Market update: hello to Ello, goodbye to Facebook?
Considering the huge variety of social media sites that were sprouting with remarkable regularity a few years ago, it seems like a reasonably long time since there was a new platform generating hype.
Which perhaps explains the huge amount of buzz for ‘Ello’, a new alternative to Facebook that has been making waves off of the back of huge engagement over in San Francisco, and spreading around the world on a tide of media coverage.
Why all the excitement? In truth there are probably several factors that contribute to Ello’s early success. It has an exclusivity – the service is invite only – that mirrors the early days of Facebook, and allows people to leave behind the baggage (for some almost a decade old) weighing down their Facebook profile.
The dearth of coverage about new social media is probably contributing to the huge amount of hype as well; after a surfeit of new platforms the market has gone quiet and that makes Ello seem fresh and exciting.
Ello’s true USP, though, is its outspoken refusal to utilise ad revenue for profit – meaning that newsfeeds are kept clean and companies are kept away. That may seem like an unlikely reason for millions to flock to Ello – after all private, ad free alternatives to Facebook are nothing new and have so far failed to attain mass exposure – and in truth it is benefitting hugely from ‘hipster’ uptake in San Francisco, a lot of buzz and a fair amount of luck. But there are several reasons why people may turn away from Facebook, either to Ello or another platform in the near future.
Facebook has been listed on the US stock market for a little over two years, out of its ten-year lifespan. Its IPO was viewed as something of a failure, despite taking the mantle of largest web IPO ever (recently lost to Alibaba). After six months on the market, Facebook had shed 50% of its value: despite reporting ever-increasing user uptake and engagement.
Then in July last year Facebook announced a huge leap in advertising revenue, up 61% from the previous year. Mobile ads generated 41% of revenue and ads overall represented 88% of Facebook’s earnings.
The markets responded accordingly, Facebook shares leapt 30% in a day and were up 100% before the year was out.
12 months on, Facebook released another earnings announcement . Ad revenue for the three months to June 30 2014 was $2.68 billion, 67% up from the previous year. Mobile ads increased to 62% of ad revenue and ads were now 92% of total earnings.
Shares went up again, this time 8.5% in a day. All in all, Facebook is now worth 200% more than it was in July 2013, and that is largely down to ads.
That huge turnaround is stunning for investors, but it isn’t too hard to see why some of Facebook’s users may feel left behind. The large amount of publicity for their rise – and attempts from Twitter and co. to emulate it – has seen some public opinion turn against Facebook.
There is also a similar situation occurring in China, where leading micro-blogging service Weibo.com is seeing increased competition from other social media sites, and has increased its popularity with business to the possible detriment of its users. Clearly, balancing the books and keeping users happy is a fine balancing act.
Whether Ello can maintain this balancing act remains to be seen. Its belief that a feature-rich ‘freemium’ service can keep the business afloat (and it has had a lot of venture investment, so needs to generate profit somehow) could be tested. After all, features outside of advertising earned Facebook just $234 million from 1.32 billion active users last quarter – and Ello has nowhere near that.
However, should Ello succeed in converting large numbers of Facebook users to its cause, the period of dominance for Facebook may be at an end sooner than many traders thought.
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