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Brains, Brawn, and Blood
Churchill said that WWII was won with British brains, American brawn, and
Russian blood. Facebook has all three. If you’re wondering which of the
three you are, as the customer, it means you’re the blood.
Consider Snapchat. Many analysts saw the wildly successful camera app as
a potential horseman. A brainchild of Stanford grad students, it stormed out
of the gate in 2011, offering a way to send instant photos and videos to
friends. The added wrinkle was that videos went poof after a few seconds or
hours. It was gaffe insurance, and people felt free to share more intimate
content—without worrying about it being seen by a future mate or employer.
The ephemeral nature of the content also creates a sense of urgency, resulting
in better engagement (cue advertisers salivating). Finally, Snap appeals to
teens, a notoriously difficult and influential segment.
Snapchat has added lots of features in the months since its founding. It has
even pushed into TV, launching a mobile video channel. In 2017, the
company is gaining fast on Twitter, and had 161 million daily users when it
filed for an IPO.
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It IPO’d with a value of $33 billion.
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We’ll see. Facebook already is positioning itself to crush the young
company. Imran Khan, the company’s chief strategy officer, claimed:
“Snapchat is a camera company. It is not a social company.”
I don’t know if it’s the scorn the Zuck feels after Evan rejected his
overtures about acquisition, or a warranted response to a threat. But I believe
the first thing Mark Zuckerberg thinks when he opens his eyes in the
morning, and the last as he closes them at night, is: “We’re going to wipe
Snap Inc. off the face of the planet.” And he will.
Zuckerberg understands images are Facebook’s killer app, much of it
residing in the Instagram wing of his social empire. We absorb imagery sixty
thousand times faster than words.
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So, images make a beeline for the heart.
And if Snapchat is threatening to hive off a meaningful chunk of that market,
or even climb into the lead, that threat must be quashed.
To do this, Facebook is developing a new camera-first interface in Ireland.
It’s a clone of Snapchat. In a 2016 earnings call, Zuckerberg said, and this
may sound oddly similar: “We believe that a camera will be the way that we
share.”
Facebook has already appropriated (that is, stolen) other Snapchat ideas,
including Quick Updates, Stories, selfie filters, and one-hour messages. The
trend will only continue—unless the government gets in the way. Facebook is
a Burmese python consuming a cow. While the cow goes in, the snake takes
its shape. After digesting, it returns to its normal shape, but bigger.
Much of this enormous beast is Instagram. Facebook bought the photo-
sharing site in 2012 for $1 billion. It’s proving to be one of the greatest
acquisitions of all time. In the face of ridicule (“A billion for a company with
nineteen people?”), the Zuck was steadfast and pulled the trigger on an asset
that’s worth fifty-plus times what he paid for it. Whether or not you believe
Instagram is the premier platform in its market, it’s less of a stretch to
acknowledge that it may have been the best acquisition of the last twenty
years. (And Zuckerberg wasn’t as lucky two years later—he paid twenty
times that for WhatsApp, which had about the same number of employees.)
One way to appreciate the brilliance of this acquisition is to look at
Instagram’s “Power Index,” the number of people a platform reaches times
their level of engagement. This social index reveals Instagram as the world’s
most powerful platform, as it has 400 million users, a third of Facebook’s,
but garners fifteen times the level of engagement.
Facebook’s success with Instagram has a lot to do with its speed in
adjusting to the market. Its ability to punch out new features is unrivaled.
Some of them work (Messenger, mobile app, customized news feed), and
some fall flat (the snoopy short-lived Beacon, which would share our
purchases with our friends, and the failed Buy Button). The birthing, and
killing, of new products makes Facebook the most innovative big company
on earth.
L2 Analysis of Unmetric Data.
L2 Intelligence Report: Social Platforms 2017. L2, Inc.
Less celebrated, but just as important, is Facebook’s willingness to quickly
back off when it gets pushback from users or the federal government.
Facebook knows that its hold on users remains tenuous. Despite the
considerable effort those users have put into constructing and maintaining
their pages, a sexier competitor could still draw them away by the millions—
just as Facebook did to Myspace. So, when its endless monetizing initiatives
piss off users—as did Beacon—the company quickly withdraws, waits, then
probes somewhere else with some other innovation. Jeff Bezos highlighted in
one of his famous investment letters that what kills mature companies is an
unhealthy adherence to process. Just ask United Airlines CEO Oscar Munoz,
who defended his employees who dragged a passenger off a plane, as they
had “followed established procedures for dealing with situations like this.”
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Much of this innovation comes gratis. Facebook benefits from the ultimate
jujitsu move: it will likely become the largest media company on earth, and it
gets its content, similar to Google, from its users. In other words, more than a
billion customers labor for Facebook without compensation. By comparison,
the big entertainment companies must spend billions to create original
content. Netflix is shelling out more than $100 million for each season of
The
Crown
and will spend $6 billion on content in 2017 (50 percent more than
either NBC or CBS).
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Yet Facebook competes for our attention, and wins it,
with pictures of fourteen-month-old Max curled up with his new Vizsla
puppy. This is fascinating to a small audience, maybe two hundred or three
hundred friends, but that’s enough. It’s easy for the machine to aggregate,
segment, and target. So, to extend the analogy, what would CBS, ESPN,
Viacom (MTV), Disney (ABC), Comcast (NBC), Time Warner (HBO), and
Netflix (combined) be worth if they had no content costs? Simple—they’d be
worth what Facebook is worth.
Duopoly
Google and Facebook are redrawing the media map. Eventually they will
control more media spend than any two firms in history—separately, much
less combined. Most people would agree that, for the next decade at least,
ground zero for growth in media spend will be on mobile. Combined,
Facebook and Google control 51 percent of global mobile ad spend, and their
share grows every day. In 2016, the two firms accounted for 103 percent of
all digital media revenue growth.
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This means that, sans Facebook and
Google, digital media now joins newspapers, radio, and broadcast TV as
sectors that are in decline.
Kafka, Peter. “Google and Facebook are booming. Is the rest of the digital ad business
sinking?”
Recode.
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