The Hacker Way: Inside Facebook Business Strategy

To have an understanding of Facebook business strategy, it is essential to go back to Mark Zuckerberg’s Founder’s Letter of 2012, to look at the key elements of Facebook’s vision, mission, and key pillars.

It is important to notice that while Mark Zuckerberg emphasized this letter back in 2012, Facebook isn’t anymore one of the fastest growing tech startups. But one of the largest tech companies.

facebook-statistics

This is an attempt to analyze the key elements of Facebook’s business strategy. It is not an attempt to judge whether or not the Facebook business model is good or bad.

By default, I don’t think there is an intrinsically lousy business model. What might make it go awry is the scale of that model and the fact that it might relies too much on a single monetization strategy, even when it reaches a massive scale.

Let’s dive into the key elements of Facebook’s business strategy.

facebook-business-model
Facebook, the main product of Meta is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm).

Facebook’s vision and mission

facebook-arpu-breakdown
ARPU, or average revenue per user, is a key metric for attention merchants like Facebook. It assesses the ability of the platform to monetize its users. For instance, by the end of 2022, Meta’s ARPU worldwide was $10.86. While in US & Canada, it was $58.77; in Europe, it was $17.29; in Asia, $4.61 and in the rest of the world, it was $3.52.

 

As Mark Zuckerberg pointed out in their Founder’s Letter:
Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected.
It’s hard to believe, yet, back in the days when Mark Zuckerberg launched what would become Facebook, even after being widely successful, he wasn’t convinced at all that was a business to pursue.
What did inspire Marck Zuckerberg to launch Facebook?
At Facebook, we’re inspired by technologies that have revolutionized how people spread and consume information. We often talk about inventions like the printing press and the television — by simply making communication more efficient, they led to a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. They changed the way society was organized. They brought us closer together…
While this statement is inspirational, it does tell us that for a business strategy to be successful, being inspired by great and seemingly unachievable things can be a great enhancer. At the same time, you have to break down this mission at a small scale so that you also make it actionable.
As March Zuckerberg continued in the letter:
…Even if our mission sounds big, it starts small — with the relationship between two people.
Thus moving from “changing society” to improving relationships between people allows Facebook to design its tools by having a simple metric.

Facebook’s growth framework

In another part of the letter Mark Zuckerberg highlights another critical aspect and also one thing that I try to stress over and over:

Most great people care primarily about building and being a part of great things, but they also want to make money.
In the business world often people seem to fear admitting they are in for the money. While making money isn’t the primary element, people still see it as an important aspect of doing business.
That’s because as a company, making money is itself a signal that helps you understand whether you’re building things people love.
Through the process of building a team — and also building a developer community, advertising market and investor base — I’ve developed a deep appreciation for how building a strong company with a strong economic engine and strong growth can be the best way to align many people to solve important problems.
Building up a successful business isn’t a simple task. And it requires the combination of several key elements. In the software world, without a strong developer community behind, it becomes very hard to be sustainable.
At the same time, you need to be able to build a strong economic engine, which in Facebook’s case, turned out to be its advertising business. That of course, attracted a solid investor base, since the start.

Understanding the hacker’s way

The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it — often in the face of people who say it’s impossible or are content with the status quo.
One of the elements that most identified Facebook’s culture since the beginning was its “hacker way.” This is explained above, and it also carries a few other ingredients.
The hacker way requires quick releases but also making sure to learn from fast iterations so that the software released can get better and better and improve exponentially. As Mark Zuckerberg pointed out at the time, “done is better than perfect.”
And according to him, a hacker doesn’t spend days discussing ideas. Rather it prototypes and tests to see if it works. Back in the days (not sure if that is still used) at Facebook, the say “code wins arguments” got used over and over.

It is important to remark that this hacker way was born in the software world, and it thrived in the digital economy. That’s because in the bits world, by definition, releasing something might carry a lower cost when done at a smaller scale.

However, as a company grows and it acquires scale, it is vital that it moves away from a minimum viable product to an exceptionally viable product.

Indeed, the hacker mindset might be critical to challenging the status quo. But when you’ve become the status quo, the cost that a failed product might have on your brand might be greater than the benefits of iterating that product with its users.

That is also why in one way, Facebook moved from “move fast and break things” to “move fast with stable infrastructure.” The cost of making mistakes increases exponentially with scale. And cleaning up after the mess created by a failure might be too large to deal with.

Conclusions and the pillars of Facebook’s business strategy

To conclude, Facebook’s business strategy pillars move around five key elements:

  • Focus on impact
  • Move fast
  • Be bold
  • Be open
  • Build social value

While these pillars remain important to Facebook’s overall strategy, they might have also changed along with Facebook’s massive scale and growth.

Related to Facebook:

Other case studies: 

Other resources:

Related Business Models

Mark Zuckerberg Empire

who-owns-facebook
Mark Zuckerberg is the principal shareholder of the company. Not only he retains ownership and control of the company. Facebook, like Google, has issued two kinds of common stocks, Class A and Class B. Where the holders of Class B common stocks are entitled to ten votes per share, and holders of our Class A common stocks are entitled to one vote per share. Mark Zuckerberg has a total voting power of 57.9%. 

Attention-Merchants Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Asymmetric Business Model

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility.

Facebook Business Model

facebook-business-model
Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion was from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm). 

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organizational structure is organized around the leadership of Mark Zuckerberg and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).

Metaverse Supply Chain

facebook-metaverse

Google Business Model

hidden-revenue-model-google
A hidden revenue business model is a pattern for revenue generation that keeps users out of the equation, so they don’t pay for the service or product offered. For instance, Google’s users don’t pay for the search engine. Instead, the revenue streams come from advertising money spent by businesses bidding on keywords.

TikTok Business Model

tiktok-business-model
TikTok is a Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.

Instagram Business Model

instagram-business-model
Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall business model. Acquired by Facebook for a billion dollars in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger left the company, as Facebook pushed toward tighter integration of the two platforms.

YouTube Business Model

how-does-youtube-make-money
YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it reported more than $29B in revenues by 2022. YouTube also makes money with its paid memberships and premium content.

Twitter Business Model

how-does-twitter-make-money
Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

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