Category Archives: Facebook

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.

A big industry is born and peaks within 13 years

By | Advertising, Facebook, Startup general interest | One Comment

It’s been widely reported this morning that music downloads are now in decline. If you take the launch of the first iPod as the date when music downloads started to become a meaningful market then the time from inception to decline is a meagre 13 years.

As an indicator of the significance of the download market, remember that it was the iPod that saved Apple after Jobs returned to the company – according to Wikipedia iPod revenues peaked at $4bn in Q4 2007 and were 42% of Apple’s sales in that period (I imagine that there was an Xmas boost and that iPod sales were a lower percentage over the whole year, but I don’t have the data).

Apple, of course, came up with the iPhone and has prospered in spite of the declining significance of music downloads, but this story shows how quickly new markets spin up and down these days and how fleet of foot companies have to be to survive and prosper. This is why Google is launching driverless cars and Facebook is bought Occulus Rift – the pressure to come up with significant new innovations gets greater and greater as the pace of change increases.

Yesterday I noted that the desktop advertising has also peaked. There’s a similar story there. If you take the 1995 Netscape IPO as the start of the internet advertising market then that industry went from inception to decline in 19 years.

New markets spinning up creates opportunities for startups and when they spin down it’s because a new industry is spinning up, with more opportunity for startups. The faster this happens the better it is for those of us in the startup world.


Facebook now a mature and stable partner

By | Facebook | No Comments

Yesterday Facebook showed what a mature and stable partner they have become. At F8, their annual developers conference, they made the following announcements which make me comfortable that entrepreneurs building businesses on top of Facebook face relatively little platform risk. Here’s the list of announcements, taken from a GigaOM post:

  • Facebook’s “stable platform” guarantees: Developers will have a 2-year Core API stability guarantee, and the company promises to remedy platform bugs within 48 hours.
  • Facebook’s platform will now support app versions, allowing developers to push different builds over time.
  • Changes to Facebook Log In give users line-by-line control over the information shared within apps, including apps downloaded by friends of friends.
  • Anonymous Log In: Users will now be able to log in anonymously to apps and “test drive” services before turning over information to an app.
  • Facebook’s Parse has now lowered pricing, offering developers more free options to build their apps.
  • Parse Local Data Store will allow developers to create offline experiences for mobile apps.
  • Parse announced AppLinks, a live, open-source SDK that provides seamless browsing to URLs from within apps.
  • Facebook’s Send to Mobile offers users the option to send app links to a mobile phone from the desktop.
  • The Mobile Like button gives users the ability to “Like” things on mobile, even without Facebook log-in enabled.
  • Message Referrals, which works within Messenger, provides rich links to be shared within the app.
  • FB Start: Facebook’s newest developer program offers up to $30,000 in tools for startups looking to grow their apps on Facebook.
  • Facebook Advertising Network: The final announcement at F8, Facebook’s Advertising Network allows developers to serve mobile ads and interstitials backed by Facebook’s targeting data.

Google is the only other internet company with a similarly mature platform. Twitter and others aspire to join them but aren’t there yet, and working with emergent platforms carries the risk that the platform won’t thrive, and/or the platform company will choose to bolster profits by eating it’s own ecosystem (remember Twitter doing that to all the Twitter client companies?). The irony for entrepreneurs, of course, is that all the hot companies on new platforms dive in early and expose themselves to the platform risks just mentioned. Evaluating the platform risk for these sorts of companies should be a key part of due diligence for investors.

As a side note, the anonymous log in announcement might just turn out to be very significant. If Facebook implement it in the right way, and with total integrity, then they are in a good position to become the universal login service for huge parts of the internet.

The key to Whatsapp’s success? Focus on product

By | Exits, Facebook | No Comments



When I talk about our approach to investing I often say that the next generation of successful companies will be most notable for their amazing products. That contrasts with previous eras where great sales and marketing capabilities and great engineering were often more important than product (think about the great enterprise software success stories of the 1990s…).

Whatsapp, which following last week’s $16bn acquisition by Facebook is now the largest startup M&A deal in history, makes a good case study. This is from a post about the company and exit from their investor Sequoia:

From the moment they opened the doors of WhatsApp, Jan and Brian wanted a different kind of company. While others sought attention, Jan and Brian shunned the spotlight, refusing even to hang a sign outside the WhatsApp offices in Mountain View. As competitors promoted games and rushed to build platforms, Jan and Brian remained devoted to a clean, lightning fast communications service that works flawlessly.

The note pictured above is apparently taped to one of the founder’s desks and it sums up what they Whatsapp is about: great user experience. They process 50bn messages per day with 99.9% uptime and a service so good that 72% of active users come back daily.

And they do that with 32 people. Amazing.

Finally a note on Whatsapp’s valuation – the $16bn price tag ($19bn including employee retention bonuses) is best understood in the context of Facebook’s valuation ($180bn as I write this). If Whatsapp as an independent company, or more likely in the hands of Google, could have become a powerful competitor that took 10% of Facebook’s business then this is money well spent.

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