What to companies want when they get a billion customers or two? More customers. More money. More shareholder value. Not necessarily in that order. Apple, Google, Microsoft– they all want the same thing.
Guess what? Facebook has a few billion
customers users. I had to make the correction because to Facebook you are much like you are to Google. A user. Not a customer. Facebook wants to be like every other growing company. Bigger.
Drug Store Effect
What do you see in most big box drug stores these days. A pharmacy, right? But it’s way in the back so you have to trudge through aisles of products to get there. Guess where such drug stores get much of their revenue and profits? Everything else besides drugs. I call that the drug store effect and it is in full display at Google, Microsoft, Amazon, Facebook, and other high tech companies that have a billion or more customers or users.
Facebook has more than two billion users and they want more. Oh, and more revenue and profits. I forgot to include the actual incentive. The world’s largest social network has licensing deals with three of the five major music labels. What does that mean? More music on Facebook. You know, to go with the videos on Faceboook. And WhatsApp. And Instagram.
This record company deal– with more to follow– might be a good way to share some of Facebook ad revenue with musicians and their publishers and distributors, but it’s also a good way to prevent a war between Facebook, their users, and the music industry. Google has something similar with YouTube and the rest of the entertainment industry. Otherwise, executives would spend most of their days annoying users by requiring them to take down videos and music that doesn’t belong to them.
Facebook differs from Apple and Microsoft. Like Google, Facebook is an advertising company. That’s where the revenue and profits come from and both are enormous and growing fast. The problem is growth. Shareholder value often gets tied up in the ability to grow and diversify. You see it with Amazon– they sell products, they have subscriptions, and they make their own products. Growth is the drug that drives these companies.
All of these major companies have struggled in recent years to diversify. Apple’s product line is more profitable than most, but the company’s fortunes are tied to iPhone sales. Google and Facebook are profitable, but one-trick ponies. Microsoft has done better of late, but has wasted tens of billions on ill-fated diversification attempts.
Facebook wants to do what Apple does. Diversify better. How long before Facebook monetizes those two billion users to provide them with streaming music and video options, Facebook-only product sales, and other ways to bring in more revenue per user?