Please ensure Javascript is enabled for purposes of website accessibility

2 Important Ways Facebook Is Growing Up With Workplace

By Evan Niu, CFA – Oct 11, 2016 at 3:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The social network is finally taking the enterprise seriously.

Facebook Workplace. Image source: Facebook.

In no uncertain terms, Facebook (META 2.20%) is gunning for the enterprise in a big way. The rebranded Workplace (formerly Facebook at Work) is the social network's most meaningful attempt to date to get into the enterprise. That requires a significant recalibration of the brand, since it has always been a consumer-oriented platform with essentially no enterprise products.

Workplace also serves as evidence that Facebook is growing up in two important ways.

Follow the money

Simply put, there has always been more money in the enterprise, particularly for software companies. History is full of examples of software companies hoping to revolutionize something or other by starting with the consumer market, only to find out that the average consumer hates paying for software nowadays. People balk at buying a $3 smartphone app -- minutes after spending $6 on a venti iced skinny hazelnut macchiato, with sugar-free syrup, an extra shot, light ice, and no whip.

Targeting the enterprise is precisely why LinkedIn's revenue model is so resilient, as the professional network isn't beholden to the fickle advertising market. The enterprise is also where Microsoft makes most of its money; it's no surprise that these two companies are getting together now. Dropbox is still in the midst of its pivot to the enterprise, after its early user growth consisted mostly of free moochers.

To be clear, Facebook is killing it these days with ad monetization, particularly in North America, but investors should hope Facebook allocates as much effort to the enterprise as it did to the mobile transition. If Facebook's short history is any indication, the company can execute quite well as soon as it really tries, and there's a ton of money in the enterprise.

Change the channel

It follows that Facebook's first enterprise offering would be accompanied by Facebook's first foray into channel partner relationships. The company will be working with a wide range of service partners to expand distribution channels and sell Workplace across the enterprise spectrum, including heavyweight SADA Systems. SADA is a prominent seller of Google and Microsoft enterprise offerings, and is expected to generate about $65 million in revenue this year.

In an interview with CRN, SADA Systems CEO Tony Safoian compared it to GoogleApps circa 2007. Back then, the search giant had just started creating what would become an enterprise productivity suite that could undercut MS Office, but it takes time before channel partners can ramp up meaningfully. Facebook is "learning from scratch," much like Google had to nearly a decade ago.

Tapping channel partners is a critical factor to succeed in the enterprise, as most companies don't have or want to build salesforces that can address the enterprise market, which requires a lot of hands-on consulting and IT implementation. It's much more efficient and scalable to leverage the channel, which is precisely why Facebook is doing it.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Facebook and LinkedIn. The Motley Fool owns shares of and recommends Alphabet (A and C shares), and Facebook. The Motley Fool owns shares of LinkedIn and Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.