Monday, 23 July 2012

Facebook: What's so great about the new Empire

Facebook is the newest and brightest empire in the tech world. Its Czar Mark Zuckerberg (voting share: 57% of total equity) sets out a clear vision "to make the world open & more connected". This glorious future is to be achieved by having people connect on its systems via its services. It is the platform company par excellence - unlike Apple's more brutal vision of iOS its not quite a walled garden, but Facebook definitely owns all the grass.

To start with, here's a brief recap of some of the jewels in the Facebook empire, and some of its darker secrets.

What Facebook is doing that's so great:

First to see to power of platform: Mark Zuckerberg had one big idea. And funnily it enough it wasn't to build  a website, it was to build a platform. He recognised very early on that one website can struggle to muster the resources to compete, and be flexible enough to change. By building a platform with APIs which other app developers can plug into he enlisted the support of innumerable developers and built an evolving eco-system. And about all he did this early - the Facebook platform launched in 2007 in an era where the social networking dinosaurs of MySpace, Friendster and (let's not forget) were roaming the world dragging ponderous websites in their wake. Farmville. End of story.

Getting people to pay to pay for what they already have: The other early win for Facebook was the Wall. Any normal website has one massive problem - generating enough content to keep users coming back for more. Facebook has reversed this by getting the users to provide the content for free (by sharing their lives, primarily on their wall) which draws other users back to check the site again and again. They then pay for this (indirectly) by clicking through on the ubiquitous on-screen advertising. You get users to give you the product for free and then sell it back to them. Genius.

Critical mass: Partly because Facebook was the first (and has been the best) the site has enormous critical mass - 900 million active users and growing, plus the billions of connections, photographs and piece of background about them. And the great thing is that because they were first, that's likely to be the richest 900 million people on the earth (60% internet user penetration in the US of A), not the poorest.

Payments... The next big thing: Facebook mainly monitises its users via advertising (over 80% of revenues). However a significant portion also comes through payments (mostly its 30% cut when someone buys virtual goods on Facebook games). While that may seem minor and ephemeral, the importance of being in the payments business is not. An established payments business is one of the most beautiful things in the business world - just as Visa and Paychex who run enormous, cash generative and recurring businesses on the back of their position as payment processing monsters. Facebook is being proactive here.

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