Facebook’s secret plan to kill Google — and become the second trillion-dollar company in the process

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Facebook is out to kill Google. There, I said it. You probably think I’m crazy, but there are a bunch of macro-trends coming together, as well as several moves that Facebook got right. that support this. But first, a disclaimer: I’m the cofounder of AdEspresso, a Facebook partner that manages advertising for SMBs and SMEs. As a Marketing Partner, we do have access to privileged information not disclosed to the public, as well as a view on a broader dataset of around $250 million of Facebook Advertising Data, but the analysis that follows is not based on any of the above, rather on public information that has been disclosed in the past few weeks paired with public insights from thought leaders. Now, let’s get to the fun part.

1. The macro trend toward mobile phones

This is an easy one. But if you were busy tweeting, live-chatting or status-updating, you may still need a refresher … and Benedict Evans from Andreessen Horowitz does the job best:

cell phones in Africa
Yep, the percentage of people without a smartphone is lower in South Africa than in the United States. Impressive, right? That is just a small, but significant, example of how big mobile is becoming. The trend is even more impressive compared to what the adoption has been (and continues to be) for PCs. Again, Evans from his presentation “Mobile is eating the world” of a few months ago:

smartphones vs. pcs

That’s because the personal computer is not really “personal”; it’s actually shared among a small group of people; at least most of the time. The smartphone, however, is very personal, so much so, in fact, that 91 percent of all U.S. citizens have their mobile device within reach 24/7. You too, I bet.

2. The silent shift in consumer behavior

Think about it for a second. When was the last time you searched for news on Google? If you’re the average person, it was probably a while ago. That’s because nowadays news is discovered through social media instead of directly searched for. If you behave like me, you rarely go on news websites, you just look for news emerging on your newsfeed. This chart from Marketing Land visualizes well the shift we’re talking of.

But even more important than searching for news, there’s another shift you may have not recognized yet: Mobile is drastically decreasing the number of your searches, period. You don’t search when you’re on mobile, you open apps. Let that sink in for a second. When you’re in front of a computer, practically every action in your browser begins with a search. On mobile? Not so much. It’s slow and inefficient to write stuff, that’s why apps exist. One tap and you’re done. The combination of these two behaviors (mobile discovery vs. desktop search) generates probably the biggest threat to Google ever, given that the bulk of its revenues come from search.

3. Facebook is winning on mobile and video

Big Time. Just take a look at the chart released by Business Insider, based on Facebook’s reported earnings for its fiscal third quarter of 2014. Facebook revenue growth has been driven practically exclusively by mobile. Wow. (Update: Facebook just announced its quarterly results for Q1: 73 percent of its revenue are now coming from mobile ads, up from 59 percent for the same period last year.)

So while Google’s real estate on desktop/laptops (aka, the space it can use to serve you ads) won’t grow significantly over the next few years and will actually reduce given the shift to mobile (which accounts already for the majority of overall web traffic), Facebook’s real estate will. And there’s more. When it comes to video, the numbers are even more impressive. What YouTube (a Google property) did in 10 years, Facebook did in less than one (reaching 4 billion views a day, according to today’s news). Whoops. Socialbakers wrote about it in January, saying that Facebook Video is Now Bigger Than YouTube for Brands, along with the chart below.

Number of video posts
4. Then there is the future of social

Oh, I didn’t mention the fact that Google already tried to get into social with Google+, very much probably the second worst Google product after Wave (you may remember it, or maybe not). Of course, the point is not in trying and failing, that’s perfectly fine, and Facebook has also launched tons of products that didn’t go anywhere (Facebook Credits, anyone?). But while Facebook was able to integrate this approach into a “hacker” culture that has so far paid off, Google has started to be perceived as a company doing too a lot of things at the same time  —  some of which, to be fair, is pretty impressive and forward looking — with no real direction. Some analysts just a few days ago went so far as to call this “Google’s Microsoft Moment” (here’s the Telegraph, and here’s Business Insider). Not exactly a compliment, if you ask me.

And I haven’t yet mentioned the effort both Facebook and Google are making to bring online the next 2 billion people, with drones on one side and balloons on the other. It’s a humanitarian effort, sure, but it also has business-related consequences, since doing so would mean doubling their total addressable market, and as a consequence the revenue potential. But between the two, because of the above trends, Facebook is the one that has the most to gain. And, of course, Facebook hasn’t just been playing around with virtual reality — it’s finally stepped into payments as well. Real ones.


And what about the future of content? The news leaked just a few days ago that Facebook appears to be working on an exchange not for ads but for — wait for it — “content (like paid-for news articles or videos from brands, otherwise known as native advertising) on sites beyond the social network’s own platform.” It’s probably too early to speculate, but while Google wasn’t able to eat Facebook’s lunch, this could be a way for Facebook to (not so) slowly eat away Google’s. Pair that with payments, and you have a nuclear weapon.

5. The path to become a $1 trillion company

One thing that can be surprising to a lot of people is that Facebook’s and Google’s market caps are not so different. As of last weekend, Facebook was $226.09 billion, while Google was $359.63 billion. Facebook is practically 2/3 of Google — with a significant difference, though. Facebook’s market cap grew 41 percent year-over-year in the last 12 months, while Google practically stayed still.

Facebook vs. Google market cap
And if there is room in the global markets for one trillion-dollar company (which Apple is going to be very soon), there is room for more than one. And if Facebook is able to continue growing 25–33 percent year-over-year, it has a real chance of hitting a $1 trillion market cap in 5–7 years, thus becoming the second company to hit that huge milestone.

After all, Facebook is becoming the default web for a lot of people, particularly among the millennials (as The Independent pointed out here), is ultimately positioning itself as the social identification layer of the internet, has a thriving ecosystem, and seems to have a pretty clear roadmap for the next 5–10 years based on the last F8 keynote. Truth is that Facebook owns social+pull related activities (discovery, video, events, games) while Google owns business+push related activities (search, calendar, email, drive). What to make out of this analysis is up to you — but it’s going to be lots of fun to watch this play out.

Armando Biondi is cofounder and COO of AdEspresso, a Saas Solution for Facebook Ads Optimization. He previously cofounded five other tech and non-tech companies. He’s also an angel investor in Mattermark and 20 more companies. He’s also part of the 500 Startups network, a former radio speaker, and an occasional mentor.


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Why Facebook’s R&D spend is huge right now

Facebook chief executive Mark Zuckerberg.
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Today, in Facebook’s latest earnings statement, the social networking giant disclosed that it spent $1.06 billion on research and development in the first quarter of 2015. That’s almost 30 percent of all the revenue that it brought in during the quarter ($3.54 billion).

The 30 percent figure might be freaking out financial wonks — since it’s higher than usual for staid tech companies. (And it would be fair for them to cite this quarter’s revenue dip.) But really, they shouldn’t worry. Facebook is spending to hire more people in order to make itself — or its technology, really — super-smart.

The spending will continue, at least through the year.

“In 2015, we plan to continue hiring software engineers and other technical employees to support our research and development initiatives,” as Facebook stated plainly in its annual report in January.

It’s probably not worth it to throw a fit over the spending because over time, all the investment might very well pay off.

Research and development expenses as a percentage of revenue, charted over the past four years.

Above: Research and development expenses as a percentage of revenue, charted over the past four years.

Image Credit: Jordan Novet/VentureBeat

In December 2013, Facebook undertook a major commitment to research, specifically around artificial intelligence, signaled by the hiring of Yann LeCun. A pioneer of convolutional neural networks, a key architecture for a trendy type of AI known as deep learning, LeCun has been rapidly bringing on talent, partly through organic hires, and partly through acquisitions. For example, in January Facebook announced it had bought Wit.ai, a small speech-recognition startup.

And last year Facebook also brought on board Vladimir Vapnik, known for his work on the a popular type of machine learning algorithm, the support vector machine (SVM).

The arrival of people like Vapnik and LeCun suggests that Facebook intends to be a haven for researchers, not just coders who can maintain or make slight tweaks to existing infrastructure.

Facebook has been making advancements when it comes to mining videos, pictures, and text for information. And in the domain of speech, Facebook picked up formidable technology through the Wit.ai deal. Facebook has been improving its AI systems and even sharing them with the world.

All this activity takes money. Deep learning talent is highly sought after. So Facebook has been digging into its deep pockets for this sort of expertise. And ads that are better targeted to consumers as a result of highly-intelligent algorithms will inevitably pay off in the form of increased revenue to Facebook while other companies scramble to catch up and improve their tech stacks.

Eventually, the R&D activity — specifically hiring — should settle down. And eventually the most staggering numbers in Facebook’s earnings statements will end up being the top line — and the bottom.


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Mark Zuckerberg: As more people make VOIP calls with Messenger and WhatsApp, call quality will improve

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Facebook’s Messenger app accounts for more than 10 percent of global Internet phone calls, CEO Mark Zuckerberg said today. And as the company’s WhatsApp messaging service begins offering VOIP calling to iOS and Android users, that number will only go up, in particular because more users means better and better quality calls.

In response to a question during its quarterly earnings conference call today, Zuckerberg said the company has no plans to charge for any of its VOIP or messaging services. He also said that as the global community of users of services like Messenger and WhatsApp grows towards 2 billion people, the quality of calls made using those tools will increase. And that will lead to more people making calls.

Zuckerberg argued that call quality is a function of a critical mass of users. But because Messenger and WhatsApp now each have at least 700 million users — Messenger just hit 800 million — voice calling is catching on among users.

“We’re pretty confident that because of the higher quality calling you can get,” Zuckerberg said, “this will continue growing quickly.”

Today, Facebook reported quarterly earnings of $3.54 billion, up 42 percent year-over-year. It also reported that it now has 1.44 billion monthly active users. All told, 73 percent of its $3.32 billion in advertising revenue came from mobile ads.

 

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Facebook video views hit 4B per day, up from 3B daily views in January

Facebook CEO Mark Zuckerberg.
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Facebook CEO Mark Zuckerberg said today that the social network’s users view more than 4 billion videos a day. In September than number was just one billion, and in January, it was 3 billion.

Sheryl Sandberg, the company’s chief operating officer, said that 75 percent of all video views were on mobile devices.

Zuckerberg’s comments came as part of the company’s quarterly earnings call this afternoon. Today, the company said it had brought in $3.54 billion in revenue and a non-GAAP earnings per share of 42 cents. The results showed Facebook’s increasing success on mobile. All told, 73 percent of its $3.32 billion in ad sales came from mobile ads.

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Facebook passes 1.44B monthly active users and 1.25B mobile users; 65% are now daily users

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In its first quarter 2015 earnings announcement today, Facebook revealed that it now has more than 1.44 billion monthly active users (up 13 percent year-over-year). Of those, 1.25 billion were mobile users, an increase of 24 percent year over year.

Facebook also shared that it now has 936 million daily active users (a 17 percent bump year over year) and 798 million mobile daily active users (a 31 percent increase year over year). This means about 65 percent of Facebook’s members use the service daily, and 64 percent of its mobile members use it daily on mobile.

While it’s great for Facebook that all these numbers are still growing, albeit slowly on a quarter-over-quarter basis, the real interesting figure is in the company’s earnings slides, on page 7:

fb_q1_2015_mobile_only

Between the fourth quarter 2014 and first quarter 2015, Facebook added 55 million mobile-only users to reach 581 million total (up 10.5 percent quarter-over-quarter). Mobile-only users now account for 40.34 percent of the social network’s total members. This number climbs every quarter, and it will likely reach the 50 percent mark at some point next year.

Here is how Facebook distinguishes this category:

Mobile-only MAUs are defined as users who accessed Facebook solely through mobile apps or mobile versions of our website, or used our Messenger app, in the last 30 days of the given quarter. The number of mobile-only MAUs do not include Instagram users unless they would otherwise qualify as such users based on their other activities on Facebook.

In other words, this is the number to watch. While Facebook’s growth continues to slow due to its size, its revenue share coming from mobile continues to grow. Mobile-only users are key to a social network that has managed to successfully transform itself into a mobile-first business.

Here are the other four charts for the numbers Facebook traditionally highlights in its releases:

fb_q1_2015_monthly

fb_q1_2015_mobile

fb_q1_2015_daily

fb_q1_2015_mobile_daily

Facebook will likely soon start underlining mobile-only numbers directly right in its press releases. It will be the fifth metric the company shares, on a quarterly basis, but the most important one.

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Mobile dominance lifts Facebook earnings to $0.42 per share as revenue grows 42% year over year

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Facebook reported its fiscal first-quarter earnings today, with revenue of $3.54 billion on non-GAAP earnings per share (EPS) of $0.42. These figures just missed analyst expectations of $3.56 billion in revenue but beat expectations of $0.40 EPS.

Screen Shot 2015-04-22 at 1.28.32 PM

Year over year, Facebook’s revenue is up by 41.7 percent over Q1 2014; For the same quarter a year ago, the company reported $2.50 billion in revenue and $0.34 non-GAAP EPS. Last quarter, Facebook posted revenue of $3.85 billion and $0.54 EPS. Advertising accounted for $3.32 billion of the company’s revenue, up 46 percent from the same time a year ago. The company also earned $226 million in payments and other fees.

Mobile ad sales drove Facebook’s performance. For the quarter, the company reported such sales were 73 percent of its total revenue, up from 59 percent a year earlier. In the fourth quarter, mobile ads had accounted for 69 percent of revenues.

Screen Shot 2015-04-22 at 1.25.55 PM

Its continued strength in mobile ads clearly pleased Wall Street over the last quarter. The company’s stock was up about 9.1 percent over the last three months. As of this writing, the company’s stock was at $84.63, up 1.21 percent for the day.

It’s no surprise that Facebook’s financial performance on mobile was so strong. According to App Annie, which analyzes mobile app sales and revenues, Facebook held the top four nongame spots among all apps worldwide. It said in a report earlier this week that Facebook Messenger, Facebook, WhatsApp, and Instagram were the four most-downloaded nongame apps and that Messenger was the most downloaded nongame app in the United States, France, the U.K., Brazil, and Germany.

At quarter’s end, Facebook said it had 1.44 billion monthly active users, up 13 percent year over year, and 1.25 billion monthly mobile active users, up 24 percent from a year earlier. It also reported 936 million daily active users, up 17 percent from this time in 2014, and 798 million mobile daily active users. That was an increase of 31 percent from the first quarter of 2014.

During the quarter, Facebook spent 29.9 percent of its revenue — $1.06 billion — on research and development, and of that, $566 million, or 53.3 percent, was spent on share-based compensation expenses. In other words, the company spent a lot on acquisitions and hiring during the quarter. During the first quarter of 2014, it spent just $181 million on similar expenses.

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WhatsApp voice calling now available on iOS

WhatsApp logos
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WhatsApp, the Facebook-owned messaging service with 800 million users, now supports voice calling on iOS.

Already, the service had allowed Android users to make voice calls, but until now, those on iOS had to wait.

At F8, Facebook’s developers conference last month, WhatsApp co-founder Brian Acton said that the functionality was coming in a “couple weeks,” although when asked directly by VentureBeat, he said it would be more like “several” weeks. In the end, it worked out to about four weeks.

During an F8 panel, Acton said WhatsApp had spent the last year refining and iterating voice calling before launching it on Android. To date, there had been ways to use the voice calling feature on iOS, and screenshots of the implementation had circulated, but it required a jailbroken iPhone. Now, everyone with one of Apple’s mobile devices will be able to make calls to each other via WhatsApp, although the feature will be rolled out slowly over the coming weeks.

On iTunes, WhatsApp wrote — in official app update release language — that calls made via the service “use your phone’s Internet connection rather than your cellular plan’s voice minutes.” That means users may incur data charges, but won’t have to utilize their carrier minutes.

 

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Facebook tweaks News Feed to show more updates from friends, fewer stories when friends like or comment

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Facebook today announced its latest improvements to the News Feed, this time with a focus on updates from friends and stories about what they’re doing on the social network. In short, the algorithm has been adjusted so you see more of the former and less of the latter.

First of all, Facebook says the News Feed now puts more emphasis on content (photos, videos, status updates, and links) posted directly “by the friends you care about.” These status updates should start to appear higher up in your News Feed.

Facebook explains why it made this change:

We’ve also learned that people are worried about missing important updates from the friends they care about. For people with many connections this is particularly important, as there is a lot of content for them to see each day.

While this may seem obvious, Facebook notes that there are users who also like to read news or interact with posts from Pages they have Liked. This content will still show up in the News Feed; today’s update will simply try to be more strict about making “the balance of content the right one for each individual person.”

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Controversial After School App Relaunches With New Safety Features And Zero Tolerance For Hate

blue after school ad (1) (1) After School is back and ready to try again. The mission is the same: Give teens a safe but anonymous place to talk to high school classmates. After several months of retooling the app just relaunched on the App Store and, even with the aggressive safety features in place, growth hasn’t slowed down. When After School hit the App Store in October 2014, it immediately sparked outrage as… Read More