Sure, Mark Zuckerberg doesn’t want to run a media company. It makes life complicated. But the financial data tells a different story.
Most social media companies, including Facebook and Twitter have succeeded in monetizing their core offering - eyeballs. They attract huge numbers of users, who already arrive in a highly segmentable structure. That is to say, simply by filling out a profile on Facebook, you can be segmented by geography, age, job and interests. That’s incredibly valuable to advertisers, who are always looking for a way to get highly targeted and segmented with their digital ad campaigns. It’s become clear that Facebook’s core competency is selling these user segments to brands as a digital ad platform, or like a typical media company.
Just look at Facebook’s advertising revenue as a share of overall revenue, and the discussions from their MD&A:
Now, compare that with its monthly active users (MAU), which has shown impressive growth as well:
It’s clear to see that Facebook’s growth relies on increases in MAU, which leads to growth in its digital advertising revenue through increased volume and margin. That means its growth is dependent on the number of eyeballs it can attract and sell. When you look at it this way, it starts to look like a media company, wouldn’t you say?
MAU is the Golden Goose.
This model is precisely why monthly active users is such a critical metric for growth in social media before any company ever turns a profit. Whether it’s a niche platform like Strava or Zwift, or a general one like Slack, Instagram or LinkedIn, MAU was the traction before any of these companies could forecast profitability. Much like a cable TV network that had to have an audience to sell before it could even go on the air.
The lesson? Whether Mark Zuckerberg agrees with it or not, the financial data sure makes it look like the Facebooks, Twitters and other platforms of the world are media companies. And even though that adds a ton of regulation and complication that may add to their business model, forecasts show that social media advertising Average Revenue Per User (ARPU) in the U.S. will nearly double by 2020. In 2015, each user in the U.S. generated an average of 43.23 U.S. dollar for social media companies. By 2020, this figure is forecast to be 83.19 U.S. dollars.
From here, the question becomes: Does Facebook accept its fate as a media company to harness this future business growth potential? Or does it stay true to its original mission, uniting communities, starting conversations, and maintaining the social bonds of everyday life? One seems to be on a path for for progress; and the other is still comparably undefined.
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