Analysis: As Facebook grows up, grand ambitions get reality check

Wed Jun 5, 2013 2:58pm EDT
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By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Facebook, which once seemed poised to take over the Internet, is showing its limitations: a host of newer services are gaining ground among trend-setting youth; a much-hyped smartphone app has received a tepid response; and grand ambitions such as taking on Google in the search business seem ever more fanciful.

In a volatile Internet industry where companies can rise and fall almost overnight, one might even say that the nine-year-old Facebook Inc is suffering a mid-life crisis.

Yet even if the social network falls short of its goal of becoming an all-encompassing Web destination that consumers turn to for everything from messaging to shopping, experts say Facebook has likely achieved enough scale and ubiquity to assure its staying power.

"They've gotten so big that it's one of those things you have to use," said Dan Niles, chief investment officer of tech-focused hedge fund firm AlphaOne Capital Partners, which does not have a Facebook position. "You may not like the electricity company but I guarantee you you're still getting electricity."

Concerns that Facebook is losing its grip on consumers, underscored by a recent report from Pew Research that showed declining enthusiasm among some teens, have kept a lid on the company's share price even as stock markets rallied. Facebook shares closed at $23.52 on Tuesday, near their six-month low and almost 40 percent below the company's May 2012 IPO price.

With 1.11 billion users, a rich trove of data on those users' interests and relationships, vast personal collections of photos and online identity profiles that serve as the log-in for many other services, Facebook faces little near-term risk that consumers will abandon it in large numbers.

Consumers spend significantly more time on Facebook than on competing online properties such as Google, Microsoft or Yahoo, according to Nielsen Media Research. And the number of Facebook users who visit the site every day increased to 59.9 percent in the first quarter, compared to 58.3 percent in the fourth quarter.

"The newer, exciting stuff is coming from startups, but Facebook is really going to be the glue at the middle," said Bill Lee, an entrepreneur who has started several Web companies.   Continued...

A smartphone user shows the Facebook application on his phone in the central Bosnian town of Zenica, in this photo illustration taken May 2, 2013. REUTERS/Dado Ruvic/Files