The Social Network Effect

Facebook’s power is a direct result of the network effect. Each user’s utility of Facebook increases as the number of users increases. (Said simply, the more the merrier.) The network effect is bidirectional; therefore, each user’s utility of Facebook decreases as the number of users decreases. Facebook lost users last quarter. Watch Meta’s share price this morning to gauge the market’s reaction to this news for yourself.

You might also pay attention to Facebook’s guidance on advertiser spending, which is a far more troublesome metric. Regardless of Meta’s issues with teenage mental health, privacy, antitrust litigation, etc., a dollar spent advertising on Facebook yields one of the highest returns on advertiser spend (ROAS). When business gets bad, the first thing most businesses do is cut their advertising budgets. It’s not a smart thing to do, but you see it all the time. Facebook’s guidance on its ad revenue may be prescient.

Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.

About Shelly Palmer

Shelly Palmer is the Professor of Advanced Media in Residence at Syracuse University’s S.I. Newhouse School of Public Communications, co-founder of Metacademy, and the CEO of The Palmer Group, a consulting practice that helps Fortune 500 companies with technology, media and marketing. Named LinkedIn’s “Top Voice in Technology,” he covers tech and business for Good Day New York, is a regular commentator on CNN and CNBC and writes a popular daily business blog. He’s the Co-Host of the award-winning podcast Techstream with Shelly Palmer & Seth Everett and his latest book, Blockchain - Cryptocurrency, NFTs & Smart Contracts: An executive guide to the world of decentralized finance, is an Amazon #1 Bestseller. Follow @shellypalmer or visit shellypalmer.com.

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