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Mentioned Companies: FB, LNKD, SINA, TCEHY, TWTR

Is Social Media Use Approaching Saturation?

April 23, 2014
3 min read
ARK-Invest_Blog-Banner_2014_04_23---Social-Media

The big internet companies are running out of untapped social media users. In order to maintain growth they will have to think outside the box. From 2006 to 2013, the population of social media users grew nine-fold to 1.8 billion. Business prospects have been similarly favorable: LinkedIn [LNKD], Facebook [FB], Twitter [TWTR]—to name a few—all enjoyed consistent revenue growth exceeding 50% per annum over that same period. When the user base is growing fast, it is easy for the revenue base to grow fast as well.

The user base, however, is no longer growing at that accelerated pace. While 1.8 billion users equals more than 25% of the world’s population, roughly two-thirds of the world’s internet-connected population has already been tapped into by social media ecosystems (see display). [1] When Facebook was less dominant worldwide, comScore estimates of MySpace’s active users set a floor on the number of social media users outside of China.

Smaller networks such as LinkedIn or Sina Weibo [SINA] have been omitted on the assumption that most users also have accounts on a larger network. This assumption generates a conservative estimate of total social media users; the true value may be slightly larger. Other estimates are similar in direction and scope, indicating the underestimation is not biased over the time range.

Is social media usage approaching a saturation point?

social media users, social media penetration, research, social media growth

 

Simple diffusion modeling would suggest that it is. There are some internet users—the data suggest as many as 3 in 10—who will never opt into a social platform. [2] Unless there is a marked inflection in the uptake of social media services, or a more dramatic expansion of the internet-using population, the prosperous days of social media users increasing are over.

Then it is no coincidence both Facebook and Google [GOOG] have announced plans to extend internet access to the underserved in developing countries. These initiatives may seem altruistic, but at the root are means by which to acquire additional users.

While social media companies may infill their platforms with adjacent services and deliver substantially higher revenue yields from their existing user-bases, there is some need for caution: a primary driver of the past decade’s growth is diminishing, and companies that have grown accustomed to simply winning more customers will instead have to increase the effective price they charge.

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