Facebook Doesn’t Think About Making Money the Way Most Companies Do
Like many Silicon Valley companies, Facebook (FB) is a “mission-driven” organization.
Sure, its revenue grows like crazy every year (52% in 2015) and its profits are downright impressive (44% operating margins), but really, executives will stress, this company is about making the world more open and connected. Listen to enough Facebook earnings calls and that phrase becomes deeply lodged in your brain. Hang around Facebook executives enough, and you’ll learn that cynical business questions about money are best phrased in terms of “user experience” and the mission.
In Facebook’s year-end earnings call, held Wednesday night, Zuckerberg closed his prepared remarks with some high-minded mission talk about how his newborn daughter has made him think about the legacy his company will leave to the next generation. “If we continue to focus on solving the fundamental challenges facing the world, and bringing the world closer together, we can leave a better world for the next generation,” he proclaimed.
I’m guessing the analysts heard that and thought: “Sure, whatever you want. Just keep growing revenue by 52% with 44% margins and we’ll keep trading your stock up.”
But toward the end of the call, an analyst made the business question mistake. He referred to a “billion-dollar conversation” that Zuckerberg had had years ago with Facebook’s engineers about the company’s slow shift to mobile. With that in mind, the analyst asked, has Zuckerberg had that conversation about Facebook’s messaging platforms, WhatsApp and Facebook Messenger?
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The question set Zuckerberg off on a long, corrective explanation that can double as a helpful look into how Facebook thinks about making money from its popular Internet services. It also shows how Facebook went from falling behind in mobile to making 80% of its revenue there and coming to dominate the category.
The short version is “Mission trumps money” at Facebook. (Lucky for the company so far, the money has been pretty good.) Here’s Zuckerberg’s answer:
I think you have it wrong. I don’t know where you got that story from. I never had a conversation with the engineering team, where we were behind on mobile and I said, “We need to do this to make money.” That’s not really how we operate.
What happened was we realized mobile was growing faster than desktop and people were shifting their usage. It was the more important thing for people’s consumer experience. That’s when we made the shift. Not in our business first, but in how we developed the products.
I told all of our product teams, when they come in for reviews: “Come in with mobile. If you come in and try to show me a desktop product, I’m going to kick you out. You have to come in and show me a mobile product.” That was a crude leadership tactic—somewhat effective—in helping to motivate the organization to shift its energy toward focusing on mobile.
But if you remember, we actually went through a tough period where our mobile experience was not as good as we wanted it to be and we had no ads on mobile. We prioritized making the experience good before putting ads in.
That’s how we think about messaging. We know messaging is going to be increasingly important. That’s why we hired David Marcus [Facebook’s vice president of messaging products]… and why we bought WhatsApp.
We have a formula for how we build these businesses: First you build a great consumer experience that helps people share in a new way. That’s really important. Then, after that, you can start to introduce organic ways that people can interact with businesses.
So far, this strategy has worked well for ads on Facebook. It has also worked well for video, which is beginning to make money from ads, and for Instagram, which analysts predict will bring in over $3 billion in revenue this year. Soon Facebook will begin to make money from Facebook Messenger and WhatsApp, which have a respective 800 million and 1 billion monthly active users. As roundabout as it may seem, Facebook’s mission-driven approach works—the proof is in the profits.