Disclosure: I have long positions in American Express ($AXP), EBay ($EBAY), and Google ($GOOG). I have no current position in Facebook ($FB), though I’ve been in and out of the stock in the past.
“Move fast and break things” is Facebook’s motto. It has been incredibly successful in getting Facebook to where it’s at today. The company is now worth more than $150 billion, and I estimate that it’s worth 10 times the entire U.S. newspaper industry. It reaches 1.25 billion people. That’s astounding.
I have huge respect for what Mark Zuckerberg and team have done in the past 10 years. But sometimes, the right approach is “go big or go home.”
You can’t hack your way in payments, local and search, especially when you’re competing against entrenched players worth billions of dollars. To win — or even to be a contender — in these spaces, you have to have commitment.
American Express processes nearly a trillion dollars in transactions each year. If you were to equate that to GDP, it would be in the top 20 countries. PayPal does $150 billion in transactions. Facebook’s Payments efforts have been lackluster. Originally they were centered around the Zynga relationship. Facebook currently has a gifts product. I’d be shocked if it had any meaningful usage.
That said, I think Facebook could create a huge business payments, especially in emerging markets where American Express, Visa and Mastercard aren’t entrenched. Given the low marketing spend in those countries, it is likely that payments is a bigger revenue opportunity than advertising. When you’re living on $1 or $2 a day, that doesn’t leave much money to support brand advertisers. But payments is something everyone has to do somehow. And without Experian or Equifax, Facebook’s data on credit risk is probably better than anyone else’s.
Facebook has tried a bunch of experiments in local. They’ve all been small. The keys to winning in local are plenty of usage and understanding what to do with that data. Clearly Facebook has the usage. It receives more check-ins by accident than Foursquare gets by intent. But they haven’t built the teams to turn that data into a meaningful product — and neither has Apple for that matter. About two years since the Instagram acquisition, Instagram still gives its valuable check in data to Foursquare. That’s mind-boggling. All that data should be used to help grow Facebook’s local product, not to enrich a competitor’s data set.
Facebook has all of the right assets to do search the right way. But the current implementation is faulty. In a world where Google has for more than a decade trained people to use free text search, Facebook is trying to get them to structure their queries. That won’t happen. What’s worse, Facebook is throwing away great data it has already amassed.
People already do searches on Facebook. They just don’t call them that. Instead of doing searches in the search box, they do searches in a different way. How many times have you seen a status message like “Going to Venice. Any recommendations?”
The current search system requires people to specify that they went to Venice to come up in search results. But Facebook could easily use the location data embedded in smartphone photos to identify which of your friends went to Venice. That status update requesting tips on Venice could be made even more prominent to people who’ve been to Venice. It’s a different form of search — completely different from how Google has defined search. But that’s the point. It takes something unique about Facebook and emphasizes it, instead of being a hobbled Google competitor.
These are just three multibillion-dollar spaces that Facebook has a credible shot of either winning or being a strong contender. I can think of several others.
Last year, I interviewed at Facebook. I was warned by a friend that most people who are rejected get rejected because they don’t think big enough. Part of the feedback to me was that I was thinking too big. I didn’t really understand it at the time, but now that I think about it, it makes sense. I know that for Facebook to win in these spaces, they have to be willing to make a much bigger commitment.
I’ve seen friends — who are extremely sharp — leave Facebook because they thought Facebook was thinking too small in these spaces and could go work at companies that would focus on these harder problems. That’s a lot more fun than trying to put more ads on mobile.
In order for Facebook to catch up with or exceed Google (its value more than doubles Facebook), Facebook is going to have to enter new spaces and think bigger.
All in all, I’m a huge Facebook fan and have been since the beginning. I just think it could be so much bigger than it is. In 2007, I told then-CTO Dustin Moskovitz that Facebook would become the way most people consumed news. He laughed and said I was being ridiculous.
If the problem is defined as sharing status updates, links and photos online, Facebook is the undisputed winner. But if you expand the scope of the problem to creating a meaningful difference in people’s every day lives, Google is much further ahead. And although they haven’t done it yet with Google+, they have many of the right assets across Google+, Now, Maps, Local, Gmail and Calendar. (Though getting all of the teams at Google to create a cohesive social experience is a challenge.)
Facebook is the king of what I call “explicit social”. In explicit social, people say what they’re doing. “I’m having lunch with Bruce at Colibri.” Google is well positioned to redefine the space into what I call “implicit social”. By the position of our phones and the fact that we might have used Google Navigation to get there, Google knows we are at Colibri. All of this has privacy implications, of course. But I believe they can be navigated to create a much better social experience than what exists today. If you deliver value and convenience, people will trade off some of their data.
I’ll explore than in a future post.
Google is an older company than Facebook, but to me it feels younger in the way it acts. It takes bigger risks (Glass, self-driving cars, Shopping Express, Android.) Facebook seems to be more on the defensive than the offensive. It’s spent a lot of time fighting off (or acquiring) competitors than building the next big thing. Even its Paper product, which launched yesterday, is essentially Facebook’s version of Flipboard.
Both Google and Facebook will be great companies for a long time come. I just wish Facebook would set its sights higher.
Back in its day, AT&T was a huge innovator — watch this video for a reminder of some of the innovation that came out of Bell Labs. Now, AT&T’s innovations seem to be mostly focused on how to separate consumers from their money.
I would peg Google closer to the AT&T of the Bell Labs days and Facebook closer to the new AT&T.
Why did this happen? I suspect it had to do with Facebook’s stock plunging to below half of its offering price in the first six months. That huge drop spooked the company on taking the big risks needed to be even greater. You even had some idiots calling for Facebook to issue a dividend. (If you’re investing in Facebook for a dividend, you should get out of investing.) Google has never traded below its IPO price of $85 and is now at $1,138. But Mark Zuckerberg controls Facebook because of his extra special shares. He can tell Wall Street to take a hike and build a much more world-changing company
Facebook has made a huge change in how I waste my free time. I want it to help me improve the rest of my life.