As we see from chart 3, Facebook has on average managed to convert 55 percent of the internet population to monthly active users inside its social network. However, Facebook might have a huge potential in markets such as India, Brazil and South Africa where the internet infrastructure is far from being as sophisticated as Europe and the US. Therefore, grasping the whole population of those countries is however not something Facebook can influence on its own, as it is subject to the overall development of local economies and their internet infrastructure.
Infrastructure issues and local competitors
According to Internet World Stats statistics only 7.5 percent of India’s 1.2bn population are counted as active internet users. Out of the 88 million internet-connected Indians, 49 percent of them are already active users. Therefore, should we see an improvement in internet infrastructure then India could be a significant contributor to the growing client base, which is vital for Facebook’s current business model. However, as said before, this is completely dependent on the country’s development and not Facebook’s marketing efforts.
Another interesting case is Brazil. Even though half of the population is online, Facebook’s users in Brazil are below average. Despite being available in 50 languages (including Portuguese), the population has a choice between Facebook and its competitor Orkut (which is also based in India). Orkut is in fact owned and operated by Google, who will for sure do all it can to defend its share of the market should Facebook increase its effort to capture new users within the region.
Similarly, as can be seen from chart 3, few large populated countries are not contributing to the huge client base of 845 million. In countries such as Russia, China and Korea, Facebook faces great competition from local social network communities such as Orkut (Brazil and India) and vKontakte (Russia), Mixi (Japan), Sina (China) and Renren (China). China is however a fairly closed market for Facebook and many internet giants like Google, Yahoo and Twitter have already been defeated by regulatory and political pressure within this market. Should Facebook however overcome these barriers the local competitors are ready to fight off any external competition.
Summary
Here is a summary of the barriers that might limit Facebook’s user growth:
- There are 6.4bn people in the world.
- Out of the 6.4bn people, only 2bn had access to the internet in 2010.
- China is not an open market for Facebook, for now.
- India has limitations due to its limited internet infrastructure.
- Facebook is not a new thing, and those who are interested enough to join, most likely already have.
- Developed countries seem to be getting closer to being in a mature state.
Performing simple, back of the envelope calculations we can try to figure out what is the max user base that Facebook can achieve within the next years. If we assume internet connections will increase by 25 percent over the next three years, then we will have 2.5bn active internet users. Out of those roughly 600 million users are in China. Russia and Japan might also be difficult markets to capture due to local competition and language barriers that count for another 180 million internet users. This would bring the number down to 1.72bn internet users.
Assuming that 80 percent of those 1.72bn internet users are in fact interested in sharing their lives on a social network, and therefore choose Facebook over competitors we have
a potential client base of roughly 1.38bn.
As Facebook currently has 845 million active users, the potential client base provides an opportunity for adding roughly 530 million users. The question is, as markets are getting more mature in the western world, what will it actually cost for Facebook to acquire these users? Probably more than it has in recent years.
Stay tuned for
Peter Bo Kiær’s piece in which he will do another analysis of Facebook’s challenges and opportunities taking into account the limitations of its user base.