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Monthly Archives: January 2011

Software Superpower 2.0

Facebook, the leading social networking site, reached a couple of significant milestones this week, achieving a valuation of $50Billion and toppling search juggernaut Google as the world’s most visited site. This news got me thinking, do we have a new software superpower on our hands? Does Facebook possess an asymmetric advantage in the social networking space that allows them to lock in users and lock out potential competitors (particularly the cross category players – Oracle, Google, IBM, et al)? Have they successfully co-opted the resources and momentum of a superpower  to help to catapult themselves into the stratosphere? Do they have a business model that is sufficiently sustainable to enable them to wrest strategic new markets and service categories away from lesser foes? I believe that the answer to most of these questions is a qualified yes. Let’s look at the facts:

Sustainability: Facebook has apparently generated some $2Billion in annualized revenues in less than six years and is projected to grow at a 50% clip for the foreseeable future, an unprecedented achievement. This is clearly a business with legs.

Asymmetric Advantage: While the social media phenomenon has been dismissed by some pundits as a fad driven by users who are fickle and will quickly move on to the next big thing, I am not so sure. Facebook is a place where 500Million users can easily and reliably communicate with friends, view images, remember birthdays and access up to the minute status information instantaneously. All for free! It would really take something special to make all of those folks go to the trouble of porting contacts over to another service or, worse still, ‘friending’ everyone they know all over again. Make no mistake, they are locked in. That doesn’t mean that Zuckerburg and his crew are taking it easy. They are constantly adding new services like the new messaging facility they released last month, a calculated masterstroke that will make transitioning to an alternate service even more challenging. These guys are well versed in Customer Barrier Management. Their users aren’t going anywhere.

Locked-out Competition: Facebook also appears to have enough of an asymmetric advantage to fend off much larger players. For example, Buzz, Google’s attempt at social media market co-optation was an unmitigated failure.

Superpower Sponsorship: Microsoft had the right idea when they bought one percent of Facebook. Not only have they already seen a threefold return on their investment to date but they also secured an exclusive agreement to serve ads to Facebook users, an asymmetric strike against arch rival Google. All this despite the fact that Facebook is a viable threat to Microsoft’s core OS business. I am certain the Redmondistas are well aware of the potential harm that a rival platform like Facebook might do them but the truth us they have no choice here, they have to play nice. Arguably it is Microsoft that is leveraging Facebook’s momentum not the other way around.

Category Cooptation: In another year or so Facebook will go public and speculation is rife that they will enjoy a crazy valuation, perhaps as much as $100Billion. This is going to be a business with a deep war chest. They will have plenty of resources to build out new service categories and buy out or develop around competitors with technology that impacts their strategy.

So is this a possible software superpower? Let’s recap. Facebook is a company with incredible market momentum, massive barriers to entry, a locked in user population, the sponsorship of the most significant cross category software player in existence and  (soon) billions of dollars to counter threats and develop new markets. They are truly a superpower in the making.

 
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Posted by on January 4, 2011 in Technology, Uncategorized

 

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