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Facebook Inc (FB): Bringing the Next 1 Billion Users Online

Facebook Inc NASDAQ:FB

Facebook Inc makes a ton of money from the ads that it sells on its platform. Users shares an incredible amount of data about themselves, the people they care about and their interests – and Facebook is able to capitalize on that data to target ads for which marketers are willing to pay a premium. Facebook’s business plan sounds good on paper and it has grown to become a household name in the tech space.

Facebook Inc NASDAQ:FB

 

In fact, Facebook has grown to become a model success story in the social media space – it thrived in the same business that sent MySpace into oblivion and it is the yardstick by which investors judge Twitter’s failure. Nonetheless, the firm’s success could be capped if it stopped growing its user base because the amount of money it makes from ads is tied to the number of users it could serve ads in the first place.

Getting the next 1 billion people online

For Facebook, user growth had been superb in the much of the developed world and the firm reported that it had 1 billion active users in October 2012. The problem was that most of those users were from the developed countries of the world in Europe and America, especially from the UK, U.S. and Canada. The firm was already reaching a peak in its growth number from the developed world and it needed to start getting users from other parts of the world if it wants to keep growing its user base.

The main problem that Facebook encountered in unlocking growth from the developing countries of the world such as India, Indonesia, Mexico, Brazil, and Nigeria was that most of the people there do not have access to the Internet. Mark Zuckerberg, Facebook founder and CEO devoted himself to the task of bringing the next 1 billion people online so that they can access Facebook.

He created Facebook For Every Phone in a bit to ensure that people had a pleasant experience on the platform whether they are on a feature phone or a smartphone. He initiated Facebook Lite, which was a stripped down version of the platform that loads faster on slower networks. He also flagged off 2G Tuesdays so that Facebook engineers can empathize with the next 1 billion people who do not have high-speed Internet.

Facebook’s efforts are paying off

Facebook ARPU

Facebook has strangely focused its effort on reaching the world’s unreached people and it seemed that the firm was pouring money down the drain. To start with, most of the people in the developing world do not have access to high-speed internet; and when they do, they’d rather put food on the table than pay for Internet. More so, most of them do not have disposable income that they can spend on buying things in the ads that Facebook serves.

However, Facebook kept reaching out to them in defiance to calls from activist investors to return the money to shareholders. As at 2012, Facebook was making an Average Revenue Per User (ARPU) of $0.32 on users in the developing world. However, when Facebook reported its Q4 2015 earnings in January, the firm revealed that its ARPU in the “Rest of the world” is now $1.22. In essence, Facebook has seen a 281% increase in ARPU in the rest of the world in the last three years.

Facebook ‘s ARPU of $1.22 in the “Rest of the World” is close to its ARPU of $1.59 in Asia-Pacific, but it still pales in contrast to its ARPU of $4.50 in Europe and $13.54 in U.S. and Canada. Yet, it is obvious that the firm is seeing positive results from its drive to increase its user base and the money spent on acquiring new users not a waste as the firm plays a long-term game.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.