If Amazon Swallows Retail, Could Facebook Do the Same with Media?
Former President and CEO of Netscape James L. Barksdale once said he knew of two ways to make money, ‘Bundling and Unbundling’. Whilst much of the focus has been on the unbundling factor of media, with consumers increasingly opting for more affordable SVOD services over cumbersome and expensive Pay-TV offerings, we could soon see another re-bundling factor occur.
We have already seen this in retail. Amazon’s Prime offering now has more than 80 million members globally which bundles Amazon's services into an annual payment. Such is the wider impact of the service, it has been linked with expediting the decline of shopping malls and traditional retail brands, which have been unsuccessful in adjusting to the demands of digital. With Amazon expanding across this ecosystem to include purchasing needs such as groceries and, if rumours are to be believed, pharmaceuticals, will Facebook adopt a similar strategy with regards to Media?
Only 11% of consumers currently subscribe to multiple paid news services. That Facebook already offers a ‘bundled’ service of news content (albeit it free articles algorithmically tailored to the user’s own filter bubble) already gives the company an advantage in this space. Whilst the lack of an existing billing relationship is a hurdle, its sheer size means it could deliver higher revenues to publishers than their own subscribers. We also know that Facebook can build economies of scale quickly; the success of Instagram stories in achieving 250 million DAUs in less than a year demonstrates that when Facebook wants to build an audience, it has the scale to achieve its goals.
Facebook’s advantage over the rest of the big four in tech (Amazon, Apple and Alphabet) is that its service is far less actionable than the others. Put simply, people go to Facebook and receive content rather than seeking out or searching for particular pieces. This arguably puts the company in a stronger position for a cross-media play than Google, as the Facebook experience is more akin to watching television. Facebook also has a far wider reach than any individual entity, with DAUs at 1.32 billion on average for June 2017, an increase of 17% year- over-year. Additionally, Facebook’s revenue is almost exclusively based on advertising (97.3%) and if hardware efforts such as the Oculus Rift fail to yield satisfactory results, it is reasonable to believe that Facebook will search out other assets to appease Wall Street growth demands of tech stocks.
Consolidate social dominance through purchasing Twitter and Snap inc:
Despite many contendors to the throne since its ascent from college campuses to cultural ubquity, Facebook has remained the dominant social network since it overtook Myspace in June 2009. Both Snapchat and Twitter were mooted as potential disruptors to Facebook, yet neither has ultimately succeeded in denting Facebook’s user base or slowing its growth. However, from an advertising perspective, each company remains a valuable asset that would enhance Facebook’s service. With Snapchat’s user growth slowing and stock price continuing to decline, it may soon decline to a price that Facebook deems acceptable for its 170m daily active users (DAUs). The same logic applies for Twitter. With little growth since 2015, Twitter reportedly attempted to sell last year but was unable to find a buyer, yet with 300m month active users (MAUs), Facebook may feel Twitter’s popularity with regards to breaking news would be a useful asset.
Premium lean-back content through scripted drama and sports rights:
Facebook is yet to enter the premium content space currently dominated by HBO, Netflix, Amazon Prime Video and, if rumours are to be believed, joined by Apple. With its current emphasis on short-form content where it competes with Snapchat and YouTube, Facebook may choose to create its own premium long-form content, or simply buy a seat at the table by absorbing an asset like HBO into its ecosystem. Additionally, with sports rights coming up for renewal in the next few years, it is suspected that major tech companies will compete with Pay-TV for premium broadcasts. This again is another prospect for Facebook should it choose to double down on ad monetisation against valuable media assets.
Facebook will also face competition from Amazon’s fast growing advertising and media arms – something that will likely appeal to ad agencies such as WPP who have long advocated for additional partners outside of the Facebook-Google duopoly. For this reason, doubling down on ad revenue while it searches for new income streams may be a wise short-term solution.