Facebook - Did someone say there was a pandemic?

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If Twitter sentiments and popular media narratives impacted business outcomes, Facebook would have been long dead.

Instead, Facebook’s results announced last week underscored the company’s resilience. User engagement increased with ~2.5 billion people logging daily and 3.1 billion logging monthly onto at least one of its services (Facebook, Instagram, Messenger, Whatsapp).

If a third of the world spends over 2 hours on a media platform, the businesses and their ad dollars will chase those eyeballs. The company revealed that over 180 million businesses use the tools on the platform (including free ones such as listing) and they have an eye-watering 9 million advertisers of which the top 100 constitute only 16% of the total revenue.

Sheryl Sandberg spoke about this in the earnings call (emphasis mine).

Along with our free tools, personalized advertising is a lifeline for businesses – especially small businesses who can’t afford broad campaigns aimed at mass audiences. For just a few dollars, now more than 9 million advertisers use our platforms to reach audiences interested in their products – and we enable this in a way that protects people’s privacy and produces measurable results. In today’s economy when businesses are struggling and customers aren’t physically walking into their stores or restaurants, this is more important than ever…. We also believe that we provide a better advertising experience for both the marketer in terms of ROI, and the end user in terms of seeing something that they're more interested in when the ads are more personalized

Facebook is valuable ad real estate and has spent years refining the tools to easily onboard more advertisers including small businesses, allowing them to target effectively and measure bang for their buck. As the pandemic raged across the world and businesses needed to find their consumers online, they naturally turned to Facebook. Hence, even as marketing budgets globally targeting traditional media got slashed, the ad spend on Facebook increased.

The company raked in $18.6 B in revenue and ~$5.1 B in net profit. The average revenue per user (total revenue divided by total users) actually grew in the quarter ending June compared to the previous quarter.

Interestingly, in terms of the geographical split, revenue growth was the highest in North America (14%) and Europe (11%) indicating that it was easier for businesses to adapt to the ‘new normal’ in advanced geographies compared to those in Asia or Africa.

Now the company owns ~40% of the global population who are hooked onto the platform and 180 million businesses who use it as a digital storefront. Where does it go from here?

Commerce, of course.

The company has already created a common shopfront offering for businesses to cross-list across Facebook and Instagram. Instagram now features a shop tab and an official company-operated shop account that highlights products from the listed businesses. The company also launched Facebook Pay last year to allow cross-platform transactions across the Facebook family of apps.

The next frontier for it? Text-based commerce to go deeper in developing markets. Here is Mark Zuckerberg laying it out.

The other area that I'm quite excited about is messaging commerce. And what we're seeing there is it's particularly important, especially in developing countries. But we're seeing a lot of small businesses just conduct a significant portion of their business over Messenger or over WhatsApp. And in the medium term, I think the way that we're probably going to build a business around that.

The pilot for this?

India.

A lot of people use WhatsApp, especially in India. There's a huge opportunity to enable small businesses and individuals in India to buy and sell things through WhatsApp. We want to enable that. That starts with enabling payments. A big part of the partnership that we have with Jio will be to wire up and get thousands of kiranas, small businesses across India, onboarded onto WhatsApp to do commerce there. And we're really excited about the opportunity there. And once we prove that out with Jio in India, we're planning on expanding it to more folks in India and to other countries as well.

What the results indicate is an incredibly resilient company already providing valuable service to businesses and they are now building that moat further.

Today businesses on Facebook find their customers on the platform and in the near future can complete the entire transaction flow from customer acquisition to sales including payment within the ecosystem itself. In that closed-loop environment, the businesses would have a number of tools at their disposal such as short-form video, stories (and reels?), images, and text to engage and convert their potential target customers.

This future makes me believe that we are likely to see the rise of a new commerce giant over the next few years. Facebook's current moat - the data on half of humanity's social graph, will be augmented with insights into the spending habits of its captive base as it becomes the go-to marketplace to discover local neighborhood deals and products. The success of this vision will be driven by more businesses (mostly small) coming on board and becoming digitally enabled.

Last week, the CEOs of tech-majors, including Zuckerberg, were hauled up (virtually) to testify before the US Congress Judiciary Committee over charges of their companies abusing the position of market dominance to curb competition. Apart from the theatrics of it, the consensus was that the house committee landed some pointed blows.

Yet, the question remains, how do you think about anti-trust when the success of the platform also enables millions of small businesses to go online in a post-COVID-19 digital-first world? Would breaking up the companies, in this case, Facebook, create a sub-optimal outcome for the small businesses that have already been battered by the worst financial crisis since the Great Depression?

The regulators have a tough issue at hand.