This is the second in the Tech Titans Series.
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We turn our attention to Facebook’s 2018 Year End financials. Did you give up Facebook after the privacy, democracy, and lobbying issues Facebook faced last year? Well, you didn’t put a dent in their financials. Yet as Facebook turns 15 this year, let’s give some free business model advice to Mark Z.
Mark Zuckerberg: here’s some free business model advice on the occasion of Facebook’s 15th birthday.
I realize I’ve been telling myself the wrong story about Facebook.
On the East Coast and West Coast here in the states, we tell ourselves that Facebook is over, that advertisers are pulling back, and that the company has potentially caused more harm than good, and is best avoided.
But when you look at the financial and customer data that Facebook reports, we see a different story.
After a small and temporary blip last year, the company blew past expectations.
- Daily Active Users: 1.4 BN to 2 BN (that’s one-fourth of the world on a Facebook property every day).
- Revenues up from $55 BN to $65 BN.
In the most recent earnings call, Mark Zuckerberg announced major changes to the priorities of the company – to focus on social issues and improving people’s lives, not just growing for growth’s sake. Mark, you outlined many hard engineering and organizational efforts to curb abuse and build new privacy procedures.
Cheryl Sandberg then acknowledged the need to anticipate risks and earn back trust, starting with “helping people better understand our business model.” – Fourth Quarter and Full Year 2018 Conference Call.
Here’s the problem – the company remains split. Mark, you build and build and build and work hard on the engineering side. Then on the other side of the campus, you have your business lead, Cheryl Sandberg designing the business model.
The problem with this organizational design is that you’re going to get stuck pretty soon.
The business case:
The acceleration behind your growth has been driven by your massive daily user adoption, pulling a larger share of the global advertising market. But the ad market has an upward limit – $630 BN globally estimated for this year, trending to $760 BN by 2021. But then you’re going to run out of steam, even if you elegantly shift everyone from Facebook to Instagram.
You’re going to have to find new markets, new avenues of growth, and new business models.
The social/cultural case:
Advertising is a monoculture, an invasive species that prevents you from cultivating new models. Advertising has friction built inherently into the model. You optimize for one side, you compromise the other, and back again (which explains the tactical swerves of the last 15 years).
Since you are intent on shifting your priorities to meaningful improvement in people’s lives and other claims to social progress, you will want to experiment with better ways to exchange value for your services. Value that is more transparent, clear, and does not in its design create consequences (henceforth you won’t get a pass for consequences that are ‘unintended’).
As you continue to tinker with payments, blockchain, VR, and other new technology, my free advice: carefully experiment with new business model types. Be transparent about your theory or theories of change. Test new business models. But also test whether you are actually improving our lives, decreasing rates of depression among teen girls, participation in honest political discourse in countries, and genuinely creating connections for the communities you serve.
But instead, if all you do is focus on the build, and the tech, then all you will get is advertising.
If you’re curious about the project, find me at Reason Street. We’ll be creating this way to see complex companies and ecosystems to help us all better understand how technology business models are shaping our world.