Why Traffic Drop In Mature Markets Is Very Bad News For Facebook

It is deeply ironic that Inside Facebook used Facebook's own self-serving advertising tool to find out roughly how many regular users the site has for each country.

The ad solution showed that Facebook had around 3.7 per cent less active users in the US, down to 149.4 million while Britain "lost" around 100,000 users with the estimated reach just shy of 26 million.

The actual number of Facebook users is almost certainly significantly lower than that because many younger users have faked their date of birth when registering on the social networking website.

A drop in more mature markets is bad news for Facebook for a number of reasons; first, it acts like an advance warning for other regions where Facebook operates, secondly it is also likely to affect advertising revenues in the long run; in the short term, the impact is likely to be negligible especially if Facebook increases the CPM to compensate for that drop in traffic.

Thirdly, Facebook's current losses are affecting countries with higher CPM rates; big gains in Mexico, Brazil, India and Indonesia won't make up for revenue losses in Europe and US. Fourthly, the fact that Facebook is starting to show signs of saturation comes at a time when it doesn't have any significant competitors.

Facebook is widely tipped to reach 700 million users worldwide over the next few weeks, with the prospects of breaking into the Chinese market likely to fuel another significant surge in active users.

Yet, should Facebook find it more difficult to monetise its core audience in western countries, this might jeopardise the company's plans to get an IPO in the near future.