Media Myopia

How easy is it to write off a company ( Facebook) after one day of primary market trading where the stock falls by 12 per-cent ?

Reading the tech news coverage yesterday I thought Facebook kind of imploded in one day post the IPO and Mark Zuckerberg’s life kind of ended.

But then everyone’s favorite poster boy is just one step away from being everyone’s favorite whipping child. It’s something to do with being able to do what very few people can do. 

Relax guys…let’s not get hyper excited. Let’s see what their stock price is in ten years and then we will know whether investors were right or wrong.

Facebook - Where to from here?

So the biggest tech IPO is over. Facebook ( FB) at $38 a share has not really set the NASDAQ on fire. Impressions vary from negative to neutral and overall the IPO seems to have been a bit of a whimper, or maybe the stock was priced absolutely perfect as many other analysts have pointed out. 

Irrespective of that, where does a company which has only ad inventory to sell, go from here? What does it need to do to hold on or grow its $100 billion odd valuation- and keep investors hooked in ? 

The answer can only be in more products/ solutions and diversification. Without that future, the valuation is kind of overpriced.

However, Facebook’s ad model is changing with user generated content being converted and positioned as ads, thereby utilizing the open graph driven content mechanism into an ad machinery.

In this format, social endorsements are being converted into ads. The belief is that this would create a far more organic pull for a product ( thereby more relevance for a brand)  than a glitzy ad/marketing campaign. 

Facebook has also spent a lot of money in recent times in buying mobile apps and their subsequent eco-systems.

And lately they have started their own developer app community where the emphasis is on building mobile apps.

So clearly they do want to break the  mobile barrier.

Apart from that for the near future, Facebook will probably look at these 3 parameters to scale its operations. 

  • Insight data led advertisement 
  • Cloud communication
  • And a  supply chain of digital services which are interdependent on each other and rake in money across different access points of a customers digital and communication ecosystem 

The Facebook IPO  has not popped, neither has it tanked. When primary markets open on Monday morning, we will all have a clearer picture of where the stock price finally settles.

Either way Facebook now has to re-invent a few things. Just being the social network of choice won’t allow it to manage and grow it’s valuation in the long run. 

It has got to ship, more products than free membership and timeline. More products that customers are willing to pay for. And the clock has started ticking.

This is where Yahoo got lost. And Google is trying to find itself. 

But growing the $100 odd billion valuation just based on selling ads?

No.

Why Facebook is going the Apple way?

No they are different companies, but in terms of creating a long term viable business model, Facebook is trying to get all the pieces that it needs to create a scalable system and a supply chain to power it. Just like Apple did.

Let’s now think what makes Apple tick.

They make the hardware( iMAC, iPod, iTouch, iPhone,MacBook) which harbors the software( iOS, Mountain Lion) which has its own content distribution and payment system (iTunes), which nests it’s mobile application eco-system ( the app store), which holds the developer network.(iOS app developers) who create the apps which we then download to power our iDevices.

And courtesy of it being closed, none of these work independently without the other. They are all interconnected. Safe inside a walled garden. 

So when a customer invests in any one, ultimately he invests in all parts of this supply chain to make things work, thereby making it a very sustainable business model for Apple.

Once a customer buys an iPhone he has to buy music or content from iTunes, has to use iOS, has to go to the app store and ultimately after the first few free apps inveriably starts buying paid apps.

Apple at its end, ensures that the customer invests in its hardware by dint of its design and technology. The rest is automatically taken care off. And once the customer is in, the carriers and content partners are only too happy to oblige.

A 97 Billion dollar ( cash) closed eco-system. Hugely profitable. And all this based on cracking the market for the most intimate social network of them all. An individual’s mobile phone.

Now let’s see Facebook. They have the people ( 900 odd million of them), who play the Games and click on the ads which makes gaming companies ( like Zynga) and MNCs pump money on advertising and push their content via Facebook ( but this is a considerably less integrated business model than say Apple)

With Zynga leaving Facebook to start their own gaming platform, and Facebook not having cracked the mobile platform; let’s look at the below instances;

Facebook bought over Instagram ( the biggest mobile app for sharing pictures) and Glancee ( a location sharing mobile app) along with Gowalla (another location app which integrates well with the mobile web) and have now announced the launch of their very own App Centre where developers can create more applications for web 2.0 and mobile web platforms/ games/ content formats which can integrate fully with Facebook and can exploit its 900 million odd user base. 

The only difference: To be eligible to create apps, developers HAVE to use Facebook’s Canvas and Login. 

The focus and intent though in entirely to crack the mobile part of the business and here is a quote

 ”The App Center is designed to grow mobile apps that use Facebook – whether they’re on iOS, Android or the mobile web. From the mobile App Center, users can browse apps that are compatible with their device, and if a mobile app requires installation, they will be sent to download the app from the App Store or Google Play.

To grow your mobile app through the App Center, your app needs to use Facebook Login.”

HMM…not that “open” anymore for the world’s largest social media network, whose mission is to make the world more open and connected.

Now add all these dots to that rumor which we have been hearing for a while of the Facebook phone and things begin to form a shape. 

By the time they launch the phone, their mobile supply chain and eco-system will be ready and they can piggy back on some of their mobile app acquisitions to seamless integrate into the mobile way of social networking. 

They will then have the hardware( Facebook Phone) which will harbor the software (Facebook + Open Graph) , which will have its own content distribution and payment system (Facebook ad network), which will nest it’s mobile application eco-system ( the Facebook app centre+ all its mobile app acquisitions), which will hold the developer network (Facebook mobile app developers) who create the apps which we will then download to power our “social” activities via our cell phones.

A walled garden of interlinked services which we will all need to invest in, if we invest in just one - Facebook, the open social network.

Open is good. Open is ethical.

But Open often does not make tons of money.

And in the long run there cannot be anything that is OPEN to be sustainable from a profitability point of view.

Facebook needs a “Walled Garden” to be financially successful and scalable post the IPO, especially in a mobile world.

Tomorrow they may do a pivot, but for now-

They need to go the Apple way and they are doing just that.