Facebook's days of hypergrowth may be over

"We have posted the phrase 'this journey is 1% finished' across many of our office walls, to remind employees that we believe that we have only begun fulfilling our mission to make the world more open and connected." Mark Zuckerberg wrote this in his letter in Facebook's IPO registration paperwork.

It's in character for the CEO: An odd mix of arrogant and humble.

But realistic? To think that Facebook is a fledgling is pushing it. Even if it is true that, barring catastrophe, Facebook should still be able to grow nicely for quite a while.

Facebook is solid. As I wrote out shortly before the company filed its papers to go public (Three killer reasons Facebook's IPO could be worth $100 billion), it is built on a tripod of unmatched strengths: A ton of users (reach) who access the site a lot and for long periods (dwell) and who would find it hard to leave even if they wanted to (lock-in).

Facebook needs to grow in each of these three areas to fulfill its mission of making the world 99 percent more connected. And that's going to be very hard in two of those three.

Facebook is showing nice growth around the world.

(Credit: Josh Lowensohn/CNET)

The company is at least growing healthily in reach. North America is now, in fact, trailing both Europe and Asia in the number of monthly active users, and the proportion of users in those regions who aren't on Facebook is higher than it is here, according to the prospectus. That means Facebook can still grow its installed base a lot. That's good.

What's not so good is that most of that growth is going to happen on mobile devices. As Maggie Reardon points out in Does Facebook have a mobile problem?, mobile is a fundamentally different platform from the old-fashioned World Wide Web. One of the biggest issues: The unprecedented blocks of time that users put into Facebook on the Web does not translate into mobile use.

According to one successful mobile app developer I spoke with, tech companies are taking note that on mobile platforms, users are online for a lot less time--aside from media platforms like Spotify, Pandora, ESPN, and so on. Facebook may be social lifeline on phones and smartphones, but it doesn't command as much of a person's actual day as it does for users sitting in front of a computer. And users new to the interconnected world are, in large part, skipping the traditional computer and going straight to mobile.

So Facebook's dwell time is going to go down. Nor is there a lot of real estate on a mobile platform to display the complicated social reinforcement messages that run on Facebook's Web-based ads. Less time, less space: This is going to be a very tough problem to solve.

Facebook's S-1 talks a lot about number of users: Monthly, daily, and mobile. It does not mention time spent per visit. And this is why. That number is about to crash.

Facebook packs a lot of peer pressure into its advertising.

(Credit: Facebook S-1)

Finally, there's the lock-in issue. It's not likely that Facebook's switching cost will go down much, which is good news for Facebook investors, but I don't see how it can go up. In other words, Facebook is about as good as it can be at making it painful to move off the social network, without completely taking ownership of its users' personal information, which I actually believe is antithetical to Zuckerberg's vision. Not to mention that enforcing greater lock-in would raise the ire of vocal users and government officials around the globe itching for a fight.

That said, as a business, there are still plenty of opportunities for Facebook to grow. Its revenue has been primarily based on ads, and ad rates can go up, especially as Facebook expands its demographic and improves ad focusing. Facebook's control of its ad network can be tightened, and ad formats and technologies can always be improved.

Facebook is also likely to push for more of an Apple-like App Store model, to get beyond its over-reliance on Zynga for virtual good sales and other commerce and to increase the proportion of revenue that Facebook makes from consumer payments. For example, it would not surprise me if Facebook made access to its social graph contingent on using the Facebook payment platform for subscription-based services like Spotify. In other words, if a user wants Spotify Premium, and wants to integrate it with their Facebook experience, they'll have to pay for the service inside Facebook itself. This will cost companies some percentage of their per-user revenues (typically, 30 percent), but in return they'll get access to the reinforcing benefit that Facebook can have for a brand when every user's activity with a product is blasted out to all their friends.

I do not expect Facebook to ever charge consumers for its service. It will leave that to third party developers, and simply collect the rent.

While it appears that there are good opportunities for Facebook to improve its financial performance, I am not convinced that Facebook's users are eager to connect much more deeply with each other than they already are. I am, though, fairly sure that developers will keep trying to find new ways to link people together on the platform. And that every once in a while, one will get it right.