Facebook Meta is Mostly 4 Networks and 2 Platforms (Tech Strategy – Podcast 193)

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This week’s podcast is a deep dive into Facebook Meta. And how I break down the business model and the key factors.

You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.

Here is the link to the TechMoat Consulting.

Here are the mentioned graphics.

The 5-6 factors mentioned are:

  • People networks
  • Audience-builder platforms
  • Limited ecosystems
  • Profit vs engagement products
  • Hierarchies of control
  • Substitutes

———–

Related articles:

From the Concept Library, concepts for this article are:

  • Audience Builder Platform
  • People Networks: Communications
  • Limited ecosystems
  • Profit vs engagement products
  • Hierarchies of control
  • Substitutes

From the Company Library, companies for this article are:

  • Facebook / Meta
  • WhatsApp
  • Instagram

Photo by Brett Jordan on Unsplash

——transcription below

Welcome, welcome everybody. My name is Jeff Towson and this is the tech strategy podcast from TechMoat Consulting and the topic for today,  Facebook Meta is basically four networks and two platforms. So this is a deep dive episode on, on Facebook, which is now meta, obviously, and I’m just going to show you how I break down the business model.

 

I think it’s pretty simple once you see it the right way. So I’m going to sort of give you a simple framework for thinking about the business model, which is. Like super powerful. I mean, let’s not kid ourselves. This thing is unbelievable. And then also I’m going to talk about five to six factors going forward, which are really what I watch.

 

The business model doesn’t change. It’s been the same for, you know, a good 10, 15 years.  But there are certain factors I keep an eye on. So I’ll give you my five or six that I watch. Anyways, that will be the topic for today. Let’s see, kind of a big announcement today. Uh, we are doing in May the Beijing Tech Tour.

 

And this, this is kind of a unique,  it’s kind of an economy tour. Uh, we, we do these, these tours of mostly China, but Southeast Asia as well. And, you know, they’re five, six days, they’re great. I mean, they’re really a lot of fun,  but they didn’t make a lot of sense for certain people, especially people that like Southeast Asia.

 

So we came up with what we’re calling Let’s call it a short tour, kind of an economy tour. It’s a lot cheaper, basically. Um, that we’re going to do in May. It’s only one city, not multiple cities, just Beijing. Uh, it’s going to be just a couple days, a couple days of visiting companies, and then one to two days of fun.

 

May 22nd to May 26th is the likely set dates. We’re still going to confirm that a little bit. Um, yeah, and basically travel around, see a bunch of companies, the ByteDances, the Bydoos, the JDs, things like that. And I’m kind of the moderator and we do lectures on the companies and then we visit. It’s anyway, it’s going to be great.

 

So, we’re doing this one time. This, this, let’s call it the short tour, the economy tour. We’re going to do it one time this year in May. And then I think that’s probably it. We won’t do it again. Uh, so if this is that something that’s interesting for you, go over to Tecmo consulting. com. The details are all there, including prices and things like that.

 

Uh, if that’s interesting, go there, take a look at it, and then you can either email me or there’s contact information on that, but that’s, yeah, that’s rolling out right now and we were going to do it in January. And, uh,  it was rightfully pointed out by many people like Beijing’s really cold  in January, which is true.

 

So I thought, let’s do it in the spring. So we pushed it. Anyways, that’s kind of the big news for today. Okay, let me give you my standard disclaiming here. Nothing in my podcast or in my writing or website is investment advice. The numbers and information from me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate.

 

Overall, investing is risky. This is not investment, legal, or tax advice. Do your own research.  And with that, let’s get into the content. Alright, quick tech news before we start, only one thing got my attention this week, which was when Donald Trump basically  said he would ban CBDCs in the United States. Uh, now he says a ton of stuff, and, you know, what he says and what he does is pretty different.

 

Um, but the story goes that after, uh, Vivek Ramaswamy, the, uh, Kind of interesting guy. I mean, you meet big waves. He went, you know, tech or biotech into politics. Interesting guy. And it was after he dropped out and endorsed Trump, he met with him. And apparently out of that discussion,  you know, that’s when Trump said we’re going to ban CBDCs.

 

Um, and you know, most countries are working on, not most, many countries are working on these in some form. The federal reserve is working on it. The EU is.  Dying to do it  and I’ve kind of said this before like CBDCs are the ultimate form of control  Like, controlling information flows, which has kind of been a big topic for the last five years, that once you digitize things and it becomes connected, it naturally forms monopolies under the control of certain entities, and it gives you an ability to control things, which is unprecedented.

 

Hence, we see mass information control, censorship, propaganda over the last years that we’ve never seen before.  Um, okay, that was worrying, and a lot of people are concerned about that, myself included. CBDCs dwarf that.  If you digitize money, which is gonna happen, and it becomes connected and then it will create points of control of tremendous power  where you can basically control not just people’s money, you can control everything they spend money on, you can control every aspect of the economy and algorithms are real good at this sort of stuff.

 

You can put in wealth taxes, you can collect taxes, you can change the value of the money at will, forget printing money, you just change the code.  So CBDCs, depending on how you view it, are either the ultimate form of control, or they’re the ultimate form of tyranny.  Uh, and my opinion has been, and I’m terrified of them, um, my opinion has been these will happen automatically, there’s almost no way to stop them.

 

They get rolled out, people start to adopt them because of convenience, then merchants stop accepting paper cash, and then you kind of, it all, it will naturally happen as a standardization network effect. Unless they are explicitly banned, it’s gonna happen.  So, anyways, that got my attention. I thought it was great news, if it turns out to be true.

 

We’ll see. Okay, that is the only thing that got my attention. A little bit political there, but mostly tech.  All right, let’s get into the topic. Now,  I have been looking at Facebook since  2018. I actually pulled up my notes from 2018. Those of you who are subscribers, I sent you a pretty long article about Facebook today, and I’m going to send you another one in the next day.

 

Pretty deep dive on this stuff. I mean, literally going back to my notes in 2018 about the business model, the consumer product, how it’s positioned, the key factors going forward. Um,  it’s going to kind of be a lot of depth on this and the nice thing about Facebook and also the boring thing about Facebook, it doesn’t change.

 

I mean, my notes in 2018  are still pretty accurate. That’s one of the reasons I don’t follow U. S. tech companies very much because a lot of them They kind of never change. Whereas in China, Asia, things are always moving. It’s really interesting. Anyways, so  I sent you the notes and  yeah, it’s a big deal.

 

It’s um, let’s not underestimate. I don’t like Facebook. I mean, you’ll pick this up pretty quick. I don’t like it. I don’t like the product. I think the business model is quasi evil. I view the product kind of like how I do. If you were to combine cigarettes with a gambling business model.  That’s how I feel about it.

 

I don’t like the product and I don’t like the business model behind it.  Okay. But Facebook gives, you know, no care at all what people like me think. Uh, and that said, it is a powerhouse of a business model. The numbers are staggering,  uh, 3.  1. 3. 14 billion users are active daily on their very, now they have a suite of products now, which they call their family of apps.

 

They break their, their, you know, into two business units, the family of apps, and then their basic reality labs business, which is their whole metaverse thing.  3. 14 billion users actively, daily.  Uh, monthly, about four billion. So, one, those numbers are unbelievable. Two,  virtually everyone who uses Facebook, who is active monthly, is active daily.

 

Like 78, 75 percent. That’s crazy.  Um, The growth has been steady and solid for forever. This last year, I looked at the Q3  numbers for 2023. It was 7 percent growth year over year. You got to look at the different products, obviously, and you have to break it down by geography, which is pretty different. Um,  but by every metric, it’s, it’s a powerhouse of a business.

 

Um, I’ll tell you what I think could impact it when we get to the factors, but yeah, let’s.  And in the note I sent out the article, I talked about why the consumer product is so powerful.  I’m not going to talk about that here. Um, let’s just talk about the business model.  When Facebook describes itself, I’m going to say Facebook  as short for meta.

 

In reality, we’re talking about multiple products. We’re talking about the Facebook core product, the News Feed, which everyone knows. We’re talking about Instagram,  different product. And then we’re talking about three to four messenger services. WhatsApp messenger service, Facebook messenger messenger service.

 

Messenger, they have a separate app and then Instagram Messenger. So you sort of have four messenger type programs and then two core products, Instagram and the Facebook newsfeed. Now there’s other stuff too. They have a little marketplace and they have reels. I mean, there’s other stuff too. This is a simplistic version, but I think it’s 80 percent on target.

 

Okay. Within all of this, we have a couple of user groups. Uh, we have. We’ll call it consumers, but it’s really broader than that. It’s users. It’s anyone  going on to Facebook or messenger or any of this. And what are they doing? They’re doing a couple of things.  Uh, the number one thing they’re getting is connection and communication.

 

These are Facebook’s terms, not mine. This is when you read the reports. This is what they talk about. We connect you with other people. We connect you with businesses and you can do communication.  Uh, then there’s also sharing and discovery.  That’s consuming content. You can share content, you can consume content.

 

People usually say discovery instead of consumption. It’s kind of the same thing.  Um, okay, and it’s all free and that’s powerful and that’s kind of what they, what they do. Um, I don’t think I need to explain how to use Facebook, but their language is interesting.  Okay, let me get to the business model. When I go through my checklist, question number one for me is always the customer experience.

 

What they’re getting, why they like it, how do they use it. Because if you’re not getting adoption and usage, who cares about the business model and competition.  Okay, that’s in the note that I sent out. Let’s talk about question number two, is then I look at the business model, the competition, who’s gonna win.

 

And within that, the simplest way to think about Facebook is, it’s four PayPal networks. And two platforms, specifically to audience builder platforms. Now, if you’re familiar with the frameworks, if you’ve been listening for a while,  this should always be, this should be simple. Like you should be, I’ve heard this before  in my books.

 

I generally say, look, there’s five types of platform business models, and there’s three types of networks. Now, networks  are an asset.  Uh, they’re not a business model. They’re an asset. Like a factory would be an asset, but a factory is not a business model. Making shoes would be a business model that uses that asset,  but it’s not a, a business in itself.

 

Well,  communication networks, when, when I look at networks, I put them into three bucket. It’s people networks, protocol networks, and physical networks. A road is a physical network, a. Series of pipelines, a rail system, those are all physical networks. They’re assets, physical, tangible assets in this case, that you can use to build business models.

 

Okay, protocol networks, which is a lot of the early web, a lot of blockchains based on this, which is software and certain standards that let things connect to each other, protocols on laptops that let you, you know, the TCP, IP, all of that lets you do that. Protocol networks, um, and then there’s, uh, people networks.

 

How can we let people connect? Well, that’s kind of what Facebook is in. They’re in the, you know, their core asset is people networks. They connect people to other people and, you know, people networks have always existed. They just digitized it and moved it online, which is, like, super powerful, it turns out.

 

So we can look at Facebook as  I mean, you could say four, but closer to the two, um, people networks, that’s WhatsApp  that is Instagram messenger. That is Facebook messenger. And that is the standalone messenger app. That’s what those apps are. They, they basically, uh, create those networks that connect everybody.

 

And they’re not, they’re definitely not platform business models, at least not the way I define them. And now you could say that’s a service in itself. So this is an asset. That’s kind of a. a service, a business model. Well, not really. Um, why are those powerful? Well,  because they have direct network effects.

 

That’s why I mean, this is how AT& T became like an unbelievable company for almost 100 years is they laid all the cables that connected everybody’s house to everybody else’s house. And that was basically a  You could say it’s kind of a physical network because you actually had to lay the cable, but really it was a people network.

 

They connected people to other people, uh, and it became a tremendous business, and they got direct network effects.  We talk a lot about indirect network effects on things like marketplace models, where, you know, the more merchants on Taobao, the better it is for consumers and vice versa.  And one of the problems with indirect network effects, like marketplaces, you have a chicken and an egg problem to get the merchants.

 

You have to get the consumers to get the consumers. You have to get the merchants. You don’t have that problem with direct network effects. Everybody who signs up for WhatsApp makes it more valuable to everybody else.  Direct network effects. Like if you can have one thing in life in a business, you want direct network effects.

 

It’s the mother of all competitive advantages.  Okay, they have direct network effects that are global in scale by virtue of the four messenger services they have. built over and acquired over time,  and they are slowly merging these. Um, a couple of years ago, Zuckerberg came out and, you know, said we’re going to be privacy focused social networks.

 

And basically they were going to copy WeChat. And the first thing on the to do list was to merge the four messengers into one messenger, which has kind of happened, but kind of not. The number two was to add payment, which didn’t really happen.  Okay. So you can view this as four people networks  that are tremendously powerful, and for the most part, they don’t monetize this.

 

They don’t really charge for WhatsApp. They don’t really charge for any of this. You know, they make their money on the platforms.  Now, that’s interesting. The original phone lines, you know, they charged for that when you had a phone put into your house. Originally, you got charged for that, and then they built platform business models on top of that, like the yellow pages, which is basically kind of a marketplace.

 

That was a platform business model built on top of a people network.  So kind of interesting. All right, we get to the next step, which is  platform business models.  I think they mostly have two. They got a bunch of stuff going on, but  what it looks like to me is two audience builder platforms.  And these are the Facebook News Feed and Instagram.

 

That’s where they make most all of their money. You know, that’s where they get impressions that are monetized. Add impressions. That’s where those happen. Um, now. You know, for those of you who have been listening, I talk about audience builders all the time. There’s lots of types of audience builders.

 

Facebook, YouTube is one, TikTok is one, um, Spotify is one. Depending, this is where you’re basically in the business of enabling interactions between people who create content and people who consume content. And the primary interaction is usually to build an audience, hence audience builders. However, they change pretty dramatically based on what type of content you’re talking about.

 

If you are talking about YouTube,  okay,  people make videos which can be amateurish or they can be professional. I mean, it can be everything’s from Disney to  Joe Rogan in a basement to a random guy walking around the street with a handycam. All of those could be content creators, but generally speaking, the content creators are different people than the consumers.

 

Most people who watch YouTube don’t make content.  Okay.  TikTok blurred the lines on that because they made it so easy to go from being a viewer to being a content creator.  As you move, you know, from, let’s say, video, long form video to short form video, and then from short form video to JPEGs, which is a type of content, that’s Instagram, that’s how they took off.

 

Okay, people tend to do a lot more of that.  There’s a blurring of the lines between the two user groups, content creators, content consumers. And then when you move into things like text.  You know, sharing posts, uh, putting up funny jokes and things. Well.  Then it starts to become almost, it starts to blur the lines between a platform business model and just communication.

 

If we’re just chatting on Twitter  and people are posting things and people responding, is it really content creators versus consumers? Or is it just sort of one big chat room? So there’s a bit of a blurring of the lines there.  But I think you can look at Instagram as absolutely an audience builder platform.

 

TikTok is kind of basically an upgrade to Instagram.  Instagram is a beautiful business model, right? You post photos, they’re easy to monetize, they’re easy to make ads of, uh, you get a lot. It’s a very powerful business model, but it was JPEGs. And then TikTok basically took it to short video, which turned out to be a lot more powerful.

 

And Instagram has had to play catch up with Reels, which they’re almost caught up to TikTok in the US.  Okay. So Instagram, definite audience builder, indirect network effects,  beautiful in terms of monetization because a full JPEG on a smartphone is a very nice ad.  The Facebook newsfeed, which is one of the greatest inventions of all time.

 

Okay. That one’s a little bit more of a mix.  If it’s news companies like newspapers posting their articles on Facebook, which is what they do. Okay, that looks like an audience builder. Content creator, content consumer.  As you move into, you know, people posting pictures of their cats. Well, okay, then you’re kind of more in the communication side of things.

 

So it’s a bit of a sliding scale.  Um. But I think you can definitely see it and now if you go on the Facebook news feed you can see it’s a mix of text and jpegs and videos and  everyone’s pushing videos because it turns out in terms of content. You know, video is king, right? Video gets more views, more time, has more power to it.

 

Anyway. So when we look at two clear audience builder platforms, and then they have some other things like a marketplace, which is kind of half there, they have some payment stuff, which is kind of half there, but that’s most of what they’re doing  and, you know, two complimentary platforms is my favorite business model of all time.

 

Um, like if direct network effects are my favorite competitive strength, complimentary platform business models is my favorite business model. That’s  Tencent. That’s Amazon. That’s Microsoft. That’s, uh, you know, Alibaba phenomenal. Well, they have at least two, you know, Facebook newsfeed and Instagram,  and then they’ve got these four networks.

 

So yeah, they’ve got a powerhouse of a business model.  Now, everything I’ve just said is basically talking about power on the demand side.  Network effects are basically economies of scale on the demand side.  But you can also use strength on the demand side to then build competitive strength on the supply side.

 

And in this case,  they have some pretty good economies of scale based on IT spending.  R& D spending and arguably political lobbying. They are a massive spender in Washington, D. C.,  which is not a small thing, especially when you’re in a very politically sensitive space, which information control is. And, you know, let’s not kid ourselves.

 

They’re in the center of a lot of political stuff. And arguably, Facebook’s biggest challenges right now are more political than competitive.  EU regulations.  U. S. is probably not going to do anything. But yeah, I mean, that’s kind of where they are. But they can outspend anyone on IT.  They flood a lot of money into R& D.

 

It’s also why they kind of spend a lot of stupid money on meta and these weird things that  I don’t call them boondoggles, but yeah, kind of. Tens of billions of dollars on stuff with no users.  Okay. That would be a basic breakdown of their business model, and it hasn’t really changed. It’s just sort of added.

 

They started out early on with just Facebook newsfeed, and then they added Facebook messenger.  Then they bought Instagram. Then they bought WhatsApp. So they’ve kind of gone from one audience builder and one. people network, communication network, and they’ve added others over time, but they haven’t radically changed.

 

It’s not like they’re Tencent where they’ve gone into gaming and then they’ve gone into payment and then they’ve gone into many programs and then they’ve gone into e commerce. You know, they’ve kind of stayed with the same thing. Okay. Based on that, we can look at the financials and they’re awesome. Um,  I looked at the third quarter 2023.

 

So the nine month revenue for 2023, not the full year, but 95 billion in revenue,  their income, their operating income from that’s about 30 billion. So about 30 percent operating margin. But let me, let’s not kid ourselves. They’re not exactly living lean and mean they are. They have a lot of spending that could be cut.

 

I would put their operating margin if they were You know, to tighten their belts, probably 50%. I  mean, this thing’s a cash machine. It’s just a purely digital operation with global reach, beautiful business model, tremendous power on the consumer side. Yeah. I mean, it’s, it’s awesome. I don’t like it. I don’t use it.

 

I admit that it’s completely awesome.  So there we are.  Anyways. Okay. Let’s, uh, that’s kind of the first point. That’s one way to break down the business model. I’m going to put a JPEG in the note that basically shows this with a picture. So everything I just kind of explained with my hand wavings,  I’ll give you a picture.

 

It’s pretty straightforward. I think when you see it  All right Let me get to the so what there are about five really six factors that I keep in mind For Facebook and then I kind of pay attention to  and I’m just gonna run through them These are I’ve mentioned most of them before now. The first two are the ones I just mentioned which is  people networks Based on communication,  okay, fine.

 

And then audience builder platforms. The distinction is important. They will often talk about their engagement with developers as another user group.  Their user groups are consumers,  users,  merchants, and brands who advertise there, advertisers, and then content creators. So let’s say you have three user groups.

 

They don’t talk about content creators that much. They usually talk about developers, people that make whatever apps they’re building in this world compatible or integrated with Facebook.  Now, I, I don’t think it’s that big of a deal and I would not call them an innovation platform. They’re not like an operating system at all.

 

What I would call that, so this would be point, now point number one is people networks. Concept number, I watch how that’s developing. Point number two, audience builders. I watch how that’s developing. Point number three is kind of this limited ecosystem they have  where, you know, it ain’t an operating system.

 

It ain’t like the app store. But they do have interactions beyond their core business with developers and other businesses outside. And that’s usually data sharing and distribution.  Developers, people writing apps, want to plug in and make their, whatever they’re building, compatible with Facebook, the APIs.

 

to get the data and to get distribution.  And Facebook has kind of had a back and forth relationship with them over time. You know, people use this to get information about election stuff and people and there’s privacy concerns, but it’s been pretty minimal. But they do extend beyond their their ecosystem, which is internal somewhat.

 

But I wouldn’t really call Facebook an ecosystem like I would Epic Games, like I would Tencent, like I would Alibaba or Google. I’d put them sort of as a limited ecosystem at best.  And I’ve talked about this before, different gradations of ecosystems.  It’s really a sliding scale.  Okay, so that’s number, factor number three.

 

I keep an eye on how much they are extending out into the greater environment.  Limited ecosystems, kind of an interesting idea. Okay, number four.  Profit versus engagement products. Now I’ve talked about this kind of a lot.  Certain products get you engagement and users.  And certain products get you money.

 

Digital products, digital services.  It’s pretty rare that one gets you both.  Sometimes  doesn’t happen that more often you’re going to see a portfolio of content, a portfolio of services, and you’re going to get profit from some and engagement from others. And you can see that in Facebook, they get tremendous user growth and engagement by their communication networks, Messenger, WhatsApp, they don’t really monetize any of that, but that is what, I mean, the number one activity people do, the highest frequency activity is communication.

 

So if you’re the communication network, WeChat, WhatsApp, you are the front of the queue in terms of user attention and engagement, which is why WeChat has been able to extend itself backwards into payments. e commerce, search, gaming. It’s a tremendous position to have.  And that’s really where they sit.

 

They, you know, with their engage, that’s their number one, uh, their profit products,  you know, the things they make money from, which also get good engagement. That’s the newsfeed, you know, that’s Instagram. They’re  actually pretty profitable as well. I mean, you can’t make money off something people don’t like, but  the balance between those two is actually kind of interesting.

 

So when short video takes off and, you know, they launch reels as a competitor to tick tock  you’re shifting traffic from products that make you a lot of money like the Facebook news feed to something that is more of an engagement product. So the portfolio of products is interesting because as you shift attention from one to the other, you can impact your profits.

 

So it’s interesting to see. As their engagement shifts from, let’s say, the News Feed to Reels and Messenger, that will be great for engagement. It’ll probably hurt them for profits.  So that portfolio is really interesting to think about and how they all sort of connect with each other. So anyways, think about the profit versus engagement products.

 

Now it turns out Short Video is a cash machine as well as TikTok has shown, so that’s pretty good. But, yeah, Messenger’s interesting. Okay, that’s one, two, three, four points. Two more.  Um  Number five hierarchy of control.  I haven’t talked about this much. I think I did a podcast about this a year ago  I did some articles about this.

 

I was talking about enterprise  now,  you know We’re sort of talking I talked a lot about company a versus company B and let’s say operating systems or apps or whatever  within technology  everything depends on everything else and there is sort of a hierarchy of power a hierarchy of control  At the end of the day, Facebook controls the iPhone and it controls the app store.

 

And if it decides to change the rules. It impacts all of the apps and most of them have to just say, okay,  now Epic games can fight back and Amazon can fight back, but most can’t.  Um, and you can go from, let’s say operating system like Android. Then you can go up to say smartphone makers. Ultimately the person who’s in most control is the person who controls the device in your pocket, not the stuff that’s on the device.

 

Okay. So we can go from sort of handsets.  To controlling the mobile operating system.  Next on the list would be super popular. Apps that are critical like mapping. Mapping has a lot of power. Uh, browser kind of has some power. Certain apps like Facebook and WeChat are particularly powerful. It is very hard for Apple to tell WhatsApp what to do.

 

’cause a lot of the people may not buy the iPhone if there’s not WhatsApp. WhatsApp on it. So there’s a balance of power and then, you know, smaller apps go from there, the data underneath all of that, the payment systems tend to have some power. So there’s a hierarchy of control.  Um,  and we see this a lot more explicitly on the enterprise side because you have to install the ERP systems in a big company, let’s say Nestle.

 

Okay. The ERP system is in control. That’s Microsoft. And then the other apps that sit on top of that, maybe Zoom for video conferencing, maybe ADP for HR solutions, maybe Salesforce, those things all sit on there, but we kind of know who’s in charge. And when Microsoft says we’re going into communication like Slack,  Slack was in big trouble,  right?

 

We see the hierarchy more explicitly in the enterprise side, but we do see it on the consumer side as well.  And a lot of what you read about with Facebook versus Apple.  Versus the U S government. And you can put the government in the hierarchy of control. No doubt.  It’s almost like we’re watching geopolitics more than we’re watching business.

 

You can see Epic games pushing gap against Apple. You can see Facebook and Apple sort of having a.  The two biggest kids on the school yard aren’t really fighting, but they push each other a little bit. The government’s in there a little bit. The CIA has how many people within Facebook? I don’t know. You can go on LinkedIn and pull the numbers.

 

It’s kind of a lot. You can look at the resumes. So a lot of what’s going on is, is the big boys.  Our sort of exerting hierarchy of control.  You know, there was a story, um, I’ll finish up here in a minute. There was a story,  uh, when Elon just took over Twitter and, you know, the sort of censorship regime came after him to try and get him to bend the knee and do what they say.

 

Advertiser boycott, usually fake.  Didn’t work, because you can’t intimidate that guy. And then something that came up, this was like December, right after he bought it. Well, what if Twitter gets removed from the App Store?  Right?  Which is what happened to parlor  and then there was a meeting between Tim Cook and Elon Musk and who knows what happened in the meeting, but they came out of the meeting and they basically said, like, we’re going to be friends,  right?

 

And they haven’t had a problem since now. What do I think happened?  I think Elon reminded Tim Cook that he could launch a competitor to the iPhone in about two days. The Tesla phone is in his back pocket. And he’s got his own internet. I think they agreed not to get, no not to, but if it had been any other just, you’re an app, that’s all you are my friend.

 

No, Apple can kind of tell you what to do and you’ve got to say okay. Um, anyways. Hierarchy control. Okay, last point and I’ll finish up. I’ll be done. And this is arguably the most important one. Substitutes.  Substitutes.  Facebook has not had a serious competitor since, you know, 15 years for its core business.

 

But  what it has had is substitutes.  If their two businesses are, we help you connect and communicate, and we help you consume content, share, post, discover.  What is a substitute for connecting and communicating? Well, Facebook by its definition was a digital substitute to in person communication. That’s what it was.

 

Very powerful.  Okay, but Messenger emerged five, eight years later as a substitute to the News Feed.  If I’m going to communicate and connect instead of using the newsfeed,  I can use a messenger service like WhatsApp.  That was a serious substitute to their core business. What did they do? They bought  them.

 

Then they have their own, you know, messenger as well.  I think Metaverse was seen as a substitute, a potential substitute to their core business of we help you connect and communicate. Instead of connecting and communicating in person, we let you do it online in Facebook. Instead of doing it in the news feed and such, and little comments, we let you do it with Messenger.

 

But what if instead of doing it there on your phone, you do it in the metaverse? That’s how you connect and communicate with people. That would be a threatening substitute to their business.  Um, I think that’s a lot of what was going on.  And you do see this company take acquisitions when they see, not competitors,  acceptable substitutes to their core activities.

 

Their core offering. If we look at how you share and, you know, post content, you know, their audience builder platforms, Instagram was a clear alternative, maybe competitive. I think it was more of a substitute,  um, to sharing content through the newsfeed.  Well, they bought it. I think TikTok was a substitute.

 

Well, they launched Reels.  Maybe Twitter and X and that’s maybe why they did threads. I don’t know.  That’s kind of what I look for when I, that’s like literally the number one thing I pay attention to when I look at this company is what are the substitutes for their core businesses on the consumer side?

 

Connection and communication and discovering and consuming content.  Second to that, I would look at alternatives, substitutes for merchants and for content creators.  That’s kind of number one on my list. Okay, I think that’s enough. I’m a little bit long by a couple of minutes, but I think that’s enough.

 

Alright, that’s it for content for today. For those of you who are subscribers, Um, I sent you a big article today. Another one’s coming in the next couple days ago. And we’re, I’m just going to keep going through these sort of big US companies. Uh, I did Salesforce.  I’m gonna do ADP which is the HR company in a couple days.

 

That’s coming up If you have any more you want me to do send me a note But otherwise that is it for the content for today  No real news from my side. I’m just  Moving along. It’s been a pretty good January I’m always happy when I’m, uh, making progress. Uh, what  did I say? I’ve been watching, no real recommendations.

 

I’ve been watching Korean crime dramas this week. Uh, Memories of Murder was a, uh, not a new film, but it’s a pretty great. I, I mean, I really like, like Korean movies, I really like the crime dramas and the revenge movies. Like, the revenge movies are unbelievable. You know, Sympathy for Mr. Vengeance, I think it is.

 

Lady Vengeance.  Oh boy, they make the greatest vengeance movies of anybody out of Korea. Like Japan makes the best horror movies. Korea makes the best vengeance movies.  Uh, anyway, so I was watching crime drama, not really a vengeance one. Uh, I Saw the Devil is a great vengeance movie.  Uh, those, you know, you can see most of those on Netflix, pretty great.

 

Anyways, that’s worth doing if you like that kind of stuff. Anyways, only recommendation I have for you today. That’s it for me. I hope everyone is doing well and I will talk to you next week. Bye bye.

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

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