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This Is the Most Important Part of Facebook, Inc.'s Strategy

By Adam Levy - Jul 23, 2015 at 2:15PM

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Mark Zuckerberg isn't afraid to admit when he's wrong or losing.

Mark Zuckerberg has a vision for the next 10 years at Facebook. Source: Facebook.

In the desktop and laptop era of computing, Google (GOOG -0.55%) (GOOGL -0.61%) dominated the Internet -- and the ad spending on it. While it's largely responsible for the proliferation of mobile devices by licensing the Android OS, Google doesn't dominate the mobile Internet like it does the desktop Internet.

Facebook (META -2.03%) is the dominant service on mobile. Between its flagship app and Instagram, Facebook says it accounts for 20% of time spent on mobile devices. That wasn't always the case, and Facebook's initial efforts in mobile were eventually scrapped for native apps.

The willingness to admit failure and the ability to understand and recognize disruption before it takes hold are what make Mark Zuckerberg an excellent CEO. That's the most important part of Facebook's strategy.

Focusing on what's next
Facebook isn't afraid of admitting when it's wrong or losing. Management even admitted to investors during Facebook's 2013 third-quarter earnings call that it was seeing a decline in teen engagement. Investors panicked at the admission, but Facebook knew it had Instagram and a growing number of teens engaging on that platform. A couple of weeks later, Instagram introduced its first set of ads.

The point here is that Facebook isn't just focused on its existing businesses, it's focused on the big picture of how people are using the Internet. If that happens to be on Facebook, great. Instagram, great. Desktop, great. Mobile, great.

If Facebook sees a new trend emerging, its first reaction is to buy the company, try to replicate it, or both. A rapidly growing network is tough to overcome, and that's something Facebook understands inherently. It's seen it with its own product, with Instagram, WhatsApp, and even with Snapchat, which it failed to acquire. Facebook attempted to replicate all of those apps before admitting defeat and trying to acquire them.

The next 10 years
Mark Zuckerberg will occasionally review his three-year, five-year, and 10-year goals for Facebook. His 10-year goal includes developing the next computing platform. Zuckerberg recently made a big bet that this would be virtual reality. Facebook purchased Oculus for $2 billion last year to spearhead its VR development.

Oculus may end up being to Facebook what Android is to Google. It could be a means to stay relevant in the next computing platform even if its software isn't as popular on it. But by working on virtual reality now, and applications for the platform, Facebook is setting the stage to play a much bigger role if and when VR gains popularity.

That's something Google failed to do with Android. It largely followed Apple's lead in developing things like the Android Market and following it up with the more robust Google Play. As a result, its app store and media revenue still trail iTunes and the App Store.

While Google develops dozens of apps, its share of display advertising on mobile is significantly lower than its share on desktop. Google is the biggest display advertiser on desktop, but Facebook generates three times as much display ad revenue on mobile compared to Google.

Owning the platform has kept Google relevant on mobile, especially as it requires manufacturers to include many of its apps and its app store in order to take full advantage of Android. Owning the next computing platform will keep Facebook relevant even if it fails in its early efforts to develop compelling applications for it.

Of course, there's always the chance that VR won't be the next big computing platform. If that's the case, I fully expect Zuckerberg to stay true to form: admit when he's wrong, and pivot to take full advantage of the next big thing.

Adam Levy and The Motley Fool own -- and The Motley Fool recommends -- shares of Apple. The Motley Fool both recommends and owns shares of Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. 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.

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