Facebook – 2nd attempt.

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Facebook is mounting its second assault on the ecosystem.

• Facebook is moving inexorably towards becoming a fully-fledged ecosystem after a number of false starts.
• Facebook now appears to be working on a digital assistant (Moneypenny) that will be aimed at helping users find and buy products online.
• This is another service that is likely to be offered via messenger and is one that users are likely to end up paying for.
• This is different to Siri, Google Now and Cortana which aim to assist the user with every aspect of their digital work lives as well as answering any question that the user throws at them.
• Moneypenny’s approach will be much narrower and I suspect that this is because of the high level of machine learning and artificial intelligence that is required to make these services effective.
• There is a reason why Google Now is far better at understanding what the user is asking for and delivering the right answer than Siri or Cortana.
• One possibility is that Facebook will use some degree of human intervention to fulfil the requests but this would make it much more expensive to run.
• This combined with Facebook’s move into gaming (see here) and its increasing use of video, make it look more and more like an ecosystem.
• Its previous attempts at this were aimed at taking over the home screen of the device which failed as the user experience offered was very poor.
• This time Facebook is taking a very different approach.
• The aim now is to grow its appeal by offering users a greater range of services to address the activities they carry out on their smartphones.
• Gaming, shopping and potentially search can now be added to social networking and instant messaging which will give Facebook pretty good coverage of the activities that users spend most of their time on.
• By running all of its services through either the Facebook or Messenger apps., Facebook can create a more consistent and integrated user experience with which users will identify.
• This is key to generating user preference which will in turn allow Facebook to more effectively monetise the traffic that runs through its servers.
• The more of the Digital Life pie that Facebook can cover with a good service, the greater will be its monetisation opportunity giving it more headroom before it runs out of growth.
• Facebook is expensive (87x 2015E & 34x 2016E PER) but it is cheaper than Twitter (52x 2016E) on 2016E PER reflecting its better medium term outlook.
• Consequently, I would be more comfortable owning Facebook than I would bottom fishing for either Twitter or Yahoo! at this point.