Facebook’s latest quarterly announcement of the weakest growth figures in the seven years since it went public has highlighted the need for the company to find a new future growth driver.

Tech giants need to diversify to safeguard their future. They need to spot the next key theme early, and reinvent themselves. Silicon Valley is good at it. Google bought Android, and became the leading phone OS company. Amazon started life as an internet book company, but became a Cloud service provider, an Internet TV, and possibly, in future, a healthcare player. Apple went from PCs into music, phones and tablets. Now, Facebook must find a way to diversify and create its own success story.

Is virtual and augmented reality a foundation for Facebook’s future?

Facebook’s acquisitions to date have augmented its core social networking business, most notably Instagram for $1bn in 2012 and WhatsApp for $19bn in 2014. On top of this, it has made several smaller-scale acquisitions focused on social media, messaging, advertising and digital content creation.

Its most significant acquisition after WhatsApp was in February 2019, the $2bn purchase of virtual reality company Oculus. In September 2019, Facebook also bought CTRL-Labs a neural interface technology, ‘dedicated to building the future of augmented and virtual reality’. While this signals a different direction, it is an economically unclear one. Facebook chief executive Mark Zuckerberg has described virtual and augmented reality (V&AR) as the ‘holy grail’ of social experiences.

However, the market is slightly less convinced and is waiting for a killer app to bring V&AR into the mainstream. VR headsets remain a niche product primarily for gamers. AR products such as smart glasses are similarly niche. While both have potential uses for industry, their penetration remains low.

2020, a critical year for Facebook

Zuckerberg has described 2020 as a critical year for Facebook, notably on social and privacy issues. The company has more than a thousand engineers working on privacy-related projects, including a programme to better protect user data, as part of its $5bn settlement with the Federal Trade Commission following the Cambridge Analytica scandal. Historically the company acted without regulatory censure. However, that is now changing. Its recent foray into cryptocurrency, Libra, was an embarrassing flop, more or less killed off by regulators before it started.

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By GlobalData

Farming the installed base – for now

Facebook has a huge installed base of users, including those now in their middle years. There are now around 2.9 billion people using Facebook itself, Instagram, WhatsApp or Messenger each month, and around 2.3 billion people using at least one of its services daily.

Those numbers are impressive at first glance, but what does the future hold? Younger people are turning away from the platform. In the UK, a recent Childwise Monitor survey of 5 to 16-year-olds’ media consumption found that the number of children naming Facebook as their favourite halved. It didn’t even appear in their top ten most-visited sites.

While not yet facing an existential threat, its core business is threatened by growing antipathy to scraping and selling privacy data, anti-trust legislation, and the emerging generation’s indifference. Its most significant acquisitions are high-stakes gambles on products that are a long way from becoming mass-market products.

Does Facebook have a Plan B? And where will its search for fresh revenues eventually take it? Facebook is targeting small business entrepreneurs, trying to give them access to the same type of tools that larger companies can access. Facebook also has a strong artificial intelligence (AI) capability, recently working to enable AI-powered robots to navigate an indoor environment with 99.99% accuracy. However, it has a long way to go to fully diversify its revenue streams in the way Amazon and Google have. Facebook is one to watch, but right now for all the wrong reasons.