Facebook, Google and their dominance of digital marketing

By | Advertising, Facebook, Google | No Comments

According to the IAB, US digital advertising revenues grew 19% from H1 2015 to H1 2016. That’s very healthy growth for what is now a $32.7bn market. However, when you look at the numbers in more detail it’s clear that this strong headline performance masks a tonne of turmoil underneath.

Display continues to crater and the growth areas are mobile and video, but the surprising thing to me is how much Facebook and Google are now dominating. As you can see in the embedded tweet below Jason Kint analysed Google and Facebook revenues in the context of this market and found that revenues for all the other digital ad players went down over the last year.

This bears out what we’re seeing in practice, which is that startup founders who want to pay to acquire customers on the internet do so on Facebook and Google. These are the channels that our partner companies have been using recently (in rough order of significance, results skewed towards the companies we know best):

  • Facebook – all properties
  • Google (paid)
  • Google (SEO)
  • Partnerships
  • Content
  • PR
  • Direct Mail
  • Flyering

There are a couple of obvious implications of all this. Firstly, evaluating whether a company can get off to a fast start means analysing whether these channels will work (especially the top two), and secondly startups with advertising based business models will increasingly need some super-special secret sauce.

Then there is the non-obvious implication which Benedict Evans of A16Z has been tweeting about recently, which is that as advertising becomes less effective (at least outside Facebook and Google), innovative companies will find new discovery models that reduce reliance on media spend. Amazon has pulled this trick off in a huge way for their core products and there will be big rewards for those that crack it in other areas.


The world’s most successful pivot

By | Facebook | No Comments

Screen Shot 2016-04-28 at 13.17.10

Facebook has just posted another impressive quarterly result, and that comes on the back of relentless innovation in their consumer facing and advertising products. Bots running on Messenger make the headlines, but the speed and regularity with which they release new services to help advertisers target better is breathtaking. It’s good for startups too, because it takes a while for larger companies to wake up to the new tools. With Instagram, Whatsapp and Oculus they are also building up a track record of visionary M&A.

So there’s lots to admire about Facebook.

But most impressive of all is the way they pivoted from desktop to mobile in 2012 – you can see the results in the chart above. Desktop to mobile is a massive shift, and not only did Facebook transition their audience, they made the product better, as evidenced by the increased amount of daily usage. Most companies fail to make the switch entirely but for Facebook it was the catalyst for a 5-6x increase in revenue.

The two places startups find customers online

By | Facebook, Google | No Comments

Facebook and Google are the two tech companies that are flying right now and the chart above explains why. Everyone else is watching their share price go south because they are struggling for growth but these two have nailed internet advertising, dominating and growing the market. It’s impressive and yesterday saw Alphabet (Google’s parent company) pass Apple as the world’s most valuable company – although I just checked and Apple has regained it’s crown this morning.

In other interesting news Alphabet yesterday reported separately on Google (search, display ads, YouTube, Android, cloud software) and ‘Other Bets’ (self-driving cars, Nest, Google Fibre, Project Loon, X, Verily). Google is unbelievably strong – good growth at massive scale and still highly profitable. 2015 revenues were $75bn, up 14% from 2014 with operating income of $23bn. They now have seven properties with over 1bn users (search, Gmail, Android, Youtube, Chrome, Maps, Google Play Store). Facebook has two (Facebook, Whatsapp).

Other Bets, meanwhile, is remarkable for the size of its loss – $3.6bn on revenues of $448m. Google’s projects have always looked audacious from the outside – self driving cars, project loon, life extension etc – but it wasn’t clear until now how brave they are from a financial perspective. It’s remarkable.

Returning to advertising, what we’ve seen at Forward Partners over the last year is that Google and Facebook are where startups have the most joy finding new customers, and increasingly it is Facebook rather than Google. That’s because Google is more mature and has bigger companies with larger budgets are more active, driving up CPCs and crowding out startups. Facebook is newer and the larger budgets haven’t made it there yet.

We’re excited about new channels, and we’re looking at doing something on Instagram right now, but that’s experimental. Generally speaking, if you’re going to get lots of new customers quickly you need to be where the volume is, and as the chart shows, the volume is all with the aforementioned giants.

Comparing Google’s and Facebook’s grand strategies

By | Facebook, Google | No Comments

Facebook and Google are the second and twelfth most valuable companies in the US (accurate at 22/6/15 see here), they both rose to prominence extremely quickly setting records for rapid valuation growth on the way, and as a result they are both very aware that their shelf life could be limited. They’ve seen great companies like Yahoo and Microsoft lose relevance and they don’t want it to happen to them.

The lesson from those businesses is that developments in technology can quickly undermine a company’s core strength. The internet and mobile marginalised Microsoft’s dominance of the desktop and improvements in search took away the need for Yahoo’s portal of curated links.

As a result Page and Zuckerberg have both made bold moves to future proof their businesses.

Google has launched a range of bold and innovative projects including Android, self driving cars, a project to deliver internet connectivity to the developing world via orbiting balloons, and Google Glass. They even went as far as changing the name of the company to Alphabet, emphasising the point that the Google search business is just one part of what they do.

Facebook has mostly moved via bold acquisitions, starting with $1bn for Instagram six weeks before their IPO, moving the through $24bn for WhatsApp, before paying $2bn for Oculus. That said, they also have a track record of making radical changes to their product, often in the face of user protest. Introducing the Newsfeed and splitting Messenger out from the main Facebook platform are stand out as the two best examples where they did that successfully.

The obvious difference between Google’s bold moves and Facebook’s bold moves is that Google is venturing much further from its core business. At first look Facebook’s acquisition of Oculus might look like it’s a big step away from social media, but if you think of their business as mediating social interaction then it doesn’t seem that way.

I suspect Google is innovating further from its core because it’s a more mature business than Facebook. Android was one of Google’s early bold moves, and it’s easy to see how that was closer to the core because it helps maintain their strength in search. It was only as their search business began to face existential risks that they started making moves designed to open up whole new areas. It’s impressive is that they have started making these moves so early.

Facebook’s acquisitions of Instagram and Whatsapp and the separation of Messenger from the main Facebook app are clear moves to protect and extend their core social media business. These strategies have helped them continue to grow their audience and advertising revenues and whilst individual properties might whither, potentially including Facebook, there’s still no sign of an existential threat to social networking as a category. To put numbers on it, back in March they had 1.4bn MAUs on Facebook, 700m on Whatsapp, 600m on Messenger and 300m in Instagram. That’s four of the six largest social media properties on the planet, and they’re all still growing.

All of which has me thinking that Facebook might become more radical as its business matures.

More evidence that traditional ad models are challenged

By | Advertising, Facebook | 3 Comments


Figures are in billions. 2015 figures are projections for the full year.

I’ve long thought that overload of messages in our lives is leading to ad-blindness and that paid business models are increasingly more attractive. This chart I just saw on Techcrunch re-enforces that view.

In-app purchases are still a relatively new phenomenon and many companies and industries are still figuring out how to get the most from them. Games makers have got it down pat now, but other content companies not so much. There’s still lots of growth to come.

Mobile ads I’m not so sure about. Large properties with sophisticated targeting will continue to do well and it will be interesting to see where Facebook, Twitter, and the big messaging companies go next. Smaller properties and the various ad networks they work with may have a tougher time, particularly now Apple has enabled ad-blocking in iOS 9.

Note that Facebook’s mobile ad revenues were $2.9bn in Q2 and are growing 60% year on year. If you backed them out of the purple bars in the chart above then there wouldn’t be much growth left.

Facebook gets to $250bn valuation in record time – respect

By | Facebook | No Comments

Facebook’s share price was up 2.4% on Monday taking its market cap above $250bn just three years after its IPO and eleven years after it was founded. Bloomberg and other sites are lauding Zuckerberg and co for beating current record holder Google’s eight years from IPO to $250bn valuation. Those with long memories will know that Facebook went public with a much larger valuation than Google ($104bn vs $23bn) so the more apt comparison is Facebook’s eleven years from founding to $250bn with Google’s fourteen years. Still great though.

What impresses me most about Facebook is the way they’ve done it. As you might have read in the Lefsetz letter today

Once upon a time Facebook was a place to connect with your friends.

Now it’s where you go for information…news, video, even music video.


What’s amazing about Zuckerberg is he’s willing to admit he’s wrong and change course and constantly improve his product.

And there’s the amazing shift from desktop to mobile too.


Change is, of course, happening faster and faster all the time, so it’s likely the next record holder for time to $250bn has already been founded. What’s also likely is that the founder will have an even greater appetite for radical change and experimentation than Zuckerberg, who in turn is proving to be more radical than his slightly older counterparts at Google and Amazon. And Bezos and Page are in turn more radical than Gates and Ellison. There’s a lesson here….


The future of mobile ecommerce

By | Amazon, Ecommerce, Facebook | 3 Comments

We’ve been doing a good deal of thinking about the future of ecommerce as the world goes mobile. As we all know people are increasingly accessing the internet and shopping from their smartphones (one of our more recent investments has 81% of it’s traffic from mobile), and within mobile people are spending a larger and larger share of their time in apps at the expense of browsers. That presents a challenge for retailers of occasional purchases whose customers don’t use them often enough to download an app. On the web these retailers found their customers via search, but that doesn’t work as well on mobile.

So how will discovery work on mobile?

In a couple of different ways, I think.

Firstly some apps will aggregate goods from lots of retailers and discovery will happen in app. Amazon is the best example here, but different types of discovery are appropriate for different types of purchase and whilst Amazon works well for commodity goods it doesn’t work so well for higher value goods where the purchase is emotionally driven. That creates space for startups to build discovery experiences focused on specific verticals. Good examples include Houzz in interior design, and Stylect in fashion, and Top10 in travel. We have invested a lot on this theme and the last three examples are partner companies (note Thread is working on their mobile app).

Key to success for these companies is building a loyal customer base with high life time values. The aggregation needs to be broad enough that transactions occur frequently but narrow enough that product discovery is truly engaging. Strong brands will be built on the back of great product ranges and strong discovery experiences.

Secondly, some companies will focus on a small range of their own products. They will be primarily web based (including mobile web) and may not need an app. Strong brands will be built on the back of amazing products and first class marketing. Facebook is the best channel for many of these companies, for now at least. Bonobos in the US is a good example, and amongst our partners I would point to Lost My Name, Big Health, and Spoke.

An interesting question for the first group is whether the aggregation moves from apps into the OS layer, or something similar. There are lots of hints we are headed in this direction:

  • Baidu surfaces recommendations from maps
  • Facebook’s Instant Articles pulls news discovery into Facebook
  • Amazon’s Echo device enables re-ordering via voice command

If aggregation does move to the OS layer then in the short term partnerships will become critical drivers of traffic and custom, and in the long run I hope we will see a meritocratic discovery process emerge.

Update: Benedict Evans argues here that the trend within mobile towards apps is concentrated in a small number of apps (mostly Facebook and YouTube) and hence less significant for ecommerce companies than one would think

Facebook still dominates teen social media

By | Facebook | No Comments


Pew Research do a lot of the best research on internet usage and their latest report on teen social media use is just out. As you can see from the chart above Facebook and Facebook owned Instagram top the charts. Whilst teens are diversifying their social media use it seems that rumours of Facebook’s impending death are greatly exaggerated.

If one subscribes to the view that what teens are using today we adults will use in the future, which I think is a reasonable first order approximation, then the implication for ecommerce companies is clear: Facebook will remain the best place on the internet to find customers outside Google.

The danger for startups is that large companies with big advertising budgets will divert still more budget to Facebook, bidding up advertising rates and crowding out the small companies. We’ve seen this movie before with Google Adwords and I think we are now watching the opening scenes for the Facebook sequel.

Facebook is a powerful advertising platform

By | Advertising, Facebook | 6 Comments


You can see from the charts above (originally on Techrunch) that Facebook is getting stronger and stronger as an advertising platform. So long as advertisers are spending rationally, which is a good first order assumption, then if ARPUs are rising then ads are becoming more effective.

Perhaps unsurprisingly, none of this is happening by accident. Facebook has been improving ad measurement, improving app speed, and pushing video to increase time-on-site. And that’s just what I read about today.

We see this amongst our partner companies too, many of which are now finding Facebook a much better platform than Google. That’s particularly true for those selling a novel product or service – people don’t know they want it so they aren’t searching for it, but well targeted ads Facebook can excite demand.

Social network usage is starting to drop

By | Advertising, Facebook, Startup general interest | 6 Comments

2014 has been a great year for social media marketing. A number of our companies have enjoyed great success advertising on Facebook and they’re not alone. Facebook is forecasting Q4 revenues of $3.6-3.8bn, up 40-47% on the year ago quarter. Yet, paradoxically in some markets social network usage is starting to drop:

weekly social network access

As you can see from this chart it is in the US, China, and particularly the UK that consumers are turning away from social networks, and it’s a fair bet that the trend in these countries will be seen more widely next year.

The best guess is that users are shunning Facebook et al for messaging apps, which goes a long way to explaining Facebook’s $19 billion purchase of WhatsApp earlier this year.

This means that we can expect Facebook advertising to become more competitive next year. Buoyed by the success stories from 2014 bigger brands and bigger budgets will come to the platform whilst inventory remains the same or declines, at least in the UK or US. That means higher prices. We’ve seen the same trend play out on Google over the last few years where paid search in many categories is now too expensive for startups.

As this plays out entrepreneurs will be forced to look at newer platforms and one of the interesting things will be whether messaging apps emerge as an interesting advertising category.