Google way, Facebook way, and Twitter way
Growth strategies of large tech companies, a reality of stark contrasts.
Very rarely, have I come out of a discussion feeling enlightened. Not often does someone acknowledge your point of view as unique and insightful. Luckily, that stroke of fortune hit me earlier this week, in a dialogue with an industry peer.
It’s tough to escape any conversation these days involving a technology industry worker skirting the murky topic of layoffs and recession. It took us under 10 minutes to steer our way through the initial “greeting and catchup” to hit the elephant in the room — the recent string of layoffs by big tech companies.
After hearing them speak about their reflection on the bloodbath in the Bay area and the Wall Street, I responded with this
I’ve come to realize that there are 3 diverging ways in which the big tech have charted their next phase of growth — it is the Google way, the Twitter way and the Meta way.
It wasn’t a carefully crafted statement. There was not a lot of thought put behind this comment either. It wasn’t an outcome of me mulling over the state of affairs since the past few months. It was something I concluded, on the spot. However, as an after thought, I believe there’s some truth in it. With a positive affirmation from few close friends, I realize, this hasn’t been talked about enough within the present day industry circles.
From a by-stander’s perspective, someone who doesn’t have a lot of skin in the technology game, they’d feel that this is just a part of the natural evolution of companies and the industry. After years and years of all-time-highs and growth at breakneck speed, most of the large technology companies have now realized all the gains that they potentially could. They are finding it increasingly difficult to sustain and deliver the previous levels of growth. Search is a solved problem, thanks to Google; e-commerce due to Amazon; social network for Facebook, Twitter and similar stories for other technology giants in their respective “original” fields.
For those who have studied in the “Growth hacker 101” class, it wouldn’t come as a surprise seeing companies who have experienced a decade long bull run suddenly run out of steam 😰. The next phase in the growth of such a company generally occurs through innovation and scaling viz. “horizontal scaling” or “vertical scaling”. Various technology giants have adopted their own strategy towards sustained long-term impact and growth. However, in 2022, a slew of macro-economic factors have thrown the proverbial wrench in the works. With fiscal prudence and monetary tightening, the governments have now embraced the economic hardline of increased interest rates and curbing the sky-high inflation. This manifests in the form of lesser liquidity in the economy and general pessimistic sentiment as far as the technology growth is concerned. Amidst all this turmoil, there has been a marked difference in the strategies adopted by 3 companies — Google, Twitter and Facebook, something I’d like to tease out a bit more.
G̶o̶o̶g̶l̶e̶ Alphabet way
Google or Alphabet has a dedicated organisation, X.company for moonshot projects. In an endeavor to aim for moon, there are learnings in the form of discontinued projects and bright spots in terms of graduations. Couple of these discontinued projects include — Loom for internet balloons and Foghorn for pulling carbon and hydrogen out of seawater to produce carbon-neutral fuel. X.company persist with long haul experimental projects knowing that there will be disappointments along the way. But just like the venture capitalist mindset, Alphabet only needs 1 or 2 out of these 10 endeavors to be a hit, a “ten-bagger”, to justify all these 10 investments. Case in point, Waymo, the self-driving car project that is meant to transform the way human civilization has experienced mobility. While Tesla and other niche autonomous car startups are at the heels of Waymo, the hotly contested new autonomous mobility space is ripe for innovation and future growth.
In 2015, Google announced the creation of Alphabet, a parent company to demonstrate the varied investments and diverse portfolio that the company had grown into. It signaled a new era in the history of the organisation with a holding company housing numerous individual entities the likes of Verily, Waymo, Capital G, X.company among others.
This might remind you of similar style of structuring by the likes of Apple and Amazon. In case of Apple, may it be the mobile phone business, service business or the personal computing business, it never is the first kid on the block. But the company relies on their superior design and brand value to deliver the best-in-class experience. This permeates through various sub-organisations within the broader Apple ecosystem. Amazon, similar to Google, has placed major chunk of its bet on the Cloud business. Amazon enjoys the first-mover advantage and continues to be the market leader in Cloud Computing with 33% share in global public cloud market.
I’d double-click on the Alphabet organisation structure and how it’s positioned itself for long-term growth. Instead of putting all the eggs in one basket, Alphabet created separate entities for various businesses to make sure they run smoothly.
Despite the economic headwinds and ad spending slowdown, Alphabet doesn’t seem to have a hard pivot on one particular line of business.
Having an independent venture arm in GV and a dedicated institution for moonshot projects in X.company helps separate the concerns for Alphabet. As we look next at Meta [formerly Facebook], you’d quickly notice the visible difference in the way the two companies have set themselves up for success. Only time will tell how both structures play but it’s an interesting case study in “growth strategy of major tech” nonetheless.
F̶a̶c̶e̶b̶o̶o̶k̶ Meta way
Meta Platforms Inc., formerly known as Facebook Inc. has similarities and differences to the Google way of things. To dive in the history of the rather well documented company, for someone who hasn’t watched The Social Network (2010) drama on Netflix, it started as a college website for Harvard university students to connect with each other in 2004. On the back of massive user adoption and positive growth story, FB got listed on stock market in the year 2008, and has been operating a publicly traded company since. Facebook like Google, took towards solidifying its position as an industry leader in technology through doubling down on its core business a.k.a ads. As Google is synonymous with search, Facebook is synonymous to social network; despite both not being the first products in the market in their own space.
Acquisitions as a mode of growth
Similar to Google’s acquisitions of Youtube, Google Nest, Waze and Fitbit among others, Facebook has its own stream of successful purchases. Instagram, Whatsapp, Oculus, Novi and Diem would top the list of marquee acquisitions for the company. Along the way, the original ads business has been diversified and broadened across various products and grown to be the key driver of revenue.
Rebranding
Similar to Google’s restructuring with Alphabet, Facebook announced its rebranding in late 2021 with the name “Meta Platforms”. To me, it was a clear indication of where the company’s priorities lie going forward. By renaming the company to “Meta”, a name with close affinity to the term “metaverse”, the company declared its commitment to carving out the next generation of growth through Virtual Reality (VR).
One key point of difference between Google’s rebranding to Alphabet and Facebook’s rebranding to Meta is that the former was not a hard pivot towards one domain while the later clearly was. Alphabet serves as a holding company without a clear declaration of what domain the company sees as the source of future growth. Throughout the company quarterly earnings reports and other public disclosures, there’s no messaging from Alphabet on one particular part of business being the key driver of investment and in turn the long-term growth. On the other hand, for Meta, the name change, in itself, symbolized what the company was rooting for.
When you look into the reason why, it sort of makes sense. This is more of an existential move than anything else. Without the control over the hardware and the underlying operating system, the success of social platforms [Facebook / Instagram / Snapchat / TikTok / LinkedIn] in the digital world will always be at the mercy of the gatekeepers of the respective devices — Google for Android and Apple for iOS, the front-runners. Meta tried to capture a piece of the global mobile phone market but spectacularly failed, just like Amazon. The next phase of growth, for a parent of FB/Insta, would then come from owning the hardware of the next generation. The ‘metaverse’, i.e. a parallel universe of the virtual reality, is where the next generation of technological breakthroughs is touted to happen.
Logically, to me atleast, it makes sense that human beings would evolve out of the 5inch x 2inch form factor.
Whether the evolution ends up in headset or a sunglass or a neurological chip is anyone’s guess at this point. However, what’s certain is the next few decades will likely see the emergence of new class of technological gadgets, much more easy to use & carry and more closely integrated with our physical world.
Twitter way
After Google and Meta, here’s another way in which a relatively big technology company is trying to g̶r̶o̶w̶ survive. Twitter, the bird company, has a story of its own. Ever since Elon set his sights on the company, in the name of free-speech, it has been a roller-coaster ride for the Twitter employees and the investors. For rest of the world, 🎬 show was on and 🍿 was out.
Twitter started as a hackathon project in Odeo when the original podcasting idea was obliterated by the announcement of iTunes. Jack Dorsey and Co. commercialized their hackathon idea of micro-blogging and Silicon Valley embraced it. Soon, politicians, sports stars ✨ and movie celebrities started leveraging the platform as a megaphone 📣 for marketing their brand. Unfortunately, the advertising model wasn’t paying off as far as the company’s profitability was concerned. Thus Twitter’s path towards long-term growth looked bleak and uncertain.
A quick glance at the annual net income/loss for Twitter over the past 12 years paints a rather uninspiring picture. The decrease in net losses which eventually converted into consecutive years of record profit, in the years 2013 to 2019, coincides with the bull run that the S&P500 enjoyed alongside the broader economic markets. Unfortunately, the onset of Covid, for some weird reason didn’t augur well for Twitter, unlike most of its peers. This opens up a pandora’s box of potential causes why the company didn’t do well. Twitter’s way of long-term growth doesn’t involve a lot of acquisitions. Instead, the bird company has so far relied on increasing the DAU/MAU/TAU [daily/monthly/total active users] and advertiser spend as the primary source of revenue. Beyond a few new features like Spaces, Fleets and Blue, there wasn’t a lot of innovation that made its way to the end-users. Twitter hasn’t scaled as fast as its peers and thus hasn’t met the market expectations. Following image shows Twitter’s monetizable Daily active user count over the last 6 years. There are considerable doubts over how much of these users converted into actual revenue and what percentage of these users are fake accounts / bots / bad actors.
Couple the weak growth story with the drama over Elon’s acquisition, all in all, Twitter has had a torrid 2–3 years, ever since Covid 19. All of this has culminated in large-scale layoffs, uncertainty over the future of most employees and a horrible work environment for the still-employed workforce. The situation is still developing as we speak. It would take another 2–3 quarters for the analysts to truly capture what transpired and what are the long-term ramifications.
Conclusion
In essence, I have observed three unique ways in which the big technology companies are handling the ongoing financial turmoil and crafting the next stage of growth. While Alphabet and Meta consolidated their diverse businesses with a parent holding company, there are still differences in their respective methods in terms of long-term growth strategy. Twitter has had its own unique way of damage control amidst the financial breakdown and acquisition drama. I’d like to hear what you folks think about this observation. It’d be interesting to see if there are parallels in the other parts of the economy, giants in health-tech or financial-tech for instance. All in all, we find ourselves in an interesting time where there is high degree of uncertainty and volatility in the economy and different ways in which established companies are grappling with it.
