With the recent announcement that Facebook has just reached 1 billion users, John Pavley of the Huffington Post predicts that the next billion users will be reached by the year 2014.
The prediction was based on the current growth of the social networking site, ignoring such factors as macroeconomics, attrition rate, tech scalability and the like.
Furthermore, Pavley thinks that Facebook will run out of business when the site hits this number of users. While some adhere to the principle: “more users fixes everything,” Pavley believes that this is a myth and mentions the Law of Diminishing Returns.
According to Wikipedia,
“Diminishing returns is the decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant.”
Every new user that is added to the business model that is Facebook has a diminishing value, and Facebook has a hard time even managing the huge amount of data that the users are producing.
If Facebook has a hard time accounting for a particular user simply because it has too many other users to attend to, then the company can only make rough estimates for that user. The more users there are, the less accurate the estimates become, and users lose their value.
Moreover, Pavley believes that the Law of Diminishing Returns is the reason why other social networking sites such as Friendster and MySpace failed. These social sites had no scalable advertising business, working capital, and other basic problems due to the sheer number of users.