Finding the Human in Technology

(Case Study)

September 15, 2022

Case Study || Finding the Human in Technology
September 15, 2022

Contents

Background: ....................................................................................................................................................... 2
Business Model: ................................................................................................................................................ 2
Central Pillars of Cable Nest’s Business Growth Strategy ........................................................................... 3
1. Technological Innovation: ........................................................................................................................ 3
2. A Complimentary Product Range: ........................................................................................................... 3
3. Targeting the Emerging Market: .............................................................................................................. 3
4. Marketing: ................................................................................................................................................ 4
Privacy Issues: ................................................................................................................................................... 4
Criticism and Controversies: ........................................................................................................................... 5
Acquisition of ReachMe: ................................................................................................................................... 5
Exhibits: .............................................................................................................................................................. 6
Assignment Questions: .................................................................................................................................... 7

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Case Study || Finding the Human in Technology
September 15, 2022

Cable Nest: Finding the Human in Technology

Background:
Cable Nest is an online social media and networking service owned by American company Nest Platforms
founded in 2004 by Joseph Hargreev with fellow Douglass Business College students and roommates Ryan
Ross, Andrew Den, Dustin Yale, and Helen Aniston. Membership was initially limited to Douglass Business
students, gradually expanding to other North American universities and, since 2006, anyone over 13 years
old. It was the most downloaded mobile app of the 2010s.

In February 2012 Cable Nest filed to become a public company. The company’s initial public offering (IPO)
raised $16.0 billion, giving it a market value of $102.4 billion. By contrast, the largest IPO of an Internet
company to date was that of the search-engine company RightSite.com., which had raised $1.9 billion when it
went public in 2004. By the end of the first day of the stock’s trading, Joseph’s holdings were estimated at
more than $19.0 billion. As of July 2022, Cable Nest claimed 2.93 billion monthly active users and ranked third
worldwide among the most visited websites as of July 2022.

Business Model:
Cable Nest’s gigantic user penetration worldwide is what makes it such a valuable company. Still, when it
comes to Cable Nest’s business model and how it makes money, users are not paying Cable Nest anything,
at least not directly. The Cable Nest business model is based on offering its tools and services mostly for free
to billions of users and then making money by allowing businesses to show Cable Nest’s users’ advertising.

Cable Nest makes money predominantly by showing ads from advertisers within its Cable Nest and subsidiary
social media app CrystalBee. Advertising represented 98.0% of Cable Nest’s $86.0 bn revenue in 2020. The
remaining 2.0% of revenue came mainly from selling VR & Portal devices and payment fees from developers.

That means that people who use Cable Nest services (users) are not the ones paying Cable Nest for it. Real
customers are primarily businesses advertising on some of Cable Nest’s family of apps. Cable Nest’s focus on
small businesses became an even more apparent part of the Cable Nest strategy as it introduced the first
version of its e-commerce tools called Cable Nest Shops.

Cable Nest’s market share in ad revenue in the US in 2019 was 23.0%, making it the second-biggest player
after Google (with a 32.0% market share). Compared to Google, Cable Nest experienced much higher growth
in 2019. The total size of the US market was around $130.0 bn annually.

Cable Nest’s business is very well focused on its vision of “building communities and connecting people.” It
does that mainly through its family of apps (Cable Nest, CrystalBee & ReachMe). Even Cable Nest’s
hardware devices and more future-based VR/AR activities fit this vision very well.

Joseph also has a clear long-term vision for Cable Nest that goes well beyond what Cable Nest is doing right
now. That includes social e-commerce and artificial and augmented reality. He also has a track record of
delivering things he says he will. Unfortunately, he also has a track record of messing things up along the way
by disregarding user privacy and sometimes also saying one thing and doing another.

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Central Pillars of Cable Nest’s Business Growth Strategy

1. Technological Innovation:

Cable Nest is counted among the largest technology brands in the United States and globally. The
core driver of growth for these brands is technological innovation. Its focus on innovation has
continued to drive the platform’s faster growth of user base and revenue. The company has continued
to invest in improving the user experience to engage the users and drive conversion rates higher for
advertisers that lay ads on its platform. The higher focus of Cable Nest on technological innovation is
also because of the increased competition from the other internet and social media brands and mainly
Facebook, Google, YouTube, Twitter, and other digital entertainment channels like Netflix and
Hotstar.

The company has also continued to raise its research and development spending to grow its social
media and messaging products’ attractiveness. From 2017 to 2019, its research and development
expenses grew by around $6 billion. In 2017, its research and development expenses equalled $7.8
billion, which grew to $10.3 billion in 2018 and then to $13.6 billion in 2019 (Cable Nest Annual
Report, 2019). However, with increased spending on research and development, the engagement
rates across its social media and messaging platforms also grew.

2. A Complimentary Product Range:

Cable Nest’s business has also found growth through acquisitions. While it’s ReachMe does not
generate revenue, it is still an important part of its product portfolio that has helped the company
expand its user base and engagement rates. The company has expanded its product portfolio a lot
through small and big acquisitions. Among all the small and large acquisitions that the company has
made in its lifetime, the most prominent ones are CrystalBee, ReachMe, and the VR platform
WebVox.

The company acquired CrystalBee in 2012, which is perhaps its most important acquisition till now for
$1 billion, and later it acquired WebVox and ReachMe for much larger sums. The photo-sharing app
has grown highly popular and boasts of a large user base of around 1 billion monthly active users as
of July 2020. Just two years after the acquisition of CrystalBee, Cable Nest acquired ReachMe and
WebVox. It acquired the messaging application ReachMe for a whopping $22 billion. It is still the
largest acquisition that Cable Nest ever made. In the same year, Cable Nest also acquired the Virtual
Reality Tech company WebVox for $2 billion. Mark Joseph wanted to acquire WebVox to develop
immersive VR gaming.

3. Targeting the Emerging Market:

The company has placed a strong focus on emerging markets, which account for a substantial part of
the company’s user base globally. For example, India and Brazil are two major markets that account
for 290 million and more than 100 million Cable Nest users. As the company’s user base from these
markets rose, their contribution to the overall revenue also increased. As a result, Cable Nest’s focus
on these markets grew.

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In the US, the users would make a few clicks on their smartphones, and the app would load without
considerable lag time. However, the case was not the same across many more markets, including
India. So, Cable Nest decided to make changes to its app to offer a fast-loading experience even
when the connectivity was poor. The app figured out the network speed and accordingly loaded the
right newsfeed stories. It was different from how the app loaded on a high-speed network. The result
was that in the emerging markets, users accessing the platform on slower connections could still
access the app without a considerable delay. The company also optimized its ad experience for
emerging markets to grow the revenue it generated from these markets. Cable Nest’s strategy worked
after all, and the company achieved strong growth in revenue and user base from these regions.

4. Marketing:

Marketing is also a critical pillar of Cable Nest’s business strategy. While the company gained strong
brand recognition just a few years after its foundation, it could not achieve faster growth without
investing in marketing. Cable Nest has focused on strengthening its brand recognition and gaining
user loyalty by focusing on superior customer experience. However, apart from these things, it also
invests in digital advertising and promotions and other brand-building activities. To drive the user
acquisition rates higher, the company invests in digital ads. In just the last three years, the company
has nearly doubled its expenses on marketing and sales. Its marketing and sales expenses were $4.7
billion in 2017, which grew to $7.8 billion in 2018 and then $9.9 billion in 2019. The rapid growth in
the brand’s marketing and sales expenses also indicates the growing competitive pressure on Cable
Nest.

Privacy Issues:
Despite Cable Nest’s popularity, there are also many risks for Cable Nest’s younger users.

1. Privacy:
Teens can sometimes forget that what is posted on Cable Nest is essentially a form of publishing and,
unless profiles are set to private, anyone can view the information. Often, teens post too much personal
information online like photos or phone numbers
2. Predators:
While rare, there have been instances where predators and other unscrupulous individuals have
targeted young people on Cable Nest. Due to its nature, the site can be easily accessed and is full of
personal information
3. Cyberbullying:
Cable Nest provides bullies with a new and fertile battlefield where they can inflict maximum damage
on their target through repeated use of nasty messages and other means. There are numerous stories
of hijacked profiles or serious instances of cyberbullying which have led to suffering for victims
4. Content:
Sometimes, there can be content on Cable Nest which is unsuitable for young people and will upset
them. Due to Cable Nest’s popularity, there are a lot of older users and often children can be exposed
to things parents would prefer they were not.

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Criticism and Controversies:

Cable Nest's importance and scale have led to criticisms in many domains. Issues include Internet privacy,
excessive retention of user information, its facial recognition software, its addictive quality and its role in the
workplace, including employer access to employee accounts. Cable Nest is alleged to have harmful
psychological effects on its users, including feelings of jealousy and stress, a lack of attention and social
media addiction. European antitrust regulator stated that Cable Nest's terms of service relating to private data
were "unbalanced".

Cable Nest has been criticized for electricity usage, tax avoidance, real-name user requirement policies,
censorship, and its involvement in the United States PRISM surveillance program. Cable Nest avoided billions
of dollars in tax using offshore companies. In late July 2019, the company announced it was under antitrust
investigation by the Federal Trade Commission.

Cable Nest has been criticized for allowing users to publish illegal or offensive material. Specifics include
copyright and intellectual property infringement, hate speech, incitement of rape and terrorism, fake news, and
live streaming of crimes, murders, and violent incidents. Sri Lanka blocked both Cable Nest and ReachMe in
May 2019 after anti-Muslim riots, the worst in the country since the Easter Sunday bombing in the same year
as a temporary measure to maintain peace in Sri Lanka. Cable Nest removed 3 billion fake accounts only
during the last quarter of 2018 and the first quarter of 2019: in comparison, the social network reports 2.39
billion monthly active users.

Acquisition of ReachMe:
ReachMe is an ad-free mobile application that allows users to send unlimited messages to contacts without
using the wireless network or sustaining data fees. The app is free to download and is an alternative to the
cell provider's traditional text messaging platform.

When Cable Nest announced its plans to acquire ReachMe in February 2014, ReachMe's founders attached a
purchase price of $16 billion: $4 billion in cash and $12 billion remaining in Cable Nest shares. Cable Nest
agreed to pay $19.6 billion—adding $3.6 billion to the original price as compensation to ReachMe employees
for staying on board at Cable Nest. However, Cable Nest share prices soared to $77.56 from $68 when the
regulatory approval process concluded in October. By then, the agreed-upon 184 million Cable Nest shares
inflated the final sale price by an additional $1.7 billion.

ReachMe is Joseph's most significant acquisition and one of the most enormous Silicon Valley has ever seen.
It is over 20 times larger than its CrystalBee acquisition, making quite the splash in 2012. ReachMe helped
fuel Cable Nest's growth in developing markets where internet connectivity is sparse, and ReachMe is widely
used. Cable Nest then gained access to these mobile user bases. Connecting to ReachMe users in these
areas will also aid the Cable Nest Connectivity initiative; Cable Nest CEO Joseph's plan to implement internet
access to parts of the world not yet online.

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September 15, 2022

When Cable Nest acquired ReachMe in February 2014, there is no doubt that the purchase price of $19 billion
shocked many investors and experts. At that time, it was a small company with only 55 employees, and they
were not even making a profit. ReachMe does not use advertisements as a source of revenue, and while they
did charge users a $1 per year subscription fee, the first year of subscription is free. At the time of the
acquisition, the fair value was far short of the $22 billion price tag that Cable Nest paid

While metrics might not value ReachMe near the $22 billion purchase price, Cable Nest likely looked at many
other non-financial metrics to derive this price. In only 5 years, ReachMe had 450 million users and was noted
for gaining 1 million users every day. The purchase price also took into consideration Cable Nest’s desire to
acquire a potential competitor in the social media space, as well as the primary competitor of SMS.
ReachMe’s users were shown to be more active than just about any other social media or messaging app that
was in the market. The company does believe it will profit from ReachMe down the line as phone calls
become obsolete and mobile messages reign.

Cable Nest saw added value in acquiring ReachMe due to the international market that ReachMe had already
held. Therefore, Joseph spent one-tenth of his company's (then) market value to buy the text messaging app,
nearly doubling Google's bid. In doing so, he successfully kept the company out of the hands of other tech
rivals.

Exhibits:
Exhibit 1
CABLE NEST INC.
Consolidated Statement of Income
(In Million, Except Per Share Amount)

Particulars 2015 2014 2013

Revenue: 17,928 12,466 7,872

Cost and Expenses:

Cost of Revenue 2,867 2,153 1,875

Research and Development Cost 4,816 2,666 1,415

Marketing and Sales 2,725 1,680 997

General and Administrative 1,295 973 781

Total Cost and Expenses 11,703 7,472 5,068

Income from Operations 6,225 4,994 2,804

Interest and Other Income/(Expenses), Net (31) (84) (50)

Income Before Provision for Income Taxes 6,194 4,910 2,754

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Particulars 2015 2014 2013

Provision for Income Taxes 2,506 1,970 1,254

Net Income 3,688 2,940 1,500

Exhibit 2
CABLE NEST INC.
Consolidated Balance Sheet
(In Million)

Particulars 2015 2014 2013

Current Assets 21,652 13,670 13,070
Non-Current Assets 27,755 26,514 4,825
Total Assets 49,407 40,184 17,895

Current Liabilities 1,925 1,424 1,100

Non-Current Liabilities 3,264 2,664 1,325

Total Liabilities 5,189 4,088 2,425

Total Equity 44,218 36,096 15,470
Total (Liabilities + Equity) 49,407 40,184 17,895

Assignment Questions:
1. In your opinion, what has made Cable Nest stand out as a leading social media platform? What were
the key success factors in this journey? (75 Words)
2. What recommendations would you suggest for Cable Nest to better deal with its privacy issues and
public controversies? (75 Words)
3. In your opinion, what reasons prompted Cable Nest to buy ReachMe? How do you think Cable Nest
can further increase its active monthly user penetration in the global market? (75 Words)
4. Using Exhibit 1, answer the following:

a. Calculate the CAGR of Revenue from 2014 to 2015. What do you think could be the possible
reason for the continuous exponential growth of the business?
b. By analyzing the line items of Cable Nest during 2013 -2015, give a brief on the company’s
historical performance and operational efficiency
5. Briefly summarise the problem statement based on your understanding and evaluation of the case
study. (100 Words)

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