Does Facebook Slow Down its Growth on Purpose?

This is the finishing line. With only a couple of weeks to go until its massive IPO, all eyes are on Facebook. A potential valuation of $100 Billion within their reach, the stakes are high. Yesterday, in what will be its final financial statement before its IPO, the bad news broke: Facebook’s revenue and profit have declined from the past quarter, whith the former down 6% and the latter down a staggering 32%.

Why, you could ask, does something like that happen to a company as successful as Facebook? Actually, with their eyes on the prize, they could have easily avoided these numbers. I think their growth has been slowed down on purpose. Let me tell you the two reasons why:

Facebook needs to prepare itself for the hard times ahead of it

After its IPO, Facebook will have to focus on revenue and profits more than ever before. In fact, it will have to focus on revenue and profits even more than on innovation. When it shifts from being a privately owned to being a publicly traded company, it will be highly dependant on its valuation, which is driven by revenue and profits. As Felix Salmon described in his brilliant Wired article “For High Tech Companies, Going Public Sucks”, an IPO brings more than fresh cash into your company. It also makes your company subject to being traded via classic stock trading, options trading and even high frequency trading. Most of the people trading stock (actually, there are already more machines than people) look at the numbers, that’s all. Investments reduce profits, as we have seen with Facebook. Shrinking profits can reduce your stock market valuation. And when you are a publicly traded company, that is the one thing you want to prevent.

In the past couple of months, Facebook has, among others, bought 650 patents from Microsoft for $550 million and spent a whopping $1 Billion on the purchase of Instagram, the famous photo sharing community. The patents will help Facebook arm itself against patent related legal attacks by other companies, an issue commonly referred to as ‘The Patent Wars’ in the tech sector. In fact, Facebook is in the midst of a patent dispute with Yahoo at the moment, and has already bought 750 patents from IBM last month. The alleged reasons for the purchase of Instagram, although Facebook never officialy commented on the issue, span from acquiring the user base to securing more quality user generated content (UGC) to buying one of the best teams in the industry. After all, Facebook’s spendings were an investment into its future, long term growth. Something not too popular among most stock traders and trading machines nowadays. Investing in its long term growth is a very good reason for the acquisitiongs, though. But there is another reason why Facebook might have wanted its growth to slow down ahead of its IPO.

Facebook needs to keep expectations low

What is the second worst thing for a publicly traded company? High expectations. If publicly traded company misses to fulfill the growth expectations of their shareholders, that often causes severe damage to their valuation. Since the stockholders expect companies to exceeed or at least meet their expectations, stock companies are always interested in keeping those expectations low. For Facebook, the company that exceeded every single professionally stated expectation of user base growth since its founding (except for Mark Zuckerberg’s own ‘1 Billion users’ goal, but that will only be a matter of time), the little hickups in its user base growth which recently occurred are no longer sufficient to lower stockholder expectations. Facebook is ubiquitous, everybody knows that, and – at least for now – is neither able to collapse nor could it be taken down by other players in the market. The only sustainable way of lowering the growth expectations of stockholders is to increase its spendings, which is what Facebook effectively did.

Facebook’s IPO is an unprecedented event. Nobody can forecast its outcome. All we can see from here is that Facebook has been very smart in securing its future growth and base for innovation after day X.

If Coca-Cola stopped advertising while keeping the product in full supply, would people eventually stop drinking it?

The answer to your question is no, but…(read on to find out why it would be incredibly devastating for Coke still)

Advertising in the fast moving consumer goods area (FMCG), especially in the beverages market, is all about Mind Share and brand perception. To become and stay the dominant global brand, you have to be ubiquitously well-known. Of course, you also maneuver the consumer’s perception of your brand with advertising, but I’ll leave that aside for a second. The highest goal achievable when it comes to Mind Share is to achieve a state of conditioning (or preconditioning) of your potential customers. A level below that, you want to definitely be at least in their relevant set. Let me explain:

Think candy bars. There’s a relatively high chance that you have two to three or even up to five in mind immediately, and that none of them ranks miles above the others in your head. This is your relevant set. Everytime you feel the desire to have a candy bar, you will take these two to five into consideration. So, sometimes you might choose a Snickers bar, sometimes a Butterfinger might fit you more, but you will hardly leave your relevant set.
For an FMCG company, achieving the goal of being in the relevant set of their potential customers is already a huge success. Because this process is highly driven by Mind Share created through awareness created through exposure created through advertising pressure, your advertising budget plays a major role in achieving this goal.

If you one-up your advertising and influence carefully how your brand is perceived, you might be able to condition or precondition your customers. Think cola. Oops, I bet you didn’t think cola. I bet you thought Coke. And when you think about the color you had in mind, certain shapes of text or a bottle, Coke just might have cought you there, too. Advertisers call this habitualization. Picking Coke has become less of a choice (which it would be if it were only part of your relevant set) but a reflex. Now, this goal cannot be achieved through your product just standing around in stores. That is a major advertisement undertaking. You have to apply constant advertising pressure to make sure that no other brand trumps you in Mind Share. Because if so, that other brand will be the first coming up when the desire for a can of cold cola pops up, or might at least shift the situation in the consumer’s head from a habitualized one to one where the consumer has a relevant set. This is called de-habitualization, and for companies like Coca Cola it spells d-a-n-g-e-r.

So, in short terms: No, people wouldn’t stop drinking Coke if Coca Cola ceased advertising it. The Coke brand would face subtle extinction by becoming more and more irrelevant, though.

See the answer on Quora:

If Coca-Cola stopped advertising while keeping the product in full supply, would people eventually stop drinking it?

What would you do if you were CEO of Apple?

I would do a whole bunch of things, some of which I'll write now, some of which I might add later. Important notice: Since I am not aware of the internal strategies at Apple, I cannot say if some of my suggestions are already being pursued. So, for starters:

– Apple' massive pile of cash allows for major transitions and horizontal extensions of its expertise. I would shift large budgets into the fields of Apple's – in my opition – two big shortcomings: search and social. Why, you might say, would I do that? I mean, since there's already two other giants who are obviously the best at these two topics, it doesn't really make sense to expand into these areas, right?
Well, I think it does. Not to conquer them, but to understand them. Until recently,  people were mainly looking for stuff on Google and mainly connecting to other people on Facebook. And I am expecting that these two sites will stay the major hubs of their fields for the next years. But social and search will be integrated into everything, and because the two Goliaths I mentioned are going to spearhead innovation in these fields, they will raise consumer aspirations higher and higher. Apple has already learnt a lot through its desktop and iTunes search, but there's still a long way to go until they reach a satisfactory point where they understand search well enough to provide their customers with a competitive user experience when it comes to search.

And speaking of social, Apple – as we all know – has learnt the basics and made the basic mistakes with its first forays into the area. They have, however, not yet succeeded in setting up a social platform that is buzzing with life. Achieving this goal, in my opinion, is crucial for Apple's fate as a brand beyond being a hardware and software manufacturer and also spans wide potential in higher capitalization, customer attachment, consumer lifecycle margins and so on. Apple has clearly realized this, though. there was some controversy about it not succeeding because of Steve Jobs aversion against open systems. It's most well-known attempts at setting foot in the field – Ping and Game Center – can easily be declared as failed. Apple has, however, started two very promising new attempts, though: iMessage and FriendFinder. iMessage really isn't a social network, but it sure is a social product. A bit too simple and a bit too late (read: WhatsApp already ate their cake), one might think, to grab a significant share of the market. But Apple has already learnt from its mistakes. It is now taking baby steps instead of trying to set up a giant empty new platform. The second attempt, in my eyes, is the most promising. FriendFinder has the potential of disrupting the social media market. FriendFinder, you might think, is not really anything close to a social network. Read the patent script, I say (I did this because at the time it was issued I had written a 90% similar product for one of my customer companies). The product that is now out there has nothing to do, yet, with what Steve had planned for it to be. This is just the first baby step. FriendFinder is a social product, designed to connect people via their interests, place and personal data (read: make friends). This is a crucial differentiation over Facebooks product model, which aims to connect you to the people you know and those that they know. And it fills a giant niche. I think that Apple can be very successful with FriendFinder if it pumps large amounts of money into socialogical research and communication software development. iMessage can then find its place inside of the social product FriendFinder. But this will only happen, if Apple becomes open to creating open products (there's a good chance of that happening now that Tim Cook is at the steering wheel) and invests significant amounts of money in the area.

See the answer on Quora:

What would you do if you were CEO of Apple?

What are the most creative ways you could market your startup with only $50?

I have two suggestions for you:

1. Find out who the most influential blogger in your area of business is. Use the money to pay for dinner with that person. During dinner, convince him to write about you (I expect you to have something worth blogging about in your company's bag). Often, it's enough to get that one opinion leader to put the word out. Other bloggers will then mostly pick up on the topic.

2. Find out where most of the influential people who you think would use your product are (for example the most important convention for people from the field that you do business in. Grab your marketing guys and girls and your graphics designers (and if you have none of them, grab yourself) and come up with a medium and a message that you would consider has the highest viral potential vs. the lowest cost, so you can produce many of these mediums. For example (this is just for explanatory reasons and I will not be able to take the time to think it through) you could print smart and funny business cards, designed like those flyer postcards which are used as an advertising medium, just as small as a business card, that have a blank space that people can fill in their name and occupation and use to introduce themselves to each other. These cheap, subtly branded and (in theory) viral cards could then be handed out guerilla style in front of the venue where the event is taking place and help spark interest among opinion leaders of your business field, resulting in some of them ending up as multiplicators by tweeting or blogging or just by talking about your thing.

As suggested by some people who answered your question, there are a lot of free things you can do for your marketing, too, though…

See the answer on Quora:

What are the most creative ways you could market your startup with only $50?

Under what circumstances should lean startup strategies not be used by consumer-facing Internet companies?

I will give you the theroetical rundown.

I think the answer to this question should be divided into two parts.

First, the recent paradigm shift from long-term strategies to lean, constantly adjusting strategic bits.
The Lean Startup and all that followed it has sure been a blessing not only for engineers but for strategists and entrepreneurs overall. For decades, as you may know, the terms ‘strategy’ and ‘short term’ were not even allowed in the same paragraph. Depending on how and how quickly your market alternates, crudely applying long term strategies can have you bite the dust by the end of the fiscal year. It was time for us to wake up. Young, agile startups outpacing the Goliaths in the game give you a good example for why this has worked quite well for some time now, even in the decades where the term wasn’t coined yet. After all, even evolution dictates quick adaption for those who want to succeed and survive. Rafe Sagarin states correctly in his recent Wired article “When Catastrophe Strikes, Emulate The Octopus”, that not only long term evolutionary adaptation to its habitat but strangely quick adjustments to its surroundings like using two coconut halves as a “powerful armor” pave the way for the octopus’ incredible success. As most of us know by now, many of these priciples can easily be applied to the world of business strategy. So, should we make lean strategies our new totem? This leads me to the second part.

What do we do with this new knowledge?
Paradigm shifts have a strange thing to them: When they occur, they take most of us with us and blow away what was there before them. The ideas of the pre-paradigm-shift-era are no longer valid. This is for enthusiastic reasons. And it helps us adapt the new paradigms more quickly. We often tend to forget, though, to take this knew knowledge with a grain of salt.

I think I have the guts to say that there is no lean business. There is no fat one either. There is always a mixture of both. Think about it: we always use a mixture of long and short term strategies. And that’s the right way to do it. Like the octopus, we need to adjust to long term strategic challenges with long term strategies and big budgets. But short term shifts in our market surroundings demand short term strategic adjustments, quick teams and smaller budgets.

We tend to quickly fall in love with the blow of new wind that paradigm shifts and all the new ideas that come with them bring. After the butterflies are gone, though, we mit realize that it makes sense to apply some rationality to it and see that the world of strategy is not as black and white as most paradigm shifts suggest.

And, to not leave you alone with only the theoretical sauce: one startup that I advise at the moment has received a fat business strategy with a lean engineering strategy, a lean marketing strategy and a fat business development strategy and funds allocated accordingly.

Btw: If anyone wants to read the short but inspiring essay by Rafe Sagarin, there it is: http://www.wired.com/magazine/20…

See the answer on Quora:

Under what circumstances should lean startup strategies not be used by consumer-facing Internet companies?