When I was attending The University of Florida in 2015 I was obsessed with Facebook. 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. Let DJR Jeeves Consulting help you identify your competitive advantage or build one.
Value is created through laws of supply and demand. The seller, 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 market to the Daily Active Users. Facebook’s platform contains data that allows businesses to hyper target consumers. So long as Facebook keeps their Daily Active User base growing or stable, businesses will want to market on Facebook’s platform. The cost to maintain the platform and users along with the price that business are charged for marketing on the platform is the total value that is created by Facebook. Facebook’s value wedge is it’s total value relative to competitors. If Facebook creates more value than a competitor than it has a competitive advantage.
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. It works because both sides of the two-sided market obtain value. The Daily Active Users have a 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 you have, and capabilities are what you can do. Facebook has two major resources cash and talent. If Facebook identifies a company that may threaten their ecosystem they can buy them or replicate what the company does with in-house talent. Take for example how Facebook acquired two powerful platforms Instagram and Whats App. Facebook’s highly skilled workforce that has an intense focus on bringing the world together is powerful capability. For example, Facebook used in-house talent to replicate SnapChat’s unique story concept on both Facebook and Instagram. If what you have and what you can do are not better than your competition you will soon be losing market share.