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3 Ways Facebook Differs From a Bad Case of the Flu

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Investors may want to know this before next week's earnings report.

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Two researchers at Princeton University have caused a stir far beyond academic circles by predicting the imminent demise of Facebook (NASDAQ:FB), based on a comparison of the social network's growth to a viral event-literally viral, such as a severe outbreak of the flu.

Facebook grew like a virus and it will die just like a virus, they conclude, raging ahead until it reaches maximum global impact, and then starting a long, speedy slide towards oblivion.

In fact, they conclude, Facebook has already peaked. It entered its decline phase after 2012, and it will lose 80% of its user base between 2015 and 2017.

Their conclusion is in part based on a comparison of Facebook's arc to that of one of its predecessors in social media, MySpace.

The once-hot MySpace was created in 2003, and was purchased by News Corp. (NASDAQ:NWSA) in 2005 for $580 million. It hit its peak in 2008, not incidentally the same year that the newer Facebook emerged as a serious rival. The long slide down of MySpace soon began. News Corp. sold it in 2011 for $35 million.

The Princeton researchers were able to track the rise and fall of MySpace against some publicly available data: Google (NASDAQ:GOOG) Trends, the historical record of search queries entered at Google.com by users around the globe.

It fit. That is, the number of search queries about MySpace rose and fell in a pattern that mimicked the rapid rise and abrupt fall of the site itself.

So, where does the flu come in? The literal virus metaphor works nicely here.

The researchers found that Google Trends data was equally accurate at predicting the course of an outbreak of the flu. The need for information about the flu follows the same cycle as the flu itself. Interest in the subject spreads infectiously among friends and family, expands outwards in ever-expanding circles, reaches a peak and then begins to subside.

If you're a Facebook investor, this could make a terrifying amount of sense.

Or not.

Here are three simple ways that you can tell the difference between Facebook and a bad case of the flu, or for that matter between Facebook and MySpace.

You might have some of your own differences in mind, as Facebook prepares for its next quarterly earnings report, due on Jan. 29.

1. Sheer Numbers Don't Matter

It's true. Facebook is at or near its peak in terms of total enrollment.

It has 1.2 billion monthly active users. That's more than 1 in 7 of the people on the planet.

In terms of media reach, that is beyond the wildest imaginations of pre-Internet publishers. It was certainly beyond the imaginations of the creators of MySpace, and they got to about 78 million.

But it doesn't mean a thing, as a business, unless Facebook continues to improve the ways it monetizes that audience, breaking it down into an infinite number of valuable demographic segments to sell to advertisers.

That's what we'll all be looking for on earnings day. How successfully is Facebook selling that audience to advertisers?

2. Google Trends Can't Track Facebook

Keeping an eye on Google Trends is an excellent way to find out how interested people are in the flu, or Justin Bieber, or this year's Budweiser Super Bowl ad.

It doesn't have a thing to do with Facebook, though.

Nobody needs to go to Google to enter the search term "Facebook." It would be like going to dictionary.com to look up the word "toe." We all know what one of those is, and we don't need help to find an example.

In 2005, when MySpace was young and hip, maybe newbies needed to look it up, just to find out what all the chatter was about. Or because that's how they found sites on the Web then. Who remembers?

In any case, there are apps for that now, and that's how Facebook users get to it, unless they click on a bookmark. Either works.

3. This Is No Ordinary Virus

Facebook is not the flu, it's the Black Death. Once someone close to you has been infected, there's just no escaping it.

The Princeton study draws on the dynamics that govern the spread of an infectious disease. People join a social network because the people they want to associate with are there.

They stay for the same reason. And their list of friends gets broader, and their Timeline gets deeper, and the Facebook habit gets entrenched.

If Facebook is nearing its saturation point in terms of membership growth, that is a strength. Everybody is there because everybody is there.

Every day, some users get tired of it and drop off the Facebook radar, and others jump back in, to post a new picture of the kids, or share an amusing story, or just to see what's up.

As the Princeton study points out, even the worst flu epidemic runs its course, as did the Black Death, or bubonic plague, in the Middle Ages.

The only thing that can cure Facebook is something better.

That's what Facebook's leadership has to watch out for every day. The new kid who has a clever idea. It doesn't even have to be all that clever. It may be something that someone at Facebook already thought of, but it's been delayed on account of bureaucracy.

And then a new, stronger virus will emerge, and Facebook will enter that long downward phase.

See also:

F5 Networks, Citrix: Two Cloud Stocks to Keep Watching

Google to Hold ISPs' Feet to the Fire

Facebook's News Feed Follies: Come Back, Lil Wayne!
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No positions in stocks mentioned.
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