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Insights into:
Business Model Canvas elements
Facebook is social media. They are dominating this category so much that the CEOs of
Twitter, Pinterest and Snapchat are calling themselves something different.
Leveraging a combination of direct & indirect network effects digital social &
communication firms use many different approaches, including social networks of all
kinds centred around themes, hobbies, professions, activities, experiences, lifestyles,
messaging, multimedia sharing, messaging, chat, micro-blogging, discussion forums
among others. Facebook does all of this at once.
Facebook’s mission is to give people the power to build community and bring the world
closer together. People use Facebook to stay connected with friends and family, to
discover what’s going on in the world, and to share and express what matters to them.
Facebook And Give people the power to build community and bring the world closer
together.
Principles
“Our principles are what we stand for. They are beliefs we hold deeply and make tradeoffs to
pursue.
● Give People a Voice: People deserve to be heard and to have a voice — even when
that means defending the right of people we disagree with.
● Build Connection and Community: Our services help people connect, and when
they’re at their best, they bring people closer together.
● Keep People Safe and Protect Privacy: We have a responsibility to promote the best
of what people can do together by keeping people safe and preventing harm.
● Promote Economic Opportunity: Our tools level the playing field so businesses grow,
create jobs and strengthen the economy.”
Facebook: Facebook enables people to connect, share, discover, and communicate with
each other on mobile devices and personal computers. There are a number of different
ways to engage with people on Facebook, including News Feed which displays an
algorithmically-ranked series of stories and advertisements individualized for each
person.
Instagram: Instagram brings people closer to the people and things they love. It is a
community for sharing photos, videos, and messages, and enables people to discover
interests that they care about.
I will occasionally mention their other platforms (e.g. Oculus, Workplace, Libra, Calibra,
Hobbi, Threads, etc) where it fits into the discussion. But focusing on the above will
explain their vast success best. Btw, as always: anything in blue italics is their own
words (either from their annual reports or webpages).
“We generate substantially all of our revenue from advertising. Our advertising
revenue is generated by displaying ad products on Facebook,
Instagram,
Messenger, and
third-party affiliated websites or mobile applications.
Marketers pay for ad products either directly or through their relationships with
advertising agencies or resellers, based on the number of impressions delivered or the
number of actions, such as clicks, taken by users.”
(1) Advertising Facebook’s payment models fall into the known CPM, CPC, CPA models
typically via auctioning mechanisms (which also is standard).
● Cost per link click CPC: Facebook defines a link click (that can point to various
types of destinations) as any click on the image or the name of the advertiser,
etc (anything that takes the user to the advertiser). But essentially, this is CPC
● Cost per result (CPA): Essentially, this is cost per action (CPA). It is an
aggregate result for the campaign that calculates the total amount spent
divided by the number of results (defined by the campaign objective and
other settings).
● Cost per Impression (CPM): It is the known cost per 1,000 impressions
charging model or CPM
● These are transaction fee charges for the purchase of virtual/digital goods
from 3rd party developers through Facebook. Payments and other fees.
Payments revenue is comprised of the net fee we receive from developers
using our Payments infrastructure.
● And then some other revenues Our other fees revenue consists primarily of
revenue from the delivery of consumer hardware devices, as well as revenue
from various other sources.
As always with platform business models, we need to think about the value
proposition to all sides of our multi-sided platform (well, there are more sides than
shown below but these are the most important ones).
● Presenting oneself: While this may not be mentioned very often in surveys,
one of the key reasons people are on the platform is to present oneself, their
moments and (of course) their best moments. To this end, Facebook (and
more so Instagram) allows creation of photo albums that friends (and
depending on security settings friends-of-friends and other) can browse,
comment on, etc
● Everybody else is there: More true for Facebook than for any other platform
is the fact that people join because everybody else is there. This is their true
moat
● Personally relevant content and opp: Because everybody else (in one’s circle)
is there, they create content that relates to the users. One can chime into
conversations and chit-chat. The most benign content / update from friends is
for many people more interesting than world news because they can relate to
it
● Pass time: Let’s be honest passing time is one of the key value propositions.
Instead of or while watching TV, on the go as a short distraction at work, etc.
In terms of search cost reduction, scrolling down the news feed to get an
interesting tid-bit is easier than zapping on TV
● Get news: Unlike Twitter, only 23% state they go to FB for news, but about
double that number state that they actually do get news through FB (which is
not a contradiction)
● Exploration/discovery: On the left hand side of one’s timeline, there are tons
of things to explore. This includes things like friends’ birthdays
● Following friends and VIPs: though more of this happens on Instagram, this is
still an important value proposition of FB
● Facebook has become a frequent way to log into other sites (too many people
don’t know how much data they are revealing of themselves to 3rd parties by
doing so) – book this one under transaction cost savings
Influencers are important to Facebook and even more to Instagram (though likely not
quite as vital as they are to Twitter). And Facebook is trying to present more content
from friends. Though not yet exactly clear what that means, it is likely not good news
for influencers (if you look at our Snapchat article, same has happened there where
non-friends were moved to a less prominent area in the app)
● Build personal brand / remain top of mind / stay in touch with followers: We
are always talking about brands in the context of large companies. But
individuals (and groups, organisations, etc) can also build a brand, stay top of
mind and show to advertisers their value. They can also see from the
reactions (likes, emojis) and responses how their posts and messages fare
● Immediacy: Facebook influencers like the fact that they can have immediate
contact with their followers
● Word-of-mouth & organic virality: In the early days, Facebook was a great
place to get organic traffic to one’s page or business. But it has started
changing from 2014 when Facebook limited displaying updates of businesses /
influencers to followers. But it is still a place where word-of-mouth or even
virality can occur
Learn more about the value propositions of digital business models here.
Businesses were able to reach a lot of users organically but these times have changed.
Now, they have to pay to reach sizeable parts of their audience.
● Non-interrupt: On a
spectrum from high to
low-interruption
marketing, Facebook sits
somewhere in the
middle of the spectrum
● Gaming: Somewhat gone are the days of Farmville. But Zynga and many other
game developers are still around. Facebook has a high-spec gaming platform
and a “social” gaming platform for more simple games (similar to the early
days). Gaming was probably very valuable to get people onto the platform in
the early days but they are not quite as omnipresent as they were at the time
(this is a subjective impression). A study from 2011 came to the (staggering)
conclusion that “a conservative estimate of the employment impact of
developers building apps on the Facebook Platform in the United States in
2011 is 182,744 full time jobs. In other words, at least 182,744 jobs were
added to the U.S. economy as a result of the Facebook App Economy.
Similarly, these economic models suggest that a conservative estimate of the
total employment value of Facebook’s app economy is $12.19 billion. Using
more aggressive estimates, the Facebook App Economy created 235,644 jobs,
adding a value of $15.71 billion dollars to the U.S. economy.”
○ a marketplace / classifieds,
○ jobs, apps,
○ movies,
○ offers and
● Users: The majority of users are not influencers, VIPs, businesses. The create
content that appears in other user’s feeds (which is a key part of the network
effects). Messages do not appear on the feeds but are even more targeted
and engaging for the recipient (and the sender who is waiting for a response)
● Influencers, VIPs: influencers want to build their own brand through followers
and shares. Others want to make direct money through endorsements (or
both). Compared to Twitter, Instagram is more the platform for celebs, VIPs
from the non-political spheres (sports, music, entertainment, etc). They make
a lot of money from their Instagram activities (here the top 10 in 2019, here
the top 10 NBA players). Even if the numbers were not 100% correct, it gives
us a good idea why they are there.
● Websites/blogs: Many websites and blogs share content via Facebook and
Instagram – the latter being especially valuable for certain visual businesses.
Here we also see considerable competition to Pinterest (though the overall
presentation layer is very different
● Media partners: includes some of the big media outlets who can monetise
through (e.g. in-stream ads)
● Developers: Facebook focuses on a wide array of research areas and has the
means to bring these forward. R&D has also been the largest cost in their cost
structure for several years (as we will see later). We shouldn’t forget the many
smaller and larger partners who have helped the Facebook ecosystem to grow
faster than others in the early days (remember Farmville that helped Zynga to
become a multi-billion dollar company in their own right). Current focus areas
are more ambitious (though gaming – more advanced – still plays a big role):
○ Artificial Intelligence
○ Augmented Reality
○ Gaming
○ Open Source
○ Publishing
○ Social Integrations
○ Virtual Reality
The most important activities for platform business models are to enhance positive
network effects and reduce negative ones. Facebook has significant positive network
effects for its users but needs to constantly manage and improve these. It is often
mentioned that Facebook’s very success is rooted in the fact that they have managed
negative network effects more stringently than MySpace who were one of the biggest
internet companies (by traffic) before Facebook even existed. Reasons often
mentioned are: managing bad behaviours, a more controlled growth with opening the
platform gradually to wider users, less aggressive monetisation in the early days.
● Content creation: Facebook has the largest employee base of all companies in
the world with over 2 billion employees and they are called users. They duly
create content where other companies need to hire staff to do so. Not only
that, most of the content that is being created is highly relevant for the
recipient (i.e. friend family of the users that post). Even local newspapers can’t
compete with creating such targeted and relevant news for their readers
The master resource (or asset) of any platform are its network effects. It is the
resource/asset that needs to be built and nurtured. Here is how this translates into
more detail.
● Users:
○ DAP (Daily Active People across all apps): 2.3b; MAP (Monthly Active
People): 2.9b
● Business, VIP accounts and content creators: attract large follower bases and
create engagement through their content (140 million small businesses
mostly non-advertising, 10-K Q4’19)
○ High engagement, thus usage: 41-mins per day per user on FB alone’
● Content assets:
Learn more about key assets & resources in digital business models here.
With over 2.5b users on the different platforms, the question is not really who they
can address (the answer to that is: basically a third of the world population) But the
question is which micro-segments they can address. And that boils down to the data
users share through the various ways with Facebook. Liking things (on or off Facebook)
tells them a lot about you, your profile information (there is a lot users can share),
tagging on photos, location check-ins (it will track location even if users don’t
“check-in” so long location is not disabled), who people are affiliated with, who they
follow, their profile which has education, it gets data from apps that user log-into with
their Facebook account, it gets data from pages that install the Facebook Pixel and that
use Facebook APIs and so on. But it says that it doesn’t mine your text data (posts,
messages, calls, etc).
User segments
● and more
Learn more about the customer segments of digital business models here.
From a technical perspective, their various websites and apps are the most important
channels. Most transactions are automated and self-serving. Facebook’s functionality
is significantly larger than most other social media apps/sites.
○ The news feed is the main user channel to get the user (re)engaged
○ And much more – see esp the left sidebar (website) and top bar
● Most transactions on the user side are automated through the app/website. It
allows a ton of settings (e.g. security, privacy, tagging, location, and a lot
more)
○ Pinterest: N/A
● And more
Instead of explaining these crucial concepts in theory, we are using Social Media &
Search Platforms as real-world examples.
You will not find the ideas explained in this top-consultancy &
elite university grade book elsewhere in the open market.
(We are looking at this from the lens of the underlying needs, how they are served and
the things that affect customer relationships. There is a natural overlap with the value
proposition) If you are a regular follower of my blog, you know that this is one of the
most important categories for platform business models (in the long run) and in
particular for social media (or similar) platforms.
There is obviously a lot of value that users get out of Facebook. But first, we need to
understand the risks and negative externalities. Saying this, it is clear that we can only
get a glimpse into this complex topic. Negative network effects can bring a platform
down before they ever reach potential. Some form of managing negative network
effects will be required even in the smallest platform.
Community standards
Some examples that you can find in the community standards are shown below and
reading through these standards is a very sobering moment when you realise what
platforms (and innovation in general) can be used for.
Facebook tries to control the majority with machine learning algorithms but this is not
an easy endeavour even when posted in plain English. Add to this that it can occur in
different languages, using insider terminology, obscured by special characters,
expressed in images, videos, live streams, etc.
All hell broke loose after the US election of 2016 and Facebook’s role therein, followed
by probes, investigations, congressional hearings and media coverage. Facebook
Twitter was in a similar boat and has released more details. In 2018, Twitter shut down
80 million fake accounts a staggering amount given their ~300m MAUs at the time. In
2019, they have shut down 80,000 linked to an authoritarian regime (who would have
thought). In the case of Facebook, there are detailed 3rd party accounts that help us
to understand the staggering details behind manipulation through Facebook’s apps.
Here is a very lengthy account published about a year after the 2016 election and here
is a more recent (even more lengthy) account with even more refined tactics.
Learn more about the customer relationships of digital business models here.
Facebook was profitable from its IPO. Quite a difference to most of the recent IPOs!
Learn more about the cost structures of digital business models here.
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