Facebook is a big company. The company recently filed the largest tech IPO ever and is sitting on mountains of cash. It might be surprising then to hear that they only spend about 10 percent of its sales on research and development each year.
A report from Bloomberg says that Facebook is sticking to a business model that is akin to Apple – spend only what you need on R&D and let the third-party developers fill in the rest. While that sounds like a lazy approach, it’s actually quite genius and is a win for both parties.
Apple and Facebook both create platforms that have extensive amounts of R&D put into them. They develop the platform to provide the basic needs their users want. At a point where they’re happy with the platform, they open it up to third-party developers to fill in the rest. This lets Facebook focus more on the infrastructure and new additions while the third-party developers fill in the gaps with new technologies and experiences.
One company mentioned by name in the report is Zynga. They are one of the best examples of a third-party developer taking the tools given to them by Facebook and expanding it into a business all of its own. Coincidentally, this business is exceedingly important to Facebook. The social network relies on Zynga and other game makers to create the unique experiences that keeps users on Facebook.
The analysts speaking to Bloomberg also point to a Facebook that doesn’t expand much beyond its core business. They aren’t like Google who must be spending a fortune in R&D on stuff like HUD-glasses and driverless cars. Sticking to its guns, Facebook is able to keep its development costs low and profits high.
Of course, Facebook does have the manpower and the resources to expand into other fields. Would you buy a Facebook developed operating system or phone? What if Facebook entered into hardware and began directly competing with Google? This is all just pure conjecture and fantasy at this point. Spending so little on R&D allows Facebook to keep making new features like Timeline that everybody seems to “love.”
I think it still must be asked though. Would you buy into Facebook developed hardware? It would obviously be focused on social connectivity, but through a hardware angle. What form would such a technology take? Do you think Facebook would ever jump into making hardware? Let us know in the comments.