Mobile vs traditional strategy signals in earnings updates – Facebook, Google and Microsoft

The past two weeks have been full of earnings announcements from the world’s largest publicly listed media and tech companies. In this post i explore the key strategy elements that came out of Facebook, Google and Microsoft’s earnings calls. The two key themes that arose in each of the earnings calls have been – mobile vs desktop advertising and positioning core business models in growing a portfolio of new products.

FacebookReveals just how deep its mobile strategy runs

Facebook, like Twitter and other social media stalwarts aren’t signing up new users at the rate they once did. They are however, generating more revenue per user which is credit to the revenue/monetization side of both businesses. Facebook’s fourth-quarter earnings grew 34%, to $701 million, propelled by a 49% increase in revenue, to $3.58 billion. Its focus on mobile advertising revenue was a major driver and has led closing the gap between FB and Google in this revenue stream.

What was most interesting about the earnings call was CEO Mark Zuckerberg’s articulation of FB’s strategy as well as the operating structure of the company:

In terms of the product developments that we do here, we have four major groups inside of the company. This is kind of how our company is organized. We have one which is focused on growing the community, one which is focused on kind of increasing content consumption and people’s engagement, another which is focused on kind of efficiency and helping people to get the most value out of each moment that they’re spending in Facebook. And then the fourth group is our core business, which is focused on helping people to see the best ads and basically make the most money per moment that people are spending at the lowest cost in most efficiency in terms of serving people.

Strategically this articulation is very sound. Firstly there is a clear cycle their products run through – 1. Acquire users, 2. Increase Engagement 3. Increase user value (stickiness) 4. Monetise. This cycle is then reflected in the structure of the organization as articulated in Zuckerberg’s statement above. Finally, FB has the discipline and the funding (thanks to their great results) to ensure their products go through each of these phases. This will be the approach they follow for FB’s other major non-monetized products like Instagram, WhatsApp and Messenger. Investors may be impatient now, but Zuckerberg i feel has the company focused on the longevity of its offerings and revenue streams.

Google – A mobile giant with a transactional desktop product

The most interesting strategic discussion on Google’s report was slowing search queries on personal computers versus growth in mobile advertising. WSJ summary after call was quick to point out that Google doesn’t break out the revenue from mobile devices in the same way that Facebook does. Google’s lack of transparency here could suggest that it is still predominantly a desktop company where Facebook which started out on desktop approached mobile with a no-holes barred attitude and their earnings call shows this.

Google is no doubt a very importantly player in mobile particularly for Android enabled devices. Omid Kordestani, interim Chief Business Officer, sought to redefine mobile on the call:

We continue to evolve the foundation of Google’s advertising business to reflect a multi-screen constantly connected world. Mobile is now a behavior, not a device, and it has a variety of unique characteristics.

And this is where Facebook is so strong. Facebook has a portfolio of products that capture attention and drive mobile behaviour. The mobile platform is intended for advertising and not just to drive an immediate transaction, but instead to change your preferences (based on friends suggestions). Google is is a desktop product which is transaction focused. As offerings like Google Now strengthen in user value we are likely to see a greater shift of focus to mobile advertising in these earnings calls.

Microsoft – Windows to take a back seat in a new services model

Microsoft’s earnings announcement was jam packed with interesting insights into their strategy. Their age old aspiration of ‘Windows on every computer’ has copped quite some criticism in recent times and has been seen as the thing holding back their innovation and to some extent their revenue. Satya Nadella, a year into his new role, is being tripped up in overseas markets as a slump in China and Japan and a stronger U.S. dollar curbed sales of business-software licenses. There was talk about the XP upgrade cycle, Problems in Japan and China, Improving cloud margins and probably most interesting the balance of Microsoft’s all-device strategy with its core Windows offering. Nadella noted:

“At the highest level, our strategy here is to make sure that the Microsoft Services i.e. cloud services be it Azure, Office 365, CRM Online or Enterprise Mobility suite are covering all the devices out there in the marketplace. So that way we maximize the opportunity we have for each of these subscription and capacity based services. So that’s the core rational for why we are doing cross platform…the uniqueness of Windows comes because we don’t think of these services and their application end points as apps, but fundamentally core to the Windows experience. So we are building them natively into windows.

Here Nadella is saying that Microsoft will make money on services (e.g. Cloud, Office 365) and offer Windows as a way to differentiate those services leaving you free to use other operating systems like IOS to access those services. This is different from the old Microsoft and relegates Windows to the a background role in its strategy. This will be tough culturally for Microsoft.

The shift to mobile and building an ecosystem around it is on for Facebook, Google and Microsoft. The choices they are having to make about their core desktop based products will be interesting to watch as culturally, particularly for Microsoft, this may mean the decrease in importance of its most popular product ‘Windows’ in its suite of services.

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