Can a company built on the ideas of scale and network effects unbundle its offering into multiple brands and still thrive? Facebook is about to find out. Unbundling has a compelling strategic and competitive rationale for Facebook. It has implications that extend far beyond the social media company’s
stated goal of designing single-purpose apps for mobile usage. “Facebook is not one thing,” Mark Zuckerberg said in a recent interview with The New York Times. And clearly, the more things Facebook becomes to its customers, the less chance it has of being felled by a single savvy competitor or by the obsolescence of a single social network. But what will unbundling do to its sources of competitive advantage? Today Facebook enjoys three advantages over its rivals: technological capabilities, economies of scale in its infrastructure and most importantly, network effects. Network effects favor Facebook because for those who want to socially network, it makes sense to congregate on Facebook where everybody else is hanging out. There is only one square in the global village, and it’s run by Facebook. At the same time, Zuckerberg appears to recognize that the Facebook brand as a single monolithic entry point cannot be everything to all people. Users have different needs, and those needs can be served with separately branded products that deliver different experiences and attract different customer segments. Each brand— whether it’s Facebook, Messenger, WhatsApp or Instagram — claims a distinct territory within the social space. The strategic bet is that a single customer interface isn’t necessary to maintain or even strengthen Facebook’s technological lead and infrastructure scale. But what about network effects? Could unbundling pose a threat? Not necessarily. First, the brands that Facebook currently operates (Messenger, WhatsApp, Instagram and the social networking site itself) have hundreds of millions of users, and each of these brands enjoys greater network effects than all but its largest potential rivals. Secondly, Facebook may believe it’s worth sacrificing some network effects in order to build distinct brands and pre-emptively occupy social space.
