My, my, my... I can't believe how much Facebook has changed during the year and a half I spent in Shanghai.
When I left France for the middle kingdom, Facebook was still a big question mark. Sure it was fun, allowed you to stay in contact with your friends and (most importantly) mess up their status while they were away from their computer but could it turn into something more?
A year and a half later, Facebook is the subject of an Oscarized movie, is valued $74 billion on private markets, just struck a much publicized partnership with Goldman Sachs based on a $50 billion valuation (lead underwriter anyone?) and is eating everybody's lunches from Google to Netflix.
But above all, Facebook is no longer a social network: it is a platform. Having just finished a 6 month internship in strategy consulting during which I worked on many tech-related projects, I am genuinely impressed by the strategic vision the people at Facebook demonstrate day after day. These guys know where they are going and I can't wait for them to go public so I can get me some of that Facebook stock!
The first excellent strategic move they made was to focus on mobile. Facebook is by far the most downloaded app on all major app stores. Early on, Zuckeberg and co made clear their attention to be one of the driving forces behind the rise of mobile internet. This is an excellent move for many reasons. First, it increases the value of using Facebook for existing users (economic theory calls this phenomenon "network effects"). Moving Facebook from PCs to cellphones means more people connected at all times and the possibility for real live interaction between users. But more crucially, a strong position in the mobile scene opens up myriads of possibilities for the social network to develop news services such as location based services (ie: Facebook places), live photo sharing, mobile payment etc... It also allows the firm to capitalize on its strong position in social networking and vast user base to go against firms such as Foursquare and saturate the market for mobile services.
Then, Facebook's focus on mobile means that they are ideally positioned to profit from the rise of the internet in developing countries. For us westerners, the internet means PCs. It took time and a lot of learning for us to fully embrace mobile networks. In China, India and other such developing markets, people are integrating mobile networks in their daily life and consumption habits faster than anybody had predicted. I could write for hours about how mobile internet in developing markets will completely change the rules of the game from a business strategy standpoint and lead to the emergence of news business models and consumption habits unlike anything we have seen before. In these countries, PCs are still expensive and as smart phones get more and more affordable, millions of people will go from no internet at all to mobile internet. This will, I believe, be the big business story of the 2010s, stay tuned because it's going to be ground breaking! Here a few numbers about China and India just to give you a taste of the magnitude of the phenomenon:
Internet users in China
Note: I know that FB is blocked in China but my point remains: mobile networks are big in developing markets. Plus Zuckeberg has been talking with people from Baidu recently and I wouldn't be surprised if the two struck a deal to launch some kind of China friendly version of Facebook. Baidu does not have a strong position isn social networking and might be interested in going after Xiaonei and Kaixing101 (the two leading SNSs in China).
I mentioned earlier in this post that Facebook had gone from being an social network to being a platform. This is, to me, the other key element that explains Facebook's success and convinces me that it is not a one trick pony that will go bust when the next bubble bursts. Facebook has managed to create an awesome eco-system of apps and other product and service offerings that tack themselves on its platform. Think of it as some kind of hub from which you can do nearly anything from playing games to sharing files, edit pics, look for a job and so much more. Facebook has also blurred the boundary between virtual and physical with its virtual money (Facebook credits) that can be used to buy virtual goods but also real stuff. Now you can even rent movies via Facebook!
I'm very enthusiastic about this because what Facebook is doing is truly remarkable. It has put itself at the center of our Internet usage habits and is creating new ways of surfing the web and consuming content. This is disruptive innovation at its finest.
Finally, Facebook's "platform" strategy allows it to leverage its user base to make companies such as Craig's list, Groupon, Foursquare (as I said earlier), Netflix (whose share took a dive after Facebook announced its movie deal with Warner Brothers) , LinkedIn and many more far less relevant. It may not always work (Foursquare's users doubled since the launch of Facebook places) but it's sure making life very difficult for them.
So what's next? I foresee a deal with Baidu in China (if the political climate allows for it), a push in location based services and an ambitious attempt to make Facebook credits usable in physical stores. Sounds fun but Facebook must nonetheless be very careful not to over stretch itself and go AOL's way trying to be everything to everybody at the expense of quality. Facebook can be plenty of things but it can't represent the whole web. So I'll try to temper my enthusiasm and consider how Facebook could crash in a later post.