In 2015, I was obsessed with Facebook and business strategy. I was captivated by how quickly the company was growing and the engagement of its users. One of Facebook’s metrics that stood out to me was the daily usage time per user of 45 minutes. This metric alone let me know that Facebook was not a fad, but a great investment opportunity. Winning companies create a competitive advantage. The VARC Framework is a business model that examines the foundation which creates a competitive advantage. In this article we will deep dive into value, activities, and resources and capabilities.
Value is created through the laws of supply and demand. The seller is Facebook. Facebook has built an impressive platform with a large number of engaged Daily Active Users. Facebook’s platform engages its users by giving them the ability to connect with friends, read news articles, and play games. The buyer is businesses that want to reach their target market of Facebook’s Daily Active Users. Facebook’s platform contains data that allows businesses to hyper target prospective consumers. Providing that Facebook maintains their Daily Active User base, businesses will feel compelled to market on Facebook’s platform. The cost to maintain Facebook’s platform and users added to the marketing revenue that Facebook rakes in on the platform makes up the total value created by Facebook. Facebook’s value wedge is their total value relative to competitors. A competitive advantage exists if Facebook creates more value than a competitor.
Activities are how your business operates. Facebook’s business model is a two-sided market between Daily Active Users and Businesses.
Daily Active Users->Generate Content->Socialize Communicate->Browse->Provide Data
Businesses on Facebook->Gather Data->Generate Content->Engage Daily Active Users
This is a virtuous cycle that continues in a positive feedback loop. The virtuous cycle works because both sides of the two-sided market obtain value. The Daily Active Users have free subsidized service at the expense of the Businesses who are paying Facebook for the ability to market to Daily Active Users.
Take a look at the activity map below that shows how the moving parts of Facebook are interconnected in a virtuous cycle. This is a continuous positive feedback loop of activities that churn clockwise.
Resources & Capabilities
Resources are what your business possess, and capabilities are what your business does. Facebook has two major resources cash and talent. If Facebook identifies a company that threatens their ecosystem Facebook will buy that company, or replicate what the competing company does in-house. Take for example how Facebook acquired two powerful platforms Instagram and Whats App. Facebook’s highly skilled workforce with an intense focus on bringing the world together is a powerful capability. For example, Facebook used in-house talent to replicate SnapChat’s unique story concept on both Facebook and Instagram. For your business, what you have and what you do must be better than your competition, or you will soon be losing market share.
Visit DJR Jeeves Consulting for an edge up on your competition.