Apocalypse Files - Issue #1 - Facebook
In each issue (bi-monthly), we'll explore the threats to the current business model of a company or of an entire industry, the forces that could take them down or drive systemic changes, and most importantly we'll imagine possible solutions, looking at new and evolving trends, untapped niches, new business models or venture opportunities...
In this first edition, we take a jab at Facebook, the behemoth that just gets bigger and bigger. Welcome to the Apocalypse Files.
Almost doesn't count
In 1999, Yahoo was at the height of its glory with a market cap of $125B. In 2016, a shadow of its former self, it was valued at only 4% of that; and acquired by Verizon for $4.5B .
In comparison, in 2016, Facebook had already skyrocketed to 1.9B users and was worth more than $380B.
So a natural question arises: could Facebook one day face the same fate as Yahoo? And if so, what would be the cause of its downfall?
Livin’ la vida loca
What makes Facebook a super valuable company today is its gigantic user penetration. Their mission is to "connect the world". But that's not how they make money. They sell ads. And almost all of their revenue - 98% of it - comes from just that.
Their main customer is not you, as a user of the social network; it is the 10 million businesses, most of them Small and Medium Businesses, paying for ads. They leverage the immense power of Facebook's tracking and targeting tools, allowing Facebook to capture about a quarter of total US ad revenue.
The social network has been doing it for a while now, with greater and greater success. It looks like they just can't be stopped, so why try to change what is not broken?
…Baby one more time
Because in order to keep this business model relevant, Facebook desperately needs to attract new user generations, to keep its network big & active.
They also have to find ways to keep pushing ads regardless of the platform: a user shift to a different app, or a new digital space is a direct threat to Facebook’s revenue model. Ignoring those issues leaves them vulnerable to terrible loss of value.
So far, they have managed to find additional growth drivers by acquiring smaller competitors : Instagram in 2012, WhatsApp in 2014, and so on ... banking on disruption from the inside! But is "betting on the right horse" again and again a sustainable strategy for the social network?
The hardest thing
If you are a company building and running a social network, how can you adjust your business model beyond targeted ads? How do you keep on growing, when trends keep changing? You don't have to be the size of Facebook to face those challenges, any company with a social-based revenue model could follow one of those development paths.
Launch new products with niche communities, then expand. Start by staying aware of emerging niche apps & websites with a more specific content and target audience (ex: Reddit, Twitch) or larger competitors (Google, Twitter, Microsoft), who could steal user and market shares from you.
Create tools for your customers to help them manage and grow their business, in order to increase loyalty and diversify revenue. As an example: for event organizers, Facebook works with Eventbrite to handle ticketing easily (but could also build and offer such a payment solution themselves) while still helping them advertise.
Stay aware of regulation twists and go with the flow - instead of fighting regulations that seem inevitable and that are popular among your target audience, position yourself as the first one to comply with and encourage change! (e.g. privacy). This strategy can bring tremendous positive impact for your brand, and help you retain your user base.
That's all folks!
PS: If you haven't guessed, all section titles are from singles in the 1999 Billboard Hot 100, the year it all started going downhill for Yahoo.
PPS: Thanks Pierre-Louis for the awesome logo, check out his instagram
Agree? Disagree? Anything to add?
Have an industry or company in mind you want us to look at? Let us know and we'll add it to our roaster: it might be the focus of our next issue!