Is Facebook the face of the future?

THIS week at a shareholder briefing, Mark Zuckerberg laid out his 10-year plan for Facebook. He’s come a long way. So it makes sense to see what the Golden Hoodie is cooking up.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

THIS week at a shareholder briefing, Mark Zuckerberg laid out his 10-year plan for Facebook.

Given that 10 years ago Zuck was sitting alone in his dorm room eating pizza and drinking Coke, he’s come a long way. So it makes sense to see what the Golden Hoodie is cooking up.

FACEBOOK’S 10-YEAR PLAN

“WE’RE going to be here for decades”, announced Zuckerberg triumphantly.

You’ve got to hand it to the kid — he’s got chutzpah. A decade on from his dorm, he has 8348 staff and has grown his business to be roughly $US20 billion bigger than the Coke he used to drink.

And according to Mark, he’s just getting started: “Video is a very big priority, news is a very big priority, mobile is a very big priority.” (Reads like a Facebook status update, right?)

Over the next 10 years Facebook will move into building the next generation of the web, which Zuckerberg is betting will involve virtual reality (very exciting for geeks who can’t get a date).

He also outlined that he wants at least “one billion users” on each of the various apps he’s building (or buying), which underlines just how ridiculously big Facebook is.

And he may well do it. After all, Facebook benefits from what I call the “network effect”: everyone goes there because everyone else goes there, including your cousin Cindy, who posts vague, moody status updates (though she “doesn’t want to talk about it”) and your Aunty Flo, who posts pictures of her cake-decorating and her grandchildren.

THE TWILIGHT SERIES

OVER the past few years Facebook has transformed itself into the world’s biggest newspaper. Most publishers currently draw more traffic to their content from Facebook than their homepage or Google. Now it’s taking over TV.

In the past, TV stations made fortunes because they controlled the eyeballs. Yet the targeting they’ve offered advertisers has always been a little sketchy. OK, so if you’re KFC you really want to be advertising on Big Bogan. Yet Facebook now attracts 2.7 billion eyeballs (1.35 billion users) each month — and is providing advertisers with everything it knows about us.

One of Facebook’s first serious forays into video was making them auto-play in your news feed, which didn’t turn out to be as annoying as you’d expect. Today Facebookx does more than one billion video views each day, though most of them are of ice buckets, cats and kids.

However, Zuckerberg has announced that in the next year five short films based on the blockbuster Twilight will be released — exclusively on Facebook.

MARK’S MOBILE MADNESS

WHEN Facebook had its initial public offering in 2012, the main thing that held me back from buying was that it made zero dollars from mobile.

Zuckerberg made this a priority — and he nailed it. In the latest quarter, Facebook earned $US3.2 billion in revenue, of which $US2 billion came from mobile.

The latest figures reveal that Facebook has jacked up the cost of its ads fourfold. And yet Zuckerberg is betting this market is about to explode — right now advertisers only devote 11 per cent of their advertising spend to mobile ads.

He’s wooing the world’s content publishers to post directly on Facebook by promising them a cut of the mobile ad revenue. Why bother posting on your website when the party is happening on Facebook?

Of course, the more content that’s on Facebook, the less content goes on the web and YouTube, where Google is king.

Okay, so that’s Zuck’s 10-year plan in a nutshell. Now let’s talk about what he’s really up to.

WHAT FACEBOOK IS NOT TELLING YOU

WHEN I first covered Facebook, I mentioned that the big opportunity was in mobile payments. We trust Facebook with more private information than we give our parents and partners, so sharing our money shouldn’t be that much of a stretch, right?

So far all the headlines have been about Apple’s launch of their mobile payment system, Apple Pay. But make no mistake: Facebook wants to get its hands on your digits too. Earlier this month a student programmer hacked Facebook’s recently launched Messenger app and found a hidden mobile payment system. That explains why Zuckerberg headhunted the former chief of PayPal to head up the new app.

Mobile payments are set to explode over the next few years, and the race is on to cop a clippity-clip on each transaction (set as a percentage of the total for credit transactions, and less for debit transactions). In the US alone these so-called “interchange fees” are worth upwards of $US50 billion a year.

SO SHOULD YOU BUY FACEBOOK?

I’M still sitting on the Facebook fence.

The risk for investors is that to avoid getting hit in the googles Facebook needs to keep making big hairy bets that make absolutely no financial sense — at least in the short-term.

Case in point: Facebook’s purchase of messaging service WhatsApp for a massive $US22 billion. (To put that figure in perspective, for similar money you could buy both Harley Davidson and Hertz Rent-a-Car and still have change). And in the first half of the year, WhatsApp lost $US232 million.

When asked about the losses Zuckerberg shrugged them off, saying he doesn’t really get interested in a product until it has one billion users (WhatsApp is only halfway there). Then he followed it up by telling shareholders he would continue making “aggressive investments into the future”, which will increase expenses by as much as 70 per cent next year. The stock promptly dropped 10 per cent.

One thing’s for sure — the growth in mobile will ensure that Facebook will likely hit Zuckerberg’s one, two and possibly three-year goals and the stock will march higher. Yet no one knows what the future will look like in 10 years — not even the multi-billionaire bro who’s building it.

Tread Your Own Path!

Originally published as Is Facebook the face of the future?