The evolution of Facebook

Facebook Thumbs UpIt’s no secret that I’m not a big fan of Facebook and their business practices. While I still have a Facebook account, I use it primarily to manage my business pages and rarely, if ever, post anything on it. I’ve also written numerous articles about my issues with Facebook and why I think they won’t last (see here, here and here). However, their decision earlier this year to break apart the mobile experience into separate apps may be the strategic decision that saves them, or at least prolongs the agony of decline.

Matthew Ingram at Gigaom put it best when he termed it “The Great Unbundling of Facebook.” He references a great quote from an interview that Mark Zuckerberg did with the New York Times where Zuckerberg says:

So Facebook is not one thing. On desktop where we grew up, the mode that made the most sense was to have a website, and to have different ways of sharing built as features within a website. So when we ported to mobile, that’s where we started — this one big blue app that approximated the desktop presence.

But I think on mobile, people want different things. Ease of access is so important. So is having the ability to control which things you get notifications for. And the real estate is so small. In mobile there’s a big premium on creating single-purpose first-class experiences.

So what we’re doing with Creative Labs is basically unbundling the big blue app.

In other words, I see Facebook making an extremely important strategic shift to avoid forcing everyone into the “big blue app.” They’re letting the services that they’ve acquired continue as independent applications (and hopefully with independent strategies). They also appear willing to allow users to keep their identities on these applications separate from their Facebook identity, at least that’s what Zuckerberg indicates later in the interview:

One of the things that we’re trying to do with Creative Labs and all our experiences is explore things that aren’t all tied to Facebook identity. Some things will be, but not everything will have to be, because there are some sets of experiences that are just better with other identities. I think you should expect to see more of that, where apps are going to be tied to different audiences that you can share with.

There are some key advantages that Facebook will gain from this strategy, which may help it survive even if the luster starts to wear off of the primary Facebook service.

  1. Services can die, without affecting other pieces of the experience
    For example, if Facebook usage starts to decline, but Instagram is still popular, users will be able to use Instagram without having to go through the Facebook app.
  2. Likewise, services can grow and experiment with having to support laggards
    The engineering teams of popular services will be able to branch out and grow without having to worry about how it affects the dying parts of the experience, at least in theory.
  3. Corporate has better control over winners and losers
    At the corporate level, the executive team will be able to more easily see the apps that are driving interaction and can assign resources appropriately.
  4. Customizable user experiences
    Instead of having to create a “one-size-fits-all” approach to their mobile experience, teams can create the experience that best fits the demands of their audience.
  5. Ability to cross promote apps
    Having lots of different real estate on a user’s screen gives them the ability to be able to cross promote between applications to drive more interaction and engagement.

While there are plenty of positives in keeping things separate, there are also a few risks. Breaking apart the Facebook experience into individual ones is akin to becoming a conglomerate such as General Electric. Instead of focusing on one business, the executive team has to be able to focus their attention on many different businesses that have different strategies, experiences, and business models. They’ll have to be careful that they don’t turn into an internet conglomerate such as Yahoo!, where they end up moving more sideways, or in a state of perpetual decline, than up and to the right.

These will be the areas where the Facebook team will have to be vigilant, in my opinion:

  1. Focus
    Having many disparate apps in differing markets could impact management’s focus and attention. There is only so much energy and time that an executive team has, and trying to manage too many unrelated businesses (or apps) may not be feasible.
  2. Public market impatience
    Conglomerates are notoriously difficult to hold together, especially from a public market perspective. If portions of the company start growing much faster than others, there will be a lot of public pressure to kill poor performing services, even if they have long term promise, or to spin off high performing businesses if markets believe that the rest of the company is constraining their potential.
  3. Avoiding shiny bauble syndrome
    In a market where success is fleeting, management has to be careful to avoid chasing and acquiring too many shiny objects. For one, it’s a bad signal to the rest of the organization when acquisitions are treated as the only way to grow (makes people wonder why they are staying loyal to the company and can cause high turnover rates). It can also create a loss of focus, as has been the case with Yahoo! and even Google to some extent. Companies are courted, purchased, and treated like royalty, only to have their product or service shut down as soon as the luster wears off.
  4. Watching market saturation
    Perhaps the biggest issue Facebook faces is a competition for people’s time. Every new app or service they introduce (or acquire) will further dilute the amount of time people can put into any one app. People only have so much free time to burn on these various apps. Therefore, it begs the question if Facebook’s market will eventually saturate in that people’s time is finite, resulting in a cap on their growth and valuation. An interesting question to ponder, and one which I am not qualified to analyze, at least today.

Despite these risks, I like the approach Facebook is taking. It doesn’t change my view of the company or their valuation, but I feel it gives them their best chance at long-term success.

So no matter what happens, I have to give credit to Zuckerberg and his executive team for being willing to think outside the box and not be afraid to disrupt their core business. Of course, this is easy to do when the stock price is high and things are going well. It will be interesting to see if they can stay the course in the face of adversity. It’s a business case study that has my interest, and one that I’ll continue to follow.

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