The Exchange

Facebook: Not as Down and Out as You Think

The Exchange

Your teenage daughter hates it, your mom never checks it and half your friends have stopped posting. And everyone's switching to WhatsApp and MessageMe and Snapchat, right? It seems that Facebook (FB) may be on its way out, yet another web fad tossed on the scrap heap with Myspace and AOL (AOL).

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Not so fast – for all the Facebook fatigue and rising competition, the current reigning social network champ still has chops. And the world’s biggest social network is on a buying spree to bolster its appeal and one-up the best features of the competition.

Think Instagram – Facebook snapped up the photo-sharing site for $1 billion last year, adding on a top site for teens who were starting to avoid Facebook's own pages. Then this month, Facebook added video to the Instagram service; it's similar to Twitter's Vine, but – among other differences – longer by a whole nine seconds. And the service is catching on fast; in just a week, the number of Instagram videos posted on Twitter surpassed those from Vine.

Sure, it’s true that Facebook’s overall user growth is slowing – the number of monthly active users has been hovering around the 1 billion level for almost a year. And it’s also true that, in the United States, there are some signs of fatigue – a Pew Research Center survey found 27% of U.S. Facebook users planned to cut back on their usage this year. And smaller competitors – some you never heard of, such as tango.me and Glassboard – are growing fast.

But Facebook has some overlooked strengths and has been moving quickly to get a jump on some of its faster-growing peers. And even as user growth slowed in the United States, it’s still accelerating in Asia and emerging markets.

Menlo Park, start your photocopiers

One of the easiest ways for Facebook to keep its users from moving is to give them more of what they want in Facebook and Instagram, such as the new video service. Another example: With teens flocking to alternative text messaging apps such as WhatsApp, Facebook engineers revamped their own messaging app to include SMS texting. The floating Chatheads have proven to be an appealingly fun way to trade quips.

That said, not all Facebook's homegrown efforts to add features have caught on; its "Home" overlay for Android fans, for example, was a dud. The recent HTC Facebook phone has also seen sluggish sales.

If you can’t beat them, buy them

Facebook’s initial public offering gave the company a currency most of its competitors don’t have – public stock. That helped reel in Instagram; most of the payment was in Facebook shares. Smaller deals work, too. Facebook bought personal blogging site Storylane in March. Technology from the site could be used to beef up Facebook's feeds and help fight Tumblr’s appeal to the younger crowd.

Still, Facebook has seen competitors strike back via M&A deals. Google (GOOG) grabbed social mapping app Waze, and Yahoo! bought Tumblr, strengthening their own social offerings and keeping the popular upstarts out of Facebook’s grasp.

It’s not personal. It’s business

Facebook has also played tough with some competitors that may have been trying to piggyback on the company’s massive reach. When a new messaging app, MessageMe, started to take off earlier this year – in part thanks to integration with Facebook users' friend lists – Facebook cut the service off. It has done much the same to others, including Path and Vine.

Enemy of my enemy

Facebook isn’t in competition with everyone and it has acquired some pretty hefty allies. Seeking to hold off Google, Facebook partnered with Microsoft’s (MSFT) Bing search engine to deliver results that tie in to a user's Facebook network. Unfortunately for Facebook, Bing hasn’t made much progress in reducing Google’s share of search traffic.

Probably more important, Facebook won Apple’s (AAPL) approval for deep integration on iPhones and iPads. Facebook and Twitter started as the only social networks built in for sharing in Apple’s iOS. The upcoming version 7 of iOS adds a few new partners, including Vimeo for video and Flickr for photos, but Facebook remains its only broad social network.

Sure, it's tough to be number one. But Facebook is hardly teetering on the brink of obscurity.

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