What's Facebook's total addressable market?

We review if Facebook is a monopoly and seek to understand their positioning.

Image source.

In his "competition is for losers" lecture and book Zero to One, Facebook board member Peter Thiel outlines the importance of monopolies. Thiel's thesis is that competition is bad for business. However, monopolies have to be careful not to be seen as such so as to avoid scrutiny from government bodies.

In order not to appear as a monopoly, companies describe their business as the union of a set of vastly different markets. By doing so they increase the surface area of their business. By positioning itself as an advertising or technology company Google distracts regulators from the fact that they monopolize the search market.

The basic lie you tell when you're a monopoly is that you're in a market that is much bigger than it looks.

Peter Thiel

Thiel's advice is evident in how Facebook presents the scope of its business in external communications. Questions that come to mind when viewing Theil's position through the lense of Facebook include:

  • Is Facebook a monopoly?

  • What makes up Facebook's stated total addressable market?

  • What wider macro trends will effect Facebook's monopolistic position?

Is Facebook a monopoly?

To understand if Facebook is a monopoly we first need to identify what they monopolise. To do this, we begin with Facebook's description of themselves.

Our mission is to make the world more open and connected. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

Facebook's S1 filing

From their mission, we can extrapolate that at the most fundamental level, Facebook's business model is built around engaged, inter-connected users. We can see additional evidence of this in their key metrics - Daily Active Users (DAU), Monthly Active Users (MAU) and Average Revenue Per User (ARPU). Facebook is in the user business.

With a point of view on what Facebook may be monopolising, users, we can then begin to asses if they're a monopoly. We do this by comparing Facebook with other companies looking to create value based on inter-connected users.

Using compiled data from eBizMBA and valuation data for each company (sources referenced in data set) we can plot Facebook's competitors based on monthly uniques and valuation per unique.

Unique visitors per month vs Market value per user

So is Facebook a monopoly? Based on this data set we can assume so, as Facebook:

  1. Dwarfs competitors in terms of valuation per unique user

  2. Has 4.9 times more unique users (900 million) vs the competitor set median (185 million)

  3. Has nearly an order of magnitude, 9.2 times, more unique users (1.7 billion) vs the competitor set median when combined with the other companies it owns within the set (WhatsApp & Instagram).

Social media is becoming Facebook and the seven dwarfs.

Scott Galloway, The Four Horseman

Quote reference.

Harder to objectively measure, but critical to Facebook's monopolistic position is the facts that:

  1. It's marketing platform are far more mature than competitors in terms of user targeting and breadth of ad types

  2. The amount of data Facebook has on any given user far outweighs any competitor.

When evaluating all of Facebook's strengths in the light of its immediate competitor set and you've got a serious gap for anyone to fill to become remotely competitive. Facebook's current infrastructure makes it the monopoly when it comes to creating and monetizing inter-connected users.

What makes up Facebook's stated total addressable market?

In Facebook's filing document for their IPO they listed advertising and online payments as their addressable markets.

Our addressable market opportunity includes portions of many existing advertising markets, including the traditional offline branded advertising, online display advertising, online performance-based advertising, and mobile advertising markets.

Facebook's S1 filing

If we take Facebook's S1 Filing guidance, we can plot out Facebook's historic and future addressable market. Download the plot data here.

Facebook's total addressable market

As we can see, Facebook is gaining some ground on the digital and total advertising share however it's revenue proportion pales compared to these large markets. And we've left out online payments in this analysis.

Facebook revenue %

As a percentage of revenue of these large markets, Facebook can get 13% of the digital advertising revenue and less than 4% of the total global advertising revenue by 2016 (given accurate forecasts). Thereby safely dismissing any claims that Facebook is a monopoly within its stated total addressable market.

What wider macro trends will affect Facebook's monopolistic position?

There are at least four critical macro trends Facebook is positioned to take advantage of to grow their position within their stated total addressable market:

  • The next four billion users

  • Digital advertising viewability

  • Failing publisher experiences

  • Online video.

The next four billion users

Want to Be a Billionaire? Impact a Billion People.

Peter Diamandis

Quote reference.

Less than half of the world has access to the internet and the race is on to impact four billion people by getting them online. Google's Project Loon is providing internet through a network of balloons traveling on the edge of space and Facebook's internet.org is exploring a variety of technologies including high-altitude long-endurance planes, satellites and lasers.

Global internet users

As people in emerging markets come online they will have an entirely different set of needs to people in developed economies. By facilitating the next four billion internet users coming online Google and Facebook aim to have critical influence of the next economic wave online.

Facebook's influence of online users is evident in their efforts in South East Asia where millions of emerging market Facebook users don't realize they're using the Internet. If Facebook is successful with internet.org, they may be the only viable access point to the next population of internet users.

Digital advertising viewability

In 2013 the Wall St Journal reported that only 54% of ads were viewable when comScore researched thousands of display campaigns. While media agencies and marketing clients bury their heads in the sand, internet users are becoming increasingly adept at ignoring ads.

In 2014, PageFair and Adobe found that there are around 144 million global adblock users, a 70% year-on-year increase from June 2013 to June 2014. Once Apple allows adblocking in iOS 9 expect the awareness of adblocking to truly go mainstream.

We measure an ad impression the moment an ad enters the screen of a desktop browser or mobile app. If an ad doesn’t enter the screen, we don’t count it as an ad impression.


Quote reference.

Media providers are showing less ads to an audience who is getting better at avoiding them altogether. Meanwhile, Facebook's proprietary ad platform and native advertising solutions give them full control over viewability and adblocking in an increasingly uncertain world for marketers. Their ability to join the dots across their additional properties like WhatsApp and Instagram only compounds their increasing stranglehold on marketers.

Failing publisher experiences

As content providers load an increasing amount of ad serving software on their sites, people's web experiences suffer. And people are noticing.

After Apple announced ad blocking in iOS 9, mobile developer Dean Murphy began experimenting with ad blocking of the podcasting site iMore. With ads the site took 11 seconds to load and loaded 38 additional third party scripts. Without ads the site took two seconds to load and looked far cleaner.

Murphy's post was followed up by a similar analysis of the Verge's site - one page load yielded a 30 second load time for 9.5MB of data across 263 HTTP requests. All for a 75kb article!

The topic reached the zeitgeist when John Gruber brought attention to the two articles. In response to Gruber, Ben Thompson put together a well-rounded argument on publisher's need to overly rely on programmatic ad servers to survive. It comes down to the simple fact that there's a gap in the user experience and someone's going to fill it.

People often argue that running ad-blocking software is violating an implied contract between the reader and the publisher: the publisher offers the page content to the reader for free, in exchange for the reader seeing the publisher’s ads. And that’s a nice, simple theory, but it’s a blurry line in reality.

Marco Arment

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As the mobile world throws up it's hands in turmoil for the state of content sites, in steps Facebook with its new product offering, Instant Articles. The product promises, "a new way for publishers to create fast, interactive articles on Facebook." Instead of linking off to slow publisher sites, Facebook offers to load articles immediately by keeping users within Facebook's environment. In return, Facebook shares the revenue generated from it's ad servers with content creators.

Publishers like the New York Times and National Geographic are partnering with Facebook for the initial launch of Instant Articles. As these publishers see higher engagement due to a superior user experience expect to see competing publishers scrambling to offer their readers the same experience in a mad rush to retain readership. The Guardian is even planning on running ads promoting its paid content within Instant Articles.

At the outset it looks like Facebook has the publisher's best interest at heart, but for how long? Facebook enticed marketers globally to invest a large amount of time and resources in building a community of likes for their Facebook Fan Pages only to strip away the ability for the marketers to deliver organic views of their posts. Marc Cuban brought Facebook's bait and switch to mainstream attention in a 2012 post that is worth revisiting.

If you’re relying on Facebook or Google to bring in all of your new customers, you’re sharecropping. You’re hoping the landlord will continue to like you and support your business, but the fact is, the landlord has no idea who you are and doesn’t actually care.

[Sonia Simone, Copyblogger][sharecroping]

Online video

Facebook v online video revenue

There's a reason TV ads have dominated the marketer's budget for the better part of the last century. A TV ad enables marketers to tell an engaging brand story whilst reaching a mass audience. Yet TV advertising effectiveness has inherently been hard to measure and targeting only happens by alining with specific content or time frame.

Facebook's certainly got skin in the online video game. Their year-old native video platform was serving four billion views a day as of April 2015. That's 35 times more views than the 2015 Super Bowl, the largest recorded TV audience to date. Now, the Super Bowl captivates audiences for over three hours, while Facebook counts a view after an autoplayed video goes for over three seconds. Even so, there's no denying that Facebook's reach and ability to target gives marketers a powerful new medium to rival TV.

Socialbakers researched over 180,000 Facebook video posts across 20,000 Facebook pages owned by brands, media companies, celebrities, and entertainment companies, and found that Facebook video had overtaken YouTube within this Facebook's environment. Not a big surprise, but this happened within the first year of Facebook video launch. Although Facebook isn't a real YouTube threat yet there's a good chance that Facebook's video platform will have a part in shaping online video consumption over the next few years.

Given Facebook's videos autoplay and are silent by default, Facebook is now impacting the way ad agencies produce their ads by optimising and having fun with the fact the ad is autoplayed and silent.

Charlie Chaplin may be the future of advertising.


Quote reference.

The quote above was given by the ad industry's biggest publisher, AdAge. And the article was speaking to the wider marketing audience. When stacking up Facebook's position within the media industry we see that it might need to widen its total addressable market beyond advertising sooner than we might initially think.


Notes on the graph comparing social networks:

  • You can access the dataset used here

  • To compare like-to-like unique monthly visitors were taken from a source that consolidates visitor data across sites

  • It's the best apples-to-apples comparison I could find, please get in touch if you have a better openly available source

  • For example, Facebook reported 1.39 billion monthly active users in Q1 2015, the data given reports 900 million unique monthly visitors

  • Google Plus+ is impossible to value so I used median market value per user - $39

  • Tumblr's value calculation came from their 2013 buyout at $1.1 billion when they had 300 million users

  • Instagrams's value calculation came from their 2012 buyout at $1 billion when they had 30 million users

  • VK's value calculation came from Mail.ru's 48% purchase at $1.47 billion when they had 92 million monthly active users.