Inside Facebook’s “copy and crush” playbook
Yesterday Buzzfeed had an indepth story on how and why Facebook went all-in on Facebook Live-- the company’s so-called Snapchat and Periscope killer and the killer of what Twitter should have become.
Revelations that Facebook had paid Buzzfeed, The New York Times and others to use the service-- that were added into the story after publication-- shouldn’t diminish from what was an insightful (if at times breathless) piece.
Of all the responses to it, one of the most interesting I saw was from Greylock’s Josh Elman. He took exception to the claim that unlike other Facebook video products, Live was “something new”:
Facebook in social is as dominant now as Microsoft was in mid-late 90s. And as good of a second mover. https://t.co/5Fv9pyyEy1— Josh Elman (@joshelman) April 6, 2016
In a subsequent Tweet, he added that “Pretty much everything they are doing in mobile live was pushed the last year by periscope and meerkat. FB brings all their scale and $$.” He should know as the VC who “won” Meerkat only to see the brief tech darling eclipsed by the Periscope + Twitter combo, which will be nothing next to Facebook Live if Mark Zuckerberg’s ambitions are realized.
Indeed, later in the piece Mat Honan seems to reverse his “something new” line himself:
When I asked Zuckerberg about this and what sets Live apart from Periscope or Meerkat or any number of other video apps with, er, ~similar~ features, he didn’t mince words: audience.
But audience is hardly enough. If it was, we’d never see startups grow into billion dollar behemoths. Having covered this industry for close to twenty years, I’ve seen hundreds of companies that should have been crushed by bigger companies with greater “audience” go on to become billion dollar powerhouses. Time and time again, the press and VCs have said a given company shouldn’t succeed because a larger incumbent could suddenly decide to squash it.
I wrote this about Netflix more than a decade ago. There seemed nothing proprietary that could keep Netflix from getting squashed by a Blockbuster or a Wal-Mart. Never underestimate the dysfunction of an incumbent or the benefits of betting a growing company on one crack in a ceiling.
And-- to be clear-- saying Facebook’s audience is why it can copy and crush smaller services is revisionist history of Facebook’s track record at best. Remember the Facebook phone? Remember Poke? Remember Places? Facebook has had its share of copy and crush moves that should have destroyed smaller companies. And didn’t. In fact, until relatively recently, it didn’t do a great job at internal development. It’s biggest wins in its early public company life were from buying, not building.
It’s simply not that easy to create products people love.
So if it’s not merely audience, why has Facebook become so dominant in this game in recent years?
It’s a combination of all of these factors, and possibly more I’m not privy to:
Monopoly position/ unfair advantage: You can’t ignore audience is part of it. Facebook’s sheer size means it can push something good wider, faster than anyone else. Witness Instagram’s rapid growth to 100 million users after the acquisition. Messaging appears to be a larger phenomenon than social and Facebook owns three of the top four messaging platforms now. That heft has only gotten greater.
Along with size are cash and stock resources. Paying celebrities and Buzzfeed to use Live is nothing, compared to Facebook’s ability to spend $16 billion for a Whatsapp. It can pay any price to hire a David Marcus to build Messenger. It can place a $2 billion “flyer” on Oculus in case VR really becomes the next great ad platform. It can make moves that would cripple other companies before lunch. But more to the point: It makes them with discipline. It’s remarkable how well these bets have all paid off.
Try and fail a bunch of times with a bunch of different strategies: There’s one reason Facebook appears to be excelling with its copy and crush strategy. It didn’t give up after the first half dozen failed attempts. If Facebook sees a threat like Snapchat or knows it needs to have a foothold in celebrity driven real time conversation, it’ll try first to buy the companies in question (both Twitter and Snapchat are rarities that said no) and then it’ll try and try again to do it in house. They’ll cut bait quickly when one version doesn’t work, shake it off, and try again.
Win any way you can. A lot of incumbents get religious about how to compete with emerging threats. They either throw money at the problem with acquisitions or they take a snooty “not-engineered-here” approach and want to build everything in house. Facebook has had success three distinctly different ways and none were predictable.
They’ve had the best track record at mega-acquisitions of any company I’ve covered in decades writing about this industry. Essentially “acqui-hiring” David Marcus and friends to build Messenger -- the old “hey! We’re a startup within a startup” routine that almost never works-- built something as big as Whatsapp from inside Facebook at warp speed. And the core Facebook team, too, has continued to build things like Live at the same time. The only strategy Facebook is religious about is what will work against any given threat.
You can only lose your money once: The outside world has spent the last few years scratching its head at the prices VCs have paid for “unicorn” companies. But Bill Gurley and others have articulated the strategy as “you can only lose your money once.” Too many of them are scarred by passing on companies like Google in the first wave of Web-juiced mega company growth.
What that phrase means is: If you make the bet and the company flames out, fine. But if you don’t make the bet and the company is the next Google or Facebook, you lose that all upside you could have gotten. And venture capital is a home run business, so the wrong no can dramatically change the trajectory of a firm. Saying “yes” to seemingly outrageous terms for Facebook early on cemented Accel’s comeback as a top five firm, for instance.
Facebook takes the same approach to hiring talent or acquiring companies. What’s 10% of the company if Whatsapp could represent our Waterloo eventually? We can only lose that 10% once. If companies like Yahoo thought this way, Facebook may never have grown to become Facebook. It’s this strategy that makes me wonder if Slack -- yet another company that says it doesn’t want to sell-- eventually gets taken out as Facebook gets serious about social/messaging in the world world. It’s not just having the resources as I detailed above, it’s a seeming-recklessness in how it uses them.
Position of strength: We typically see incumbent companies try to copy and crush once they are already declining, but still have large audiences. Yahoo is the prototypical example of this. Both Facebook and Google have always tried to do these moves from positions of strength, not weakness.
A bird in the hand means nothing to these companies. They have a total inability to be content. The words “We don’t do that…” or “That’s not why people come here” never come out of their lips. While Twitter may argue they don’t compete head to head with Facebook, Facebook sees anything that gets near messaging, mobile or even in the case of Oculus the next ad platform as a direct threat.
Such paranoia from a position of strength gives these companies way more ability to attract talent, acquire the best companies and look more like Microsoft than Yahoo when you crush a startup. But obviously position of strength -- and monopoly position-- aren’t everything. Otherwise, Google Plus would be something we actually use today.
Internal Hunger Games: Companies leaving acquisitions alone to do their own thing is relatively new. Sure, tech companies have long promised this, but they frequently break the promise eventually. Even Amazon has slowly been subsuming parts of Zappos’ autonomy-- like it’s tech back end and its warehousing-- into their systems. eBay and PayPal and Google and YouTube were early exceptions that proved how well this strategy can work.
Facebook has consistently kept this promise more than other companies with Instagram, WhatsApp, and Oculus. It’s remarkable that unlike PayPal and YouTube the founders of those acquired companies are still at the company post acquisition.
Throw Messenger into that and Facebook has essentially won Messaging because it set up an internal benign Hunger Games where different approaches could all win. It’s remarkable that all of them did, but even if a few failed to grow, the strategy would have been worth it. It’s so hard to know how little design tweaks here or there will resonate with an audience and how audiences will divide into young/old, male/female, US/international.
This also allows the core Facebook team to focus on specific builds because so many other divisions are picking other battles. Chris Cox described this in the Buzzfeed piece:
And so for much of February, and the entire month of March, Live video became Facebook’s monomania.
“The whole company used to run this way,” said Cox, who has been with Facebook since 2005. “Ten or eleven years ago, we were all working on one thing at a time. People still want to be a part of that … When everybody is on the floor all working on the same thing, there’s an extra focus and energy that comes with that.”
The Hunger Games approach is the reason the company can run that way again. It’s running that way in parallel across multiple independent groups. It’s not just the strategy that matters, it’s that it works. You could argue Yahoo had a similar siloed approach that was dysfunctional in practice.
So while Facebook Live is today being talked about as a Snapchat killer, Facebook is trying to kill Snapchat other ways too. Instagram is a sandbox for testing all sorts of Snapchat-like product extensions and Messenger too competes with Snapchat’s chat and video features, if not its ephemerality. It’s the collective that is really going after Snapchat, or any other threat.