Facebook: A Brilliant Business Model

In business school, case studies of successful companies often involve a story of an innovator who created physical products and services, mass media, or services at scale for global consumers.  Yet I’d assert that web-based Facebook is one of the most brilliant business models we’ve ever seen.  If you use the service, Facebook has you to thank for all your hard work.

Despite yesterday’s IPO closed at nearly opening price, it’s important to pause and think about how this company’s market cap reached $100 billion (for context, Pepsi is at par at $106b).  We’re already seeing many become wealthy, from newly minted millionaires in brand new M3s at the local car wash in silicon valley, to the investors, VC, and ecosystem that will benefit from the revenues, we need to pause and think why.

So what is so important to pause and think about? Why do I say the Business Model is “Brilliant”?  Facebook’s business model smashed the traditional manufacturing style we see with consumer products, and instead built a  ‘consumer platform’ that enabled many around them. In fact, the Facebook business model is brilliant for the following reasons:

  1. Brilliant because the users do the work.   In many companies, hiring paid or unpaid interns is a source of scale, or even off shoring work to developing regions.  In the case of Facebook, there are 900,000,000+ unpaid members that are generating meaningful content and value to each other.   In fact, official Facebook stats indicate that 526million of them are active each day, many of which are using mobile devices and applications to connect to Facebook as they traverse the world.  While Facebook continues to grow, third parties are observing that the rate of growth may retarding, what’s important to remember  is that most of the commercial base that brands want to seek are likely within Facebook.
  2. Brilliant because the brands send the traffic and inject the revenue.   That’s right, this couldn’t have been done without brands.  In fact, as one of the largest monetary streams for Facebook, they are spending dollars to reach the commercial base inside of the Facebook experience (despite GM pulling ads).  In fact, Altimeter research indicates 90% of corporate websites link to their social media accounts, showing how 10+ years of hard earned traffic spent on SEO and SEM with Google has now been shifted to send that traffic right to Facebook.com.   It goes without saying the partner ecosystem of Social Media Management System has also contributed –and generated associated revenues.
  3. Brilliant because a small company stayed agile.   Despite revenues being $3.7b, their cost of goods is only $860m. Facebook has published their employee base is a mere  3500+ employees at their Silicon Valley HQ and beyond, a small cadre compared to headcount of Google (33k employees), Apple (60k), and Microsoft (90k).  This lean and mean team was able to stay hungry, focused, and innovative to constantly roll out new features and products (both loved and hated) that captured the attention of the world.  Even large software enterprise companies like Salesforce have modeled their software to emulate the features inside of company.   Despite that there is no shortage of investors, the leadership team was able to maintain control and act against Mark’s clear vision, hopefully evading some corporate bureaucracy.

Facebook Success is Here Because of Your Contribution
This business model is notable as it involved millions in creating a consumer company at tremendous scale (without traditional, manufacturing, distribution or a person-to-person sale), in fact, anyone who’s used Facebook as a consumer, or as a brand marketer should also be to thank.  Now that the IPO has happened, those who have purchased the stock may feel even more connected as they have some financial ownership to the company.

The Facebook business model is brilliant, as everyone around them helped to do the work.