Facebook's big increase in Q2 revenue — it was up 53% to $1.81 billion — took investors by surprise this week.
It should not have.
CEO Mark Zuckerberg has, refreshingly, spoken in plain English about exactly how Facebook's revenue will grow, and where its new users will come from, for months now. The company has been very clear that its user base is switching from desktop to mobile, and that is where growth will come from.
It's just that most people weren't listening.
They see those little blue ads in Facebook that they "never" click on in the news feed, and assume that everyone else never clicks on them either, and that therefore Facebook has an uphill battle ahead of it. Especially as its user-growth is slowing.
Because, as we all "know," user-growth at Facebook is nearing an end. Facebook has about 1 billion users — where could new users possibly come from?
But Zuckerberg just used his Q2 earnings call to spell out in detail exactly how he expects Facebook to connect 5 billion more people. It seems impossible, hyperbole. Six billion is almost the entire population of the Earth.
Given that everything Zuckerberg has previously told us has come true — surprisingly! — perhaps we should hear him out. If you listen — and do the math — it turns out that Facebook has a 27-year plan for adding 5 billion more users.
Manifesto For The Future Of Facebook
Here's what he said. When you isolate Zuckerberg's words from the call, and edit them together, they form a sort of "Manifesto For The Future Of Facebook."
And it's all about the long-term. Zuckerberg used the phrase "long" or "long-term" six times on the call, so clearly that's what's on his mind.
The first thing to note about user growth is that since Q3 2011, Facebook has consistently, repeatedly added 45-50 million users every quarter. (See slide 4.)
That feels small because Facebook has 1 billion users.
But if some Silicon Valley startup suddenly reported that kind of user growth, it would be the hottest company in the U.S.
Because it's Facebook, no one cares.
Facebook's user base is very American, which another way of saying that there is a lot of growth available in Asia, Africa and other large, un-Facebooked geographies. Facebook's feature phone app, Facebook For Every Phone, has added 100 million users since its launch. Most Americans won't see it, because we use Facebook on smartphones. But if you're poor and foreign and you use a cheap or free phone, FEP is your Facebook.
Again: If there were a startup app company in New York's Flatiron district that had added 100 million users in the last couple of years, people would be raving about how awesome it is.
But because "we" can't see FEP, it doesn't count.
Long term, long term, long term
Here's how Zuckerberg sees that developing in the long term:
One of the questions I frequently get asked are what are the big changes we want to make in the world over the next 5 or 12 years? Now that we’ve connected a 1 billion people, what is the next big ambition? There are three main goals I would like us to achieve. Connect everyone, understand the world and help build the knowledge economy.
Connecting everyone is about growing our community to reach the next 5 billion people. Our mission is to give all people the power to share and make your world more open and connected. And that means everyone. Not just product in developed countries.
... I think we're early. And one of the interesting things over the past six months or so is reaching 1 billion people was this big rallying cry for the company for a long period of time. And I think as we've passed that, we've seen the ambition that the company has grow. And reaching 1 billion users was a great first thing to focus on because no one had ever built a service that had 1 billion active people who were signed in and had real identity before.
But in a way it's actually kind of just an abstract, there's nothing magical about 1 billion. The real goal is to connect everyone in the world and help people map out everything that there is.
In some ways this is just rhetoric. Many CEOs talk about connecting with "everyone."
The difference is that those CEOs are not adding $100 - $350 million in revenue to their businesses every quarter, and adding 45 million new customers every quarter, sequentially.
The flipside of being huge is that there are network effects and switching costs for customers who don't want to be part of Facebook. We've all got a couple of friends who refuse to be on Facebook. You know the ones. They're the guys who are always slightly surprised when you say that of course you've seen the new baby pictures from your old college buddies. They were on Facebook.
Not being on Facebook is a bit like not watching television. Sure, you can refuse to look. But it doesn't help you keep abreast of where the culture is headed.
Facebook is a lot like cable TV — it's a utility that (nearly) everyone has, but few people have genuine affection for. We complain about it all the time. But imagine if it disappeared.
That's where Facebook is headed: It's going to become a global connection utility that we'll all use, even though it can be annoying.
Zuckerberg has chalked up 1 billion or more users in just nine years, and it's still clocking 45 million more every three months.
Skeptics should bet against the next 5 billion at their peril. At the current rate, it will take Zuckerberg only 27 more years to get there.
Disclosure: The author owns Facebook stock.
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