When a new employee joins Facebook (NASDAQ:FB), he or she is handed a little red book that communicates the company's mission, history, and culture. The book is filled with colorful pages and images, stories, and single-sentence snippets that provide a pretty good idea of how Facebook sees itself. Former Facebook designer Ben Barry released some excerpts purportedly from the book on his website a few weeks ago, and one page stood out to me.
Printed in big white letters on a solid black background is this sentence:
If we don't create the thing that kills Facebook, someone else will.
Indeed, Facebook's biggest risk is someone else growing a website, app, platform, or medium that takes attention away from the company. And the company has repeatedly shown willingness to disrupt its own product to stay ahead of the competition. In that sense, Facebook operates similarly to Apple (NASDAQ:AAPL), which also isn't afraid to cannibalize its business.
No disappearing act
With half the world's Internet users logging onto Facebook at least once a month, the idea that the company will simply disappear one day seems all but unfathomable. But Facebook takes that threat very seriously. "Things that don't stay relevant don't even get the luxury of leaving ruins," it says in the little red book excerpts Barry posted. "They disappear."
Over the last few years, Facebook has expanded beyond being a social media website. It launched an app, it bought Instagram, and then it launched a few more apps. It tried to snatch up Twitter in its relative infancy, and more recently attempted to acquire Snapchat. It notably spun off Messenger from its flagship app, spurring growth in the messaging app from just 200 million active users to 700 million active users in 14 months. It also bought WhatsApp, the world's most popular messaging platform, early last year.
Facebook's Creative Labs is pumping out experimental apps at an increasingly breakneck pace. Some of those apps -- like Paper, Slingshot, Riff, and Rooms -- are designed to specifically take attention away from Facebook proper. These are low-cost moon shots that Facebook is funding because they might be the next Facebook.
The company's most prominent moon shot was its $2 billion acquisition of Oculus VR. Facebook CEO Mark Zuckerberg firmly believes virtual reality will be the next big computing platform after mobile devices like smartphones and tablets. If he's right, owning the platform is a sure way to ensure Facebook survives the transition to virtual reality even if people use it mostly for watching movies or playing video games.
The Apple of the Internet
Apple, too, understands that if it doesn't make the next generation of consumer technology, someone else will. Apple didn't create the MP3 player, digital music store, smartphone, tablet, or smartwatch, but it created the most popular versions of those devices. More importantly, it wasn't afraid to tackle devices and services that would cut into its main businesses at the time.
The iPhone practically destroyed the iPod. The iPad has likely led to lower overall Mac sales than if a similar product was introduced later by a different company. The upcoming launch of Apple Music will cannibalize iTunes revenue (which other streaming services are already cutting into). These are all necessary developments to maximize revenue in the long run.
It's this long-term approach that separates companies like Apple and Facebook from competitors that can often suffer from short-term thinking or pressure from Wall Street to perform immediately.
Long-term thinking also enables these companies to outmaneuver peers looking to make profits now instead of later. Apple can take its time developing a product that blows away the competition in a certain device category. Facebook can take its time figuring out the best way to monetize its audience without alienating them. And they can both invest in developing products that won't really be useful for another 10 years or more and will likely cannibalize their existing businesses.
The results are better long-term returns for investors, and it shows in both companies' financial numbers and stock prices.