The world is a big place – 6.84 billion people, in fact, according to the World Bank. At the end of March, Facebook (Nasdaq: FB) had a total of 901 million users from around the world. That’s 13% of the world’s population.
Facebook penetration in the U.S. is very high – some 188 million of the 347 million people in the U.S. and Canada are on Facebook already and have used the site in the last month (a penetration rate of 54%). The situation in Europe is similar.
I would argue that every adult with a computer or smart phone and Internet connection is not only familiar with Facebook but has already joined … if they wanted. Those who are not on Facebook are either too young, too old, have no desire to “connect online,” or don’t have access to the Internet.
Certainly there are many more people outside of the U.S. and Europe who Facebook can tap. Users in Asia number 230 million and the catch-all “Rest of the World” category counts 242 million users.
However, not all users are created equal. Facebook users in the U.S. and Europe are worth considerably more revenue to the company than users in the rest of the world. Just look at the quarterly revenue per user for the four regions of the world:
- U.S./Canada: $2.79
- Europe: $1.36
- Asia: $0.51
- Rest of the World: $0.36
Why are users outside of the developed world worth less to Facebook? Because advertisers apparently don’t believe they are worth as much, as a result of their lower average household income, discretionary spending, and other important demographic information. Big brand advertisers – BMW, Coke, General Electric, Gillette, Microsoft, Proctor & Gamble, and Toyota – are willing to spend more money to reach eyeballs in the U.S., Canada, or western Europe than they are people living in Colombia, Kenya, or Pakistan. The reason is because these users are worth so much more in terms of future product purchases.
With Facebook penetration in the U.S. near a max, and with Canada and Europe already deeply penetrated markets, where can Facebook grow its users? The answer is most likely in places like Africa, Asia, Latin America and South America. While there certainly are untapped billions of people in these places, Facebook’s historical revenues seem to indicate that users in these other parts of the world are worth 80-87% less than a user from the U.S. or Canada.
In order to continue growing, Facebook will need to continue penetrating the wealthy countries of the developed world and/or continue expanding in other areas of the world at a very rapid rate. Another option would be to figure out how to more effectively monetize its users – both in the developed countries and emerging markets.
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