Facebook has been on somewhat of a rollercoaster ride over the last 24 hours, revealing another quarter of impressive year-on-year growth, while rumours circulate it could be facing a competition probe.
In Menlo Park, California, CEO Mark Zuckerberg and CFO David Wehner boasted of another quarter which demonstrated the Facebook advertising machine is not slowing down, while on the other side of the Atlantic, Reuters has suggested the European Commission has taken the first steps in an antitrust investigation concerning the Marketplace feature.
What is worth noting is these are only the preliminary steps, and it will be some time before the European Commission decides whether to formally launch a full-investigation. After complaints alleged Facebook was using its market power to create an unfair competitive advantage, the European Commission has sent surveys to various players in the industry to better understand how the competitive landscape has developed.
For Facebook, this should be seen as a worrying sign. Details are thin on the ground for the moment, but it does appear rivals in the ‘classified ads’ segment are suggesting Facebook should not be allowed to diversify. The questionnaire sent to various players in the industry asks how many referrals came from the social media platform.
The question which seems to be asked here is whether it should be allowed to leverage such a massive user-base to steal business of rivals. The issue which Facebook might face is that it doesn’t collect revenue in the same way as those who are challenging the Marketplace.
Traditionally, the ‘seller’ is charged by the media outlet to engage the ‘buyers’ though Facebook has undermined this transaction. There is no charge to sellers to list products, with revenues being driven through sponsored listings and promotions embedded through the search results. Facebook is using its traditional ‘walled garden’ approach, creating an experience for users but charging companies for the pleasure of engagement.
Should the European Commission come to the consumer this is an abuse of market behaviour, rather than the evolution of commerce as we progress towards the digital economy, Facebook’s pursuit of new revenues by expanding the ‘walled garden’ model to new segments could be threatened.
Although revenues are looking healthy for the moment, a glass ceiling will be hit unless Facebook can offer new experiences. Advertising revenues have grown in-line with the userbase of the platforms, though there are only a finite number of users across the world. Facebook has to think of new ways to keep people on the platforms for longer, and for new reasons. Marketplace has been a success, though this is a threat to all diversification not just eCommerce.
From a revenue perspective, these new initiatives do seem to be aiding growth. Total revenues for the three-month period ending September 30 stood at $17.383 billion, a year-on-year increase of 28%, while net income was $6.091 billion, up 19%.
Daily actives users and monthly active users are also on the up, 9% and 8%, with the team now claiming 2.2 billion people now use Facebook, Instagram, WhatsApp, or Messenger on a daily basis.
Facebook is a business which is certainly facing risks, though the potential to diversify is quite remarkable. New elements such as the Marketplace or the dating features being tested, are re-engaging users at a time when the social media giant seemed to have lost its way. However, this progress could be undermined should European antitrust authorities believe the Facebook disruption is only possible because of an unfair advantage.