Is Facebook both platform provider and platform sponsor?


Yesterday’s guest lecture by Professor Marshall van Alstyne was all about platforms and different models to make business with them, by having control over some crucial part of the platform. As Prof. van Alstyne discussed, in order for someone to make money, either the side of platform providers (in control of the hardware and operating system bundle that consist the platform) or platform sponsors (designers of application and owners of IP rights), should be owned by one entity.

One of the biggest out there is Facebook, offering advertisers a marketing platform that has well over 1 billion users on it. It also offers developers the possibility to connect applications to it, giving them access to a huge user base. Facebook then benefits from the added content that comes with these applications. When it comes to the question of platform providers and platform sponsors in this case, I believe Facebook is both.

Facebook as platform provider:

Facebook definitely provides the main platform (excluding applications that users log onto with their Facebook login), and is the main point of contact with the users of the social network, having access to user data and being able to capitalize on that by offering targeted advertising. The power of the company as platform provider keeps growing, as it owns its own data centers and is also starting to threaten traditional hardware suppliers in the process!

In June Facebook opened its latest datacenter in Luleå, Sweden. The company designed the datacenter itself, without traditional hardware suppliers like Dell or HP. Not only that, the new data center is also “the most energy-efficient computing facility ever built”, being nearly three times cleaner than an average data center, taking advantage of the cold Nordic weather. The bad news for hardware providers is not only that they won’t have Facebook as a customer: Facebook also published the hardware blueprints of the data-center, putting a lot of pressure on the hardware suppliers by setting the example of the “data center of tomorrow”. This means companies can copy the design of Facebook’s greener data center and go around traditional companies like HP who build datacenters and rent storage clouds as their business.

Facebook as platform sponsor:

The platform sponsor determines who may participate in the network and design products and services for it. Facebook definitely has the upper hand in contracts with companies like Zynga who create games for the large mass of Facebook users.

It could thus be concluded that Facebook has a very strong position as it controls most aspects of a huge platform: Unless heaps of users start abandoning the social network, it can focus on making the best contracts with good developers. And cash in the growing amounts of ad revenue.

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Eisenmann, T., Parker, G., and Van Alstyne, M.W. 2009. Opening Platforms: How, When and Why? in Platforms, Markets and Innovation, Gawer, A. (ed.), Northampton, MA: Edward Elgar, pp. 131-162.

http://www.tietoviikko.fi/kaikki_uutiset/facebookin+viilea+datakeskus+napapiirilla+kuumottaa+palvelinvalmistajia/

http://www.businessweek.com/articles/2013-10-03/facebooks-new-data-center-in-sweden-puts-the-heat-on-hardware-makers?google_editors_picks=true

One response to “Is Facebook both platform provider and platform sponsor?”

  1. joelflo says :

    I agree with you on this, Facebook certainly gets more power as it takes control over all areas of operation. I guess the question is if there is a risk of over-stretching – if you do too many different things, you might lose sight of your core business.

    Just as Facebook, Google has also set up their own data-centers and server halls. In fact, around the same time as Facebook opened their the data-center in Luleå, Google opened an own facility in Hamina, Finland. Just as in Sweden, this location was chosen because of the cold climate. An extra plus is the large wind turbine farm nearby, providing the data-center with green energy. In the coming months, Google are planning to expand the capacity of the data center even more.

    An interesting detail is that Facebook has been much more keen to promote their new data-center, whereas Google has kept quiet about theirs. Maybe Facebook are plainly better at promoting themselves? I however think that Google has reasons to keep quiet – considering the delicate nature of the data they are dealing with, I believe that they don’t want to attract too much attention to themselves. I’ve seen the security measures around the Google data-center myself, and its very extensive.

    If we want to go into wild speculations, the rumours around town suggest that Google is also using their data-center to help NSA to spy on the Russians (the border is just 40 km away).

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