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Facebook could use more older women, not to mention younger people in general. As the company pushes toward what is expected to be an IPO in 2010, it needs to shore up its user base in all demographics, if for no other reason than to diversify against a new social media platform that appeals to a specific community. So, even with the site pushing past 100 million monthly active users according to its advertising tool, with the addition of 5 million in December, there is work to be done if Facebook will make a successful entry into the public market.
Long derided by "serious folk" as a place for kids, Facebook's membership consists mostly of adults. Fifty-six percent of the user base is female, and 60% of users are 25 years of age or above. In fact, 20% of them are at least 45 years old. Some of the groups that are underrepresented are showing rapid growth. Men over 55 grew twice as fast as their female counterparts, though the younger generation moved onto Facebook most aggressively last year. Users age 26 to 34 showed the biggest overall increase in 2009, with 839,000 monthly active users. This represents a substantial shift from the trend earlier in the year, in which it was the later generation flocking to Facebook. Women over 55 didn't jump on the bandwagon as quickly as other groups.
For Facebook, the gaps in its membership translate directly to risk. Without a broad reputation that taps thoroughly taps all age and sex groups, concentrations leave the social media platform exposed to the effects of an exodus, such as the one MySpace, now a News Corp (NWS) property, experienced with the advent of Facebook. Lesser threats could still impair Facebook's revenue, such as the siphoning of traffic by Twitter and other sites that could integrate with Facebook without requiring users to go to the site -- depriving the company of impressions (and ad revenue).
The other concern, of course, is the flight of users for reasons other than alternatives. The slowing of growth among older female users may suggest that Facebook isn't for everybody. The debacle over changes to the platform's privacy settings also showed how users could be disappointed by the site's experience. And, let's not forget that it has taken a total membership of 350 million to generate a monthly active user base of 103 million. Not everybody who finds Facebook falls in love with it. If this proportion were to become less favorable to the company, particularly within a specific demographic, Facebook would stand to lose a considerable amount of revenue ... and its shareholders would take notice.
If Facebook were to remain private, this threat wouldn't be too big a deal. Though the company would stand to lose revenue in the event of a "partial killer," the realization of this risk wouldn't be multiplied by the effects of having a ticker symbol on the exchange. Yet, with the hints it's dropped to the market in the last few months, Facebook has loftier ambitions than to throw off profits for its investors, which include Digital Sky Technologies and Microsoft (MSFT). The company won't need to address the holes in its membership as long as the numbers keep ticking higher, but a competitor that lures away a large group from a single category could have a devastating effect.
The investing public can be severe, and a strategic misstep could have dire consequences -- just think back to what followed the glory days of the dotcom economy. Facebook must therefore leave no stone unturned as it hunts for the chinks in its armor ahead of the much-awaited (but still unannounced) liquidity event. No problem exists until it occurs, at which point the consequences rush forth. Prevention is the only solution -- unless the risk is inconceivable. Of course, we've learned that a failure of the imagination is no substitute for doing your homework.
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