Most companies looking for new customers and fresh revenue move upmarket. Facebook (FB) is looking in the other direction.
This fall, Facebook began a voluntary program at its Menlo Park, Calif., headquarters called 2G Tuesdays. Engineers, product developers and anybody else who’s interested can use Facebook at reduced Internet speeds approximating the patchy service users must contend with in developing markets such as India and parts of Africa. Most Americans pull their hair out when the Internet drops into low gear. Yet hundreds of Facebookers try the slower speeds every week, and their experiences have helped improve service for users with slow connections. “Images take longer to load. The service is more unreliable,” says Facebook engineering director Tom Alison. “It’s the best way to build empathy with our users in those markets.”
Other companies talk about connecting with consumers. But few do it as convincingly as Facebook has done lately. And that’s just one reason the social-media giant is the Yahoo Finance Company of the Year for 2015. Some of the other reasons:
* Facebook’s stock rose by more than 35% year-to-date through mid-December, compared with an overall market that was flat. During the last 12 months, the company has earned $2.8 billion on revenue of $15.9 billion, for a profit margin of 18% -- better than Microsoft (MSFT) and close to the enviable margins Apple (AAPL) and Google (GOOG) earn.
* The company’s market capitalization soared to roughly $300 billion this year, making Facebook America's seventh-most valuable public company -- just behind Amazon (AMZN) but ahead of General Electric (GE) and Johnson & Johnson (JNJ).
* Facebook’s 31-year-old CEO, Mark Zuckerberg, is in the midst of two months of parental leave following the birth of his first child, a prolonged departure that may be unique among Fortune 500 CEOs. The company even accelerated its end-of-year product reviews to accommodate his leave, according to Chief Operating Officer Sheryl Sandberg.
* Zuckerberg also pledged this year to donate 99% of his wealth to charity and other causes he considers worthy. While some critics called Zuckerberg’s pledge self-serving, it remains a standout act of generosity in an era characterized by self-indulgent 1 percenters and a declining middle class.
[Check out our slideshow: Behind the scenes at Facebook.]
Most of all, Facebook has grown from a bumptious startup—whose famous motto used to be “move fast and break things” -- into a powerful technology bellwether that seems to respect the humanity of its employees and users both. And as the biggest American company run by a millennial, Facebook is establishing corporate leadership for the next generation. “We take our responsibility as an organization seriously,” Sandberg told Yahoo Finance when we visited the company's headquarters. “That means making work work for people.”
As Facebook has matured, meanwhile, it has modified the old motto, since breaking things doesn’t sound like something a member of the corporate firmament ought to endorse. “It’s still about ‘move fast,’” says Lori Goler, Facebook’s human resources chief. “But it’s more about ‘move fast and build responsibly.’”
Mobile dominance
Back in 2012, when Facebook went public, its future didn’t seem nearly as rosy as it turned out to be. The thoroughly hyped IPO, you may recall, was a fiasco marred by technical glitches and trading oddities. Lawsuits ensued. The shares plunged right off the bat and within a couple of months were trading at barely half the $38 listing price. Then came fears that Facebook, essentially a desktop service, would miss the mobile revolution and become irrelevant—the next Friendster or MySpace.
News flash: Instead of missing the mobile revolution, Facebook is dominating it. A couple years ago, Zuckerberg, aware that Facebook was behind on mobile, declared that every new product development or enhancement would focus on smartphones and other mobile devices first. The message didn’t sink in right away. Executives would begin meetings by opening PowerPoint presentations highlighting desktop usage. “Let’s reschedule this meeting,” Zuckerberg interrupted more than once. “Mobile first.”
The company finally made the pivot — and execution followed. Of Facebook’s 1.6 billion users today, 1.4 billion, or 88%, use Facebook on mobile devices. About 660 million of those mobile users also log in on computers, but 730 million are mobile-only. Three-quarters of Facebook’s revenue now comes from mobile ads—those carefully targeted promotions that show up once every 20 or 30 posts as you scroll down your news feed. And the stock has soared from a low of $18 in 2012 to around $103 today.
More on Facebook: Tracing Facebook from Harvard class list to global network
Investors no longer worry about the company falling behind the technology curve. “Facebook remains in prime position to capitalize on the secular shifts to digital, mobile and video,” SunTrust Robinson Humphries analyst Robert Peck wrote after the company’s latest earnings report. And company leaders seem confident they’ve found the sweet spot. “Mobile’s gonna be huge,” Sandberg joked when we interviewed her—fully aware that it already is.
There were also concerns back in the uncertain days of 2012 about Zuckerberg playing fast and loose with investor cash, such as when he single-handedly negotiated a deal to buy Instagram for $1 billion— twice its estimated value at the time. The fledgling photo-sharing company turned out to be a bargain. Analyst Gene Munster of Piper Jaffray estimates that Instagram alone is now worth at least $22 billion today, a return on investment the best venture capitalists would envy. More than that, Instagram remains one of the most popular networking sites among teenagers, while Facebook’s user base has aged. And Instagram’s visual appeal complements Facebook’s chattier mien, rather than duplicating it.
Future ideas
In 2014, Facebook bought Oculus VR, a maker of virtual-reality gear such as the Rift headset, for $2 billion. Virtual-reality is a niche sector at the moment, of interest mostly to gamers. But technologists think VR could catch on much the way social-networking did during the last 10 years, as consumers thrill to immersive new ways of watching sports, following news and enjoying concerts. Munster of Piper Jaffray predicts that Oculus could be worth $35 billion within 5 years, which would make it another Instagram-style winner for Zuckerberg. The first major Oculus product is due early next year.
New avenues for growth are important for the company, because Facebook’s rate of growth as a social-networking site is destined to slow, as the company acknowledges. For one thing, the company may have to work harder to get its next billion users than it did the first billion. That’s where 2G Tuesdays come in. “We’re working on making the product work in regions where the connection is difficult,” says Sandberg. “Where phones have less capability. We’re also working on decreasing the cost of data access.”
One change that has come from 2G Tuesdays: behind-the-scenes "prefetching" tweaks that allow the news feed to load more quickly when the connection fades in and out. Facebook is also experimenting with drones that might be able to provide connectivity in developing areas where there’s no wired Internet or wifi. In other words, Facebook may have to provide the Internet itself in order to keep expanding its reach. That’s like a Comcast (CMCSA) providing electricity so you can watch cable: Clever, but potentially costly.
Facebook, in fact, is becoming a portfolio of businesses. In addition to the namesake service, Oculus and Instagram, it also owns WhatsApp, the mobile-messaging service it bought last year for $19 billion, and Facebook Messenger, the new-and-improved mobile app that replaced the old chat bar. As a suite of services, Facebook is becoming mroe like Google, whereas Twitter (TWTR), by contrast, remains something of a one-trick pony--with a sagging stock price that reflects doubts about its future.
Not every Zuckerberg move has been brilliant, and the baby-faced CEO still displays vulnerabilities. Complaints about the privacy of user data still dog the company, since it knows more about many people’s online activity than their own family members—and uses that data to serve up relevant ads. Facebook has experimented with e-commerce but come up short. And so far it hasn’t developed an operating system the way Google did with Android, which some tech analysts think it should have. “Facebook is missing a lot,” says Brian Blau of the Gartner Group. “But Zuckerberg has matured quickly and he brings a lot of different ideas.”
One of those ideas is a private corporation that will distribute 99% of Zuckerberg’s wealth—currently about $45 billion—to efforts Zuckerberg and his wife Priscilla Chan believe to be in humanity’s interest. Zuckerberg took some heat for setting up a for-profit entity to dole out the cash, instead of simply donating the money to non-profit charities. Some, for instance, accused him of trying to gain credit as a philanthropist for investments he may earn a profit on. Zuckerberg countered by explaining that the for-profit arrangement allows the couple to donate to organizations that aren’t necessarily nonprofits, such as government agencies, hospitals or startups with social goals.
There’s nothing new about public criticism of billionaire spending habits. Here’s what is new: Zuckerberg responded to the criticism on Facebook, where, at last count, 13,000 people had left comments sounding off on his plan. Some praised it. Others voiced suspicion. “Just a way to get your billions tax free,” wrote a user named Aaron Wood, in a post that garnered 72 likes.
“This isn’t correct,” Zuckerberg responded. “We will pay tax just like everyone else.” That remains to be seen, but if the next generation of CEOs finds time to chat regularly with their critics on Facebook—or whatever the preferred app happens to be—Facebook is heralding a friendlier future. There aren’t many companies that can match that.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.