Saturday, 31 December 2016

Is facebook a tech or media firm?



Neither.

A year back, media mostly classified Facebook and other internet firms like Google as tech companies.  And recently ‘is Facebook a tech or media business?’

Let’s take a look.

Is AirBnB in the hotel sector?  It owns no physical assets.  Its only asset is information and it profits from it.  It does this by getting a cut every time its platform provides the information for a consumer to select then book accommodation from a home owner.  Perhaps AirBnB is really an information business, in hospitality?

Is Google a tech company? (Its search business is considered here.)  Sure, it is staffed mostly by engineers but like AirBnB, owns little physical assets.  It does however have a lot of data centres but that’s like telcos. Telcos depend on data centres but they are not considered core assets, connectivity is.  Google’s core asset is data.  Searching turns it into information.  It’s monetised through the act of searching, with ad sales. 

An aside, PageRank, the algorithm (it is now only one mechanism alongside data analytics, machine learning and other algorithms) that made Google by significantly improving search results uses a peer-to-peer model.  In PageRank, the more a website is linked by other websites, the higher it’s ranked in search results.  Website-to-website is peer-to-peer (p2p).  Similarly, AirBnB (sharing economy), Alibaba (markerplaces) and SnapChat (IM) use the p2p model in their business model.

What about internet messaging (IM)?  WeChat, WhatsApp and Line are little more than platforms that allow us to communicate with one another, while allowing them to gather information on our chats.  Of course ads are also placed because we spend so much time on these platforms.  Ad sales are normally associated with businesses that deal with information.  Perhaps IM firms are information businesses, in communications.

Isn’t text messaging and voice the traditional business of telcos/celcos?  This makes a classic case study of an industry transformed by the internet.  Telcos today are essentially broadband providers. Their traditional business is being taken over by IM players (Dichotomy of a modern telco).

EBay and Alibaba?  (Their original marketplace business is considered here.) They are primarily marketplaces, holding no stocks, not unlike AirBnB, connecting sellers to buyers.   Buyers make purchasing decisions based on the information provided by sellers.  Isn’t this a new model of trading, based on information?

And so to Facebook.  We create data when we posts on our timeline and like Google, it’s mostly staffed by engineers, running off data centres, on a digital platform.  The revenue model is similar – ad sales via the information mined from the data and placements from our copious face-time on the platform.  Perhaps this is why media is confused.  On the one hand, like media firms, Facebook is an ad-based business.  On the other, it appears tech-like.  And both target consumers.

Let’s dwell deeper.

                          Media (news)                Facebook

    Core biz          news, content                data/information
    Revenue          ads, sales (content)       ads, revenue sharing (content not sold)
    Method           provide news/content      provide a service through a platform
    News              write news articles         through third parties, not internally written
    Content           news                            social in nature
    Mechanism     internal (reporters)          external (crowdsourced, 3rd party)
    Staff (core)      editorial                         tech
    Biz model       content                          social, data

Is Facebook a media firm?  They don’t provide news or content except indirectly and even these are miniscule compared to user-generated content.  Furthermore such content (latter), social in nature, are certainly not what traditional media produces.  New media, if that’s an appropriate term may apply to internet-inspired startups like Reddit, Buzzfeed or Quartz.  Reddit in particular could proof to be one model of the future of news media.

Is Facebook a tech firm?  They don’t provide technical services but consumer services that have nothing to do with tech.  Tech is only used internally and as an enabler.  Among the internet plays, Github, used by the software development community is unquestionably a tech firm as is Red Hat.

Facebook’s core business revolves around social content, not news per se, and is crowdsourced unlike media firms that write content in-house. And while Facebook is heavily tech-dependent, that doesn’t mean it is a tech firm.  Using is not the same as providing.  Perhaps Facebook is really an information business (in the sub-category of social media).

This also applies to Pinterest, Uber, Craiglist, Change.com, Foursquare, Twitter, Snapchat, Telegram, Instagram, Uber, Alibaba, Lending Club, LinkedIn, Quora, Yelp, Tinder, Glassdoor, upWork, Evernote,.....

“..and Google is expanding into everything to do with information’ – Economist, 17 sept 2016


In time, perhaps 10 years, Fortune 500 (Fortune magazine’s annual list of the largest companies in the US and the world) would add an ‘information’ category.  So will the stock exchanges globally.  Media firms of today will be reclassified into this category as will social media and internet businesses that rely on information.  Even further out, this information category itself may break out back to its sub-categories; news/content, social media, search, marketplaces, communications as each sector enlarge.  Tech is the enabler of all these information age firms.

Since we’re on the subject of Facebook, the post next week will show an angle on how it works that may shed light on how value is produced in a digital economy.