Facebook’s power is a direct result of the network effect. Each user’s utility of Facebook increases as the number of users increases. (Said simply, the more the merrier.) The network effect is bidirectional; therefore, each user’s utility of Facebook decreases as the number of users decreases. Facebook lost users last quarter. Watch Meta’s share price this morning to gauge the market’s reaction to this news for yourself.
You might also pay attention to Facebook’s guidance on advertiser spending, which is a far more troublesome metric. Regardless of Meta’s issues with teenage mental health, privacy, antitrust litigation, etc., a dollar spent advertising on Facebook yields one of the highest returns on advertiser spend (ROAS). When business gets bad, the first thing most businesses do is cut their advertising budgets. It’s not a smart thing to do, but you see it all the time. Facebook’s guidance on its ad revenue may be prescient.
Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.
About Shelly Palmer
Shelly Palmer is the Professor of Advanced Media in Residence at Syracuse University’s S.I. Newhouse School of Public Communications and CEO of The Palmer Group, a consulting practice that helps Fortune 500 companies with AI strategy, implementation and governance, as well as technology, media and marketing. Named one of LinkedIn’s Top Voices in Technology, he is a bestselling author, covers tech and business for Fox 5’s Good Day New York, is a regular commentator on CNN, and writes the popular daily business blog Think About This. Follow @shellypalmer or visit shellypalmer.com.