The Facebook Narrative: Advertising to the Max

Jen van der MeerBusiness Model Practice

Is there any room for business model diversification?

Yesterday Facebook announced a re-org of their management team to improve communication and put more accountability for privacy decisions. But the company also needed a reorg to deal with the growing complexity of their business.

We all thought we understood Facebook’s advertising business model until it started to reveal itself to us following the Cambridge Analytica scandal. Look under the hood at their business model timeline and you’ll see a company attempting to diversify into other forms of revenue, and business models, but finding that advertising is like bamboo – there’s no room for much else to grow and it takes over the entire back yard.

The re-org divides the company into three main divisions: the Family of Apps group (Facebook, Instagram, WhatsApp, and Messenger), a “New Platforms and Infra” group that includes AR, VR, AI, and exploration of Blockchain technology, and then “Central Product Services” which includes all of the shared services across apps and offerings.

What is Facebook up to?

In the most recent quarterly report, Facebook’s COO Cheryl Sandberg doubled down on the company’s commitment to the advertising business, and the company’s contribution to bridging the digital divide and supporting small businesses.

“We’re proud of the ads model we’ve built. It ensures that people see more useful ads, allows millions of businesses to grow, and enables us to provide a global service that’s free for all to use. The fastest way to bridge the digital divide – in the United States or around the world – is by offering services free to any consumer regardless of their circumstance. Advertising supported businesses like Facebook equalize access and improve opportunity.”

-Cheryl Sandberg, COO, 1Q2018 Earnings Call

Yet Facebook has experienced friction in the model – evidenced by the frequent strategic pendulum swings – tilting the platform in favor of users to encourage more engagement and growth, and then back to advertisers again to provide better service and targeting. See the away Beacon was launched, then canceled, then aspects of Beacon built into the ad platform outside of the public spotlight.

Yet we can see in their company history they have run many experiments to try to expand beyond into product sales and payments. Each time an experiment was run, and then canceled. The ill-fated attempt to launch a Facebook phone happened within one short year. Facebook fell back to tweaking their core product and acquisitions to achieve global domination, and therefore advertising.

Whereas China’s Weibo successfully launched a payments platform off of their core social networking app, Facebook has only seen failed experiments and then modest growth in payments. The original Facebook Marketplaces fizzled out and was recently relaunched. Facebook Credits for games was phased out. Facebook Payments is a small percentage of the company’s otherwise extraordinary growth.

Facebook’s 1Q2018 Revenue Results

Does Facebook’s launch first, see user reaction, then retreat and relaunch strategy we’ve seen best position them for growth? Is advertising like bamboo – leaving little room for any other species? Will Facebook’s growth be limited by the size of the global advertising industry? Or are they able to do what few in the blockchain world have been able to achieve – successful new business models beyond advertising?

Learn more about the Advertising Business Model in our Library, read another posts preparing Facebook for the end of advertising, or read about the Netflix Business Model Narrative. 

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