The Press, February 2012

Facebook’s much anticipated initial public offering (IPO) was announced last week. It promises to deliver enormous riches to all involved – even a graffiti artist, who took shares in lieu of payment to decorate Facebook’s HQ back in 2005, is slated to pocket share certificates worth about $US200 million.

What insights can aspiring Kiwi technology entrepreneurs take from the Facebook juggernaut? Or for that matter the other technology superstar Apple? What lessons are there to be learned and emulated?

Probably none.

Facebook and Apple exist in another galaxy from most Kiwi companies. Trying to gain insights from them is like modelling your life plan on a Martian – it’s hard to get accurate information, and even if you do you are likely to perish if followed.

Often you will see those articles – ‘Apple: secrets of the world’s best marketing machine’, ‘The five keys to Facebook’s success!’.

It repeats the same ‘riding the coattails’ type advice that has cited Google in the past, before that it was Microsoft and even earlier IBM.

The problem with trying to copy these sorts of companies is that they operate in a different context. They have enormous financial and human resources, with a flick of the wrist they can change the direction of markets.

Facebook’s size and growth is stunning. 845 million people use the social networking website every month, with 50% of those logging on daily. There are 2.7 billion likes (when a user clicks approval on another users’ message) and 250 million photos loaded every day. 100 billion friendships exist on the site.

It is an immense ecosystem in its’ own right. An ecosystem that generated $3.7 billion in 2011 revenue, primarily from advertising, and continues to grow fast.

Overall Facebook is expected to be worth around $US100 billion at IPO, which compares favourably to New Zealand’s entire annual gross domestic product of $US126 billion.

That will deliver founder and CEO Mark Zuckerberg an estimated fortune of $US28 billion. If he was a country he would be the 89th richest in the world, slightly poorer than Ethiopia (population 82 million) but richer than Tanzania (population 43 million).

Apple’s planetary alignment is similarly distant.

According to the company’s financial statements, in the three months to 21 December 2011 they generated $US108 billion in revenues. That included sales of 37 million iPhones, 15 million iPods and 15 million iPads.

How does this compare to New Zealand’s biggest companies?

Our leading corporate Fonterra, a global force in the dairy industry, recorded $US16.5 billion in revenue for the whole of 2011, exporting 2.1 million tonnes of produce to around 100 different markets. Impressive figures, but still a fraction of Apple’s earnings.

Telecom New Zealand is the country’s largest ‘technology’ based business, and it reported revenue of $US4.6 billion, with 1 million residential and small business customers, and 2 million mobile phone customers. Customer numbers that are almost a rounding error in the Facebook context.

Because the Facebooks and Apples are so large and so well resourced, it is very hard to look at what they do and adapt it to much smaller businesses.

As a very simple example, I read a recent blog post on a major news outlet that recommended technology companies copy Apple’s approach of having little more than a product picture or logo on their advertisements.

Firstly, the average Kiwi technology company is unlikely to have the cash to mount a sustained advertising campaign of the likes of Apple, in any target market. Some years ago a large New Zealand software exporter I worked with determined that IBM was spending more on advertising in New Zealand per week than their entire annual marketing budget!

Secondly, Apple can use their beautifully spare adverts because there is extraordinarily high awareness of their brand. A less well known company would be wasting money not trying to communicate something in their adverts.

The better approach for Kiwi companies is to be focussed, find our logical place, move fast and take a fresh approach. Rather than trying to be a better Apple or Facebook, be the best ‘your company name’.

Wellington-based company Xero is a good example. It hasn’t tried to be a better MYOB or Sage in the accounting software space, it has taken a unique approach by developing a purely internet-based product, and relied on social media for promotion more than traditional advertising channels.

It has played to its strengths, and it is getting results, forecasting a doubling of revenue this year to more than $NZ 20 million, 50% of it from offshore markets.

The lesson you can however learn from the genius of a Mark Zuckerberg or the late Steve Jobs is to focus on the fundamentals, to be all about creating a unique experience for a specific group of customers.

It’s about asking yourself the question - what problems are there that I can solve given my company’s mix of people, product, experience, credibility? That’s more likely to bring a Kiwi version of Facebook riches, and save you from the frustration of trying to copy an alien life form.

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