two billion users, but Facebook appears to have hit the milestone first. That’s indicative of just how ubiquitous Facebook has become, but also how powerful these platforms with a billion-plus devices or users (a number that also includes Microsoft and Apple) have become. It’s a good thing that Facebook is becoming more reflective at this point, something both Microsoft and Apple have also shown signs of doing lately, and to a lesser extent Google too. This morning’s EU decision is a sign of some of the pitfalls involved in reaching this size and influence in the world, and I wonder whether Facebook’s relatively muted celebration of its second billion reflects some unease about the risks associated with its size too.