Facing a Slowdown

We don’t mean to pick on Facebook. Or maybe we do. Either way, given all the controversy surrounding the company’s initial public offering, Facebook merits some scrutiny.

What caught our attention today was a Wall Street Journal article pointing out that the growth rate of Facebook users in the United States is slowing dramatically. This April, the number of new users was up only 5% from a year earlier. In previous years, according to data from the research firm comScore, that number had been much higher: 24% in April 2011 and 89% in April 2010.

Noting that “investors expect Facebook to grow at triple-digit and double-digit rates—much like Google Inc. did after its 2004 initial public offering of stock,” the Journal suggests that in reality “comScore’s numbers illustrate how little room there is left for Facebook to grow in the U.S.,” its most profitable market.

Did investors overreach? Perhaps—especially those who’ve bet that Facebook is the ultimate play in a new era defined by a never-ending explosion of interest in social media.

As Peter Drucker noted in The Changing World of the Executive: “Every 50 or 60 years . . . there has been a decade in which businessmen, politicians and economists in the world economy’s developed countries expected speculative growth to go on forever at an exponential rate. Every such era believed that there would be no limit to growth. And every one ended in debacle and left behind a massive hangover.”

In the late 1960s, “any business was expected to grow forever,” Drucker recalled. “This was inane; nothing can grow forever.”

The most important thing for a business is not to grow like crazy but to grow in a way that makes sense, especially since “only a handful [of businesses] have a growth policy, let alone a growth strategy.”

This doesn’t mean that Facebook is a failure. It means that it must figure out how to adjust. “Economic growth always changes and shifts to new foundations,” Drucker wrote. “And the demands on business management always change so greatly that what was considered smart management during the time of rapid expansion fast becomes inappropriate . . . if not stupid.”

What do you think: Can Facebook successfully transition to a slower-growth future?

(This post was written on Monday June 11th. Its publication was delayed by server problems.)