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Facebook Secret Research Warned of ‘Tipping Point’ Threat to Core App

Last October, after spending almost a year examining trends among Facebook users, a senior data scientist at the company named Tom Cunningham painted a bleak picture of one possible future for its flagship Facebook app.

At the time, Facebook noticed that users of the app—known internally as the “blue app” because of the color of its icon—were increasingly sharing on Instagram and WhatsApp, which are also owned by Facebook. In confidential research Mr. Cunningham prepared for Facebook CEO Mark Zuckerberg, parts of which were obtained by The Information, he warned that if enough users started posting on Instagram or WhatsApp instead of Facebook, the blue app could enter a self-sustaining decline in usage that would be difficult to undo. Although such “tipping points” are difficult to predict, he wrote, they should be Facebook’s biggest concern. 

The research came as Facebook was beginning early work to unite the messaging systems behind the company's apps. While Mr. Zuckerberg has said publicly that the plan will give users more choice by letting them communicate across apps, the move could also alleviate growth concerns for Facebook’s core service and further cement the company’s grip on the social media landscape. 

The Takeaway
• Concerns that Instagram and WhatsApp growth could cannibalize core app
• Instagram, WhatsApp, Messenger, Facebook apps have significant user overlap
• Research came as Facebook began early work to unite messaging systems

The research shows in fine detail how Facebook’s family of apps coexist and often compete with each other, at a time when the company has warned Wall Street that it plans to begin disclosing less detail about the performance of its flagship app. Among the research findings were:

  • The closely watched “broadcast sharing” metric of public posts by Facebook app users fell between September 2017 and 2018 in nearly all of the top countries where it operates, including North America and Western Europe. 
  • While overall rates of user sharing to the feeds of Facebook and Instagram are in slow decline, the company’s ephemeral Stories feature is growing rapidly across all of its apps and is making up for the loss in engagement. 
  • Overall time spent on video and public posts was flat on the Facebook app in 2018.  

While the research identifies a variety of potential threats to Facebook’s business—not including the furor over its user privacy scandals—the company is still thriving, posting a 26% increase in revenue and 8% jump in active monthly users for the main blue app during the first quarter from the year-earlier period. Analysts are expecting a strong second quarter earnings report from the company this Wednesday, predicting revenue growth of almost 25%. 

Facebook didn’t respond to requests for comment for this story.

With a total of 2.7 billion global users across what employees call its “family” of apps, Facebook is by far the largest social network company in the world. The internal research by Mr. Cunningham and a small team further demonstrates how its dominance was aided in large measure by its acquisitions of Instagram and WhatsApp when they were early stage startups, deals that have prompted growing scrutiny from U.S. regulators focused on possible antitrust violations by tech giants. 

Elizabeth Warren, the Democratic senator and presidential candidate, has suggested that Facebook be forced to spin off Instagram and WhatsApp into separate companies. As early as this week, the Federal Trade Commission could announce a settlement with Facebook that would result in a fine of as much as $5 billion for the social media company and possibly include stringent rules on how the firm manages user data with future product launches.

While Facebook’s acquisitions of Instagram and WhatsApp eliminated potential external threats at the time, the growing popularity of the two apps still present competitive risks for its original and most lucrative property, which Mr. Cunningham sought to better understand when his research effort began around the fall of 2017. Historically, Facebook has made the lionshare of its revenue through advertising on the News Feed—an endless river of content from friends and professional publishers—while efforts to make money from Instagram and WhatsApp are more recent and revenues from those specific apps haven’t been shared with investors.

After examining data from its various apps—Facebook, Messenger, WhatsApp and Instagram—the company found significant overlap between the audiences for the apps, as the diagram above illustrates. Because the company spun out Messenger from the flagship Facebook app several years ago, it lumps the two together in many of its internal analyses.

For example, when the research was compiled in late 2018, at least two-thirds of each app’s monthly active user base was also active on another app from the Facebook family. The apps with the most user overlap were Facebook and WhatsApp, although WhatsApp with its 1.5 billion monthly users also had the largest audience of people who were not using another Facebook property. After growing quickly among existing Facebook app users, Instagram had the smallest percentage of users who weren’t active on another company app. Through all of its properties, Facebook reached 85.4% of the world’s population with internet access, the data showed.

The company’s research dwelled on growth “tipping points” for its apps, which, on the upside, lead to surges in new users as more people flock to social networks to communicate with their friends. The phenomenon can work in reverse too, pushing social networks into irreversible decline as users gravitate towards competing apps. One negative scenario for Facebook, according to the research, is that Facebook’s main blue app will eventually face such a decline as WhatsApp and Instagram grow.

Through its research, Facebook found that its two main messaging apps, WhatsApp and Messenger, were direct rivals in nearly every market. After analyzing countries with the highest populations of internet users, Facebook determined that there can only be one dominant messaging app, as most geographies have a single messaging app with more than 50% reach or widely use an open protocol like SMS texting. 

As an example, Messenger was significantly more dominant than WhatsApp in North America in terms of reach, but the reverse was true in Western Europe. Even their specific features competed. When people started sharing through WhatsApp Status, the app’s clone of Snapchat’s ephemeral Stories feature, Facebook observed a noticeable decline in messages sent on Messenger.

Instagram directly ate into the flagship Facebook app’s growth, according to the research. Of all the Facebook properties, Instagram was growing the fastest and showed no signs of slowing, while overall engagement for the Facebook app was flat in 2018 after falling the year prior. Facebook’s researchers found that as Instagram continued to grow, the number of Facebook-only users would decline, thereby making it less attractive for people to stay active on both apps. The company estimated that, if trends continue, time spent on Instagram, which it disclosed had one billion users globally in June 2018, could eventually exceed the Facebook app.

Publicly, Facebook is increasingly discouraging investors from focusing on the growth of its flagship app. On the company’s fourth quarter earnings call, Chief Financial Officer David Wehner announced that, instead of disclosing the number of users for the Facebook app, it would gradually shift to disclosing the number of people who use at least one of its apps. The change will make it harder for investors to spot deteriorating growth in the main blue app or fluctuations in growth for Instagram and WhatsApp. 

The research led by Mr. Cunningham found that, despite the concerns, users were still flocking to Facebook’s services in aggregate. When looking at its complete suite of apps, the company didn’t observe an overall decline in engagement. The company’s researchers ran a series of studies tracking single-app users after they joined or started posting to a second app owned by Facebook. These studies found that the decline in engagement on the first app was generally made up for by an increase in activity on the second app. 

Facebook has already taken steps in recent months to play up its strengths, particularly growth in Instagram usage. In Japan, where Facebook had declined in monthly reach by 2% between 2017 and 2018, the company observed that teens especially were switching to Instagram and Twitter. And Instagram recently announced plans to open its first international engineering office in Japan led by its former head of design. 

Longer term, the research warned that decreased engagement on the main Facebook app could have negative network effects that would be large and difficult to quantify. Ultimately, the company determined that connecting its apps by letting users message across them would help aid the growth of Instagram and WhatsApp while also mitigating growth concerns for the blue app.

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The company has already enabled some sharing across its apps, such as the ability to post photos on Instagram directly to Facebook. The next big step in this direction is Facebook’s plan to make the messaging system for its various apps work with each other. While still in the early stages of development, the project will make it so that an Instagram user, for example, will be able to message someone who is on WhatsApp and vice versa. Politicians such as California Rep. Ro Khanna have been critical of the project, citing antitrust concerns with Facebook’s early purchases of Instagram and WhatsApp.

The social network’s move to unify its apps is also intended to compete more aggressively with Apple’s iMessage service for iPhones, which Facebook’s internal research has positioned as a serious threat to its dominance in the messaging space. Toward the end of last year, Facebook employees began using the analogy of an airline alliance to explain internally the benefits of connecting its apps, according to a person familiar with the matter. Similar to how customers earn and spend miles with airlines in the same alliance, the thinking is that a user will be more likely to choose at least one of Facebook’s apps if they can all talk to each other.

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