Meta Messaging and Commerce Strategy

• Recently $FB / $META organized a Conference called Conversations 2022 which show cased their progress and strategy on messaging including Kustomer acquisition. 

  
  

  Seems like most of Fintweet and US investors are oblivious to it. Heres a thread with the highlights 
  

   

• 1/ Zuck : "Businesses want to be where people are. We saw that with Feed, Stories, now Reels and Messaging. Already more than 1Bn users connect with a business account across $META 's messaging services every week. Users use messaging for discovery, checkout, etc"

• 2/ $META launching whatsapp cloud API. Key features - Any business can customize their experience on whatsapp, speed up response times - Customer to biz conversations grew 50% over last year - $META will provide hosting service, network, compute for free - results from partner

• 3/ Customer experience and improving touch points - 1800 numbers are 1960s technology - teenagers dont read email - 1-2 hours wait time connecting on phone - 7/10 people prefer to connect businesses via msg - 65% ppl feel more connected to businesses that respond over messaging

• 4/ Momentum behind this trend of customer business messaging - By 2025, 80% of customer service orgs will abandon native mobile apps in favor of 3rd party msging platforms - Gartner - 50% of US online adults use chat for commerce - Forrester

• 5/ Takeaway for brands : Brands that have made the switch by embracing messaging as a customer service strategy and are meeting where the customers are have experienced more agent efficiency, customer satisfaction and improvement in marketing and sales.

• 6/ Example 1 : KLM Royal Dutch airlines : call volumes increased by 500% during COVID-19 peak. KLM reduced wait times for most urgent calls to almost 0 by introducing Messaging based automated responses to simpler queries.

• 7/ Example 2 : C&A global fashion brand invested in whatsapp integration in brazil : 50% of their digital revenue in Brazil, which last year was 900M Reals came through Whatsapp

• 8/ Example 3 : Aldi reduced response times for what items are in stock from 3 mins to 3 secs by deploying an AI backed assistant on messenger

• 
  9/ Example 5 : Indosat inspired by customer service on whatsapp, introduced prepaid services, refills growing revenue 5x

• 10/ The sooner you are able to turn down your call centres (cost centres) to profit centres through messaging by enabling you to upsell and cross sell. Messaging is the best way to generate and qualify leads.

• 11a/ $META portfolio of products to help businesses - WA business app - small business and entrepreneurs. Lightweight business inboxes in messenger / insta - Meta business suite - for larger businesses - omnichannel capabilities to interact cross app wa/msngr/insta

• 11b/ $META portfolio of products to help businesses - Kustomer - omnichannel - messaging first CRM platform comes with many enterprise integrations. - META is working with 100+ partners that help build customizations on top of the APIs META recently closed this acquisition.

• 12/ $META launching a startup accelerator with PlugnPlay - a VC firm

• 13/ "For many businesses whatsapp is their business, its their website, store counter, their livelihood" - Ami Vora, WA VP. Example 6: of an ad on facebook that clicks over to a whatsapp chat. These first party conversions will also be ATT resilient and be first party data

  
  

• 14/ Example 7 : Test feature on whatsapp in Sao Paolo : Businesses can get listed in a directory, right inside whatsapp

• 15/ Example 8 : catalog feature enabling checkout on whatsapp in India. This is how mom and pop retailers are selling in India now, something which US investors have no idea about. "For many people WA is their first e-commerce experience, it is making commerce more accessible"

  
  

• 16/ Example 9 : $GM found a new way to sell cars through whatsapp when COVID-19 forced them to close stores and sales went from 15k to almost 0 across the country. If $GM closes Whatsapp today, they have to open 25 stores to mitigate the volume. The entire CAC can move to WA.

• 17/ $META launching Recurring Messenger Notifications to re-engage customers on Messenger. Throughout testing Recurring Notifications vastly outperformed other channels like email and sms driving sales. Most examples from emerging and developing markets.

• 18/ $META also batted for SMBs : 90% of all businesses and 50% of employment.

• 19/ $UBER CEO Dara also showed up in the conf. $UBER is now thinking as a messaging first company because the real world is messy, there are lot of stakehodlers : eater, courierer, restaurant, rider, driver and messaging works better fundamentally to give a delightful experience

  

• 20/ In India you can call $UBER on WA, its a product WA to Ride. 33% of the riders coming on WA are new riders (for such a well known app like Uber). Huge incrementality working with Whatsapp. Significant younger customer base. Expansion coming to delhi and brazil.

• Thank you for reading, here is the tweet thread
  

Meta Valuation Analysis

The market has not been kind to Meta investors in the last 2 weeks. The stock is down ~35% and is trading around $220 at 600B market cap and PE of ~16. The goal of this article is to point why the market is wrong in understanding Meta and evaluating its future prospects. 

Main reasons for the selloff

• Drop in FB DAU for the first time
• 10B loss from IDFA - Apple's privacy change
• Tiktok's competition

There are two parts to the analysis 

• SOTP valuation
• Facebook app's existential crisis (Tiktok, Apple and DAU drop)

Meta SOTP 

• Current Valuation - $600B
• Cash and Equivalents - $48B
• Equity investments - $6.7B (Reliance Jio, Meesho, etc)
• Whatsapp
• Whatsapp is the world's largest global messaging app with over 2B users pre-pandemic
• Whatsapp business was one of the top 20 downloaded business apps for 2021
• Whatsapp launched payments in India and Brazil
• Whatsapp has started shops/catalog integrations which is used by SMBs in India
• Using $50 per user, we get a 100B valuation (Facebook paid around 35$ per user at the time of acquisition)
• This is discounting any pandemic growth

• Instagram
• Instagram passed 2B users in Dec 2021
• According to e-Marketer, Instagram has 50% revenue share. Statista has a 40% number. Let us use a discounted 35% number. This is the fast growing part of the business.
• Total revenue for 2021 was 117B and lets assume Instagram share was 40B (~35%)
• Using PE of 25 and 40% profits(16B), we get an Instagram multiple of 400B
• At this point, using cash + instagram + whatsapp we are already at ~555B
• Facebook + Messenger + Occulus is trading at a total of 50B which means market has effectively killed and burried the Facebook app. Market is considering Facebook the next orkut 
• If Meta were to break the company tomorrow into 4 divisions : Facebook, Whatsapp, Instagram, Oculus and give Whatsapp and Occulus 24B cash each and give 0$ to Facebook and Instagram (just because they are cash machines), Meta stock could easily double tomorrow. 

Valuing Facebook app

• The Facebook app is no longer an app to just find friends. It is like Facebook's Amazon prime subscription - equivalent to Microsoft's distribution. Facebook provides additional categories like marketplace, groups, videos which just makes the value of the Facebook account more and reduces churn and increases retention and engagement
• Facebook blue app now has 1.929B DAU which was down 1M QoQ, MAUs are still up QoQ.
• There can be a variety of reasons - covid reopening play, huge market penetration, saturating developing country growth, etc
• However, Facebook does not need to grow users to keep growing revenue/profits. ARPU can continue to grow as international markets are not as heavily monetized as US markets. 
• Facebook does not have terminal risk. It is a digital utility today. Facebook has surfaces - which are today's utilities. Here are few key initiatives that remove terminal risk 
• Facebook marketplace
• Facebook marketplace is the second largest marketplace in terms of MAUs behind only Amazon
• Facebook expands marketplace to Subsaharan african 37 countries . This also shows how easy it is for facebook to get into new categories. 
• Facebook watch
• As of Sept 2020, more FB Watch has more than 1.25B MAUs
• Facebook is also building Watch as a music destination
• T-series, India's popular music label has 60M+ followers on Facebook
• Facebook Dating
• Facebook Dating expands to Europe
• Facebook payments
• Besides whatsapp payments, Facebook is also building payment capabilities in messenger
• Facebook unveils split payments in messenger
• Payment capabilities will help users complete transactions in the app on marketplace and shops
• These are just to name a few, then there is Gaming, Groups, Shops
• This will help with 1st party data, mitigate IDFA risk, help grow the moat and remove terminal risk
• All these products within the Facebook app are not just discretionary businesses, they are utility businesses people all over the world use to organize themselves, organize information and buy/sell services/goods. 
• Given a business of this caliber is trading for effectively free along with Instagram and Whatsapp, seems like the screaming BUY. This makes it look like Apple of 2016. 

Oculus Ecosystem Review

 A lot has been said about Mark Zuckerberg's $10B/year investment in Oculus. Currently there is fear in the market's with $FB stock ~35% below peak hovering at $220. The goal of this thread is to review the current state of Oculus : 

Revenue 📈

• More than $1 billion has been spent in the Quest Store since its launch in 2019.
• Total revenue 501M (2019) -> 1.1B (2020) -> 2.2B (2021)
• Revenue doubling every year (2024 approx rev target:10B)

Marketplace Dynamics 

Lets look at the marketplace dynamics of the metaverse and all the parties involved

• Developers :  they bring in content/apps that make the oculus platform engaging and attracts users. 
• Users : more users means more money spent on the platform which helps the developers monetize their apps.
• Flywheel : This further attracts future developers to build more apps/content for the platform. 
• Creators : Businesses and other creators start moving and start selling services on the metaverse which makes it the future towncenter of the internet
• This creates a virtuous cycle of building/spending/consumption on the metaverse

Lets us take a deeper dive into each of these categories to understand where they are currently

Developers

• Beat Saber surpassed $100 million in revenue on Quest alone
• 8 titles have made over $20M in gross revenue
• 14 titles > $10M
• 17 titles > $5M
• More than 120 titles have generated revenue in the millions—that’s 2x more than the figure Oculus shared last year

This clearly shows that the product doesnt have any existential crisis - this is post product market fit with multiple games generating 1 million+ revenue. 

Users

• Estimated number of headsets sold based on Qualcomm data : 10 MN
• ARPU : 100$ in the last 2.5 years since Occulus store launch (given 1B Quest store revenue)
• Occulus was top app in the app store on Dec 25th which means that this was a popular gift during the christmas holidays

Comparison to app store

• When Apple launched its iPhone App Store, it took around 21 months to hit $1B in (estimated) revenue. 
• In this earnings release we learned that Quest has taken 34 months to reach the same $1B revenue milestone.

Business, creator use cases

• Fitness, meditation, travel use cases have product market fit and good content liquidity
• Foo fighter's concert in VR after the super bowl
• Supernatural launches workouts with new guest coach Chesney Mariany
• Mcdonalds files trademarks for virtual restaurants in the metaverse that will sell virtual and real food

All these use cases align with their mission statement

Our mission is to enable people to have meaningful interactions regardless of physical distance.

Their mission statement clearly opens up a lot of new possibilities with the Oculus headset. Here are some possible use cases that can open up in the future

• Educational
• Science demos
• Animal habitats viewing 
• Historical events 
• Training
• Medical surgery training
• Fire Rescue training
• Entertainment
• 3D Movies - most of the content production will move towards 3D
• Travel
• Seol to become the first city to enter the metaverse
• Luxury goods
• Users will be able to create their own worlds in the metaverse

Given the 220$ stock price of Meta, you may be getting a free call option on the next computing platform. More on that later. 

Ellsberg Paradox and Option value of investing

 Ellsberg Paradox 

People prefer to take risks in situations where the odds are known, rather than a scenario where the odds are unknown - even when the latter scenario has the guarantee of a positive outcome (its just that the magnitude of the outcome is unknown). Its often used to evaluate how people have an aversion to ambiguity. 

Where do the traditional financial tools fall short ? 

In traditional investing, the most common financial tool for valuing a company is DCF model (discounted cash flow model). Under this methodology, investors attempt to accurately model out the discrete financial metrics of a company over a finite period of time, and discount the cash flow generated to determine the appropriate valuation for a company.

The issue is though that in real investing, businesses have embedded options which have unknown outcomes everywhere. DCF is terrible at valuing these businesses which have both : 1. uncertain payoff magnitude and 2. uncertain timing as to when it will occur. Examples of such options : 

• Amazon is able to extend its dominance on one ecommerce category(books) to multiple categories
• Amazon is able to extend its dominance in ecommerce to build the largest retail search engine in the world and draw advertising dollars
• Google is able to leverage its technology prowess in building scalable and reliable search infrastructure to build Google Cloud and democratize building distributed systems technology. Same for AWS and Azure
• Apple launching Wearables segment (Watch, airpods, etc) using its expertise in building iphones

For each of these successful options, there are multiple failed investments like Fire Phone, Google's communication apps, etc. However, in net all these embedded options have generated multiples of shareholder value which would not have been able to be correctly valued through DCF. 

This paper articulates this concept in detail : Get real, using real options in security analysis

This diagram illustrates how the valuation breakdown of such companies progresses

Some of the parameters to evaluate such businesses are

Management 

• Superior capital allocation 
• Access to cheap capital from markets or through high profit margin businesses
• Execution track record
• Ability attract top talent in the industry

Business

• Strong moat
• Economies of scale
• Economies of scope

Evolving markets

• New trends of user behavior and patterns
• Uncertainty

No wonder FAANGs check several of the above boxes and continue to generate superior returns for their shareholders. 

References

1. Hayden Capital Quarterly Letter Q3 2020

2. Get real, using real options in security analysis

How Big Tech Makes Money - Q3, 2020

Apple 

• Net sales : 64.7 billion
• Product : 50.1 bn
• iPhone : 26.4 bn (33bn in Q3, 2019)
• Mac : 9 bn (> Q4 2019 revenue 7.56 bn)
• iPad : 6.7 bn (> Q4 2019 revenue 5.9 bn)
• Wearables :7.8 bn
• Services : 14.6 bn (> Q4 2019 revenue 12.6 bn)
• Cost of sale : 40 bn
• Operating expense : 10 bn
• Operating Income : 14.7 bn
• Net Profit : 12.7 bn
• Cash in hand ~50 bn
• Commentary : Overall revenue and profit is constant from 2018 and 2019. However, stock price has gone up as the company has reduced the number of outstanding stocks through buy backs. However, PE has gone up from 12 to 35 and future growth seems to be priced in, until Apple opens up new revenue streams. Apple shared no revenue guidance for Q4

Amazon

• Net sales : 96 bn
• Operating Income : 6.1 bn
• Net income : 6.3 bn
• All the above figures are higher than Q4 2019
• Investing in Amazon provides significant international exposure : NA 62%, International 26% and AWS 12% of net sales. YoY net sales grew by 39%, 37%, 29% across those 3 categories
• Online stores 48 bn, Physical stores (includes whole foods) 3.7 bn, Third party seller services 20 bn, subscription services 6.5 bn, AWS 11.6 bn, Ads 5.3 bn
• Online stores grew at 37%, physical stores at -10%, third party seller services at 53%, subscription services at 32%, AWS at 29% and ads at 49% YoY
• Commentary 
• Physical stores slowdown is expected due to Covid, but all other categories grew faster than AWS. Net sales increased 37% YoY. With Covid-19 expediting Amazonification of the world, this will be an unprecedented holiday season. Amazon expecting 112bn in net sales in Q4. 
• Some of the demand from COVID like grocery, gloves may not recurring next year. But COVID is increasing engagement, retention of the Prime membership program and usage is growing across different categories
• Prime videos is a very good acquisition channel for Prime members - > higher membership renewal rates and higher engagement
• International has been profitable for 2 quarters now

Microsoft

• Revenue 37.2 bn (12% growth)
• Productivity and business processes : 12.3 bn (11% growth)
• Office commercial products revenue growth of 9% (Office 365)
• Office consumer products revenue growth on 13%
• Linkedin 16% up
• Dynamic products up 19%
• Intelligent cloud 12 bn (20% growth)
• Azure up 48%
• Personal Computing 11.8 bn (6% growth)
• Windows OEM down 5%
• Windows commercial products up 13%
• XBox content and services up 30%
• Surface revenue up 37%
• Search advertising down 10%
• Net income : 13.9 bn
• 9.5 bn returned to shareholders, 5.3 bn share repurchases and 4.2 bn dividends

Google

• Revenue - 46 bn (up 14% from Q3 2019)
• Search ads 26.3 bn
• Youtube ads 5 bn
• substantial growth in direct response
• brand advertising (create brand and interest)
• YTs strong watch time growth enables advertisers to reach people who they cant reach on TV
• Google network 5.7 bn
• Cloud 3.4 bn
• Data processing, analytics, AI/ML
• Migration of legacy datacenters to google cloud and cut in IT spending and infrastructure. eg : Nokia migrating 30 data centers to the cloud across 12 countries
• Google meet saw a peak of 7.5 billion daily video call minutes
• Six priority industries : healthcare, retail, media, finance, manufacturing, public sector
• 5 major geographies
• 4 customer segments
• Other revenues (YT subscriptions, Google play) 5.4 bn
• Other bets 178 mn
• TAC : 8.16 bn
• Net income - 11 bn (operating margin 24%)
• Losses on other bets : 1 bn, nicely masks the operating margin from 27% to 24%
• Cash on hand : 133 bn
• International exposure : US 21.4 bn, EMEA 13.6 bn, APAC 8.4 bn, Other americas 2.6 bn
• Google has greater than 50% ex-US revenue exposure
• PE (1.1 tn / 50 bn) ~ 22. Alphabet looks cheap going forward given it is growing revenue at double digits compared to the rest of big tech. 
• Youtube music has 30 mn paying customers and Youtube TV has 3 mn paying customers
• In Q4, 2020 GCP will be its own reporting segment
• Commerce
• Shopping listings available in 48 countries
• Google checkout option opened the platform to paypal and shopify integration
• advertisers in Youtube at the mid-funnel level
• Earnings call transcript

Facebook

• Revenue : 21.4 bn (22% growth)
• Operating income : 8 bn (operating margin 37%)
• Cash on hand : 55 bn
• 200 mn businesses, 10 mn active advertisers, 40 mn people viewing a business catalog every month, more businesses are doing things online due to COVID
• Earnings call transcript

Commentary

• Big Tech companies are generating revenue worldwide. All of them have considerable international revenue exposure. 
• Amazon (37%), Facebook (22%), Google (14%), Apple (~flat) - revenue growth
• Facebook (37%), Google (24%), Microsoft (37%) - operating margin
• 265 bn in revenue, net profit of 52 bn, operating margin of ~20%, market cap ~7.5 tn
• Cloud is an extraordinary secular trend and all cloud players are gaining from IT spending and cost cutting
• Digital advertising continues to be a secular trend - TV dollars, CPG marketing budgets, retail goods moving online all driving this trend, organic small businesses trying to reach customers online

The Firehorse Effect

• In the early 20th century, a horse pulling a wagon would all of a sudden gallop towards a burning building nearby, endangering itself, the driver, & the passengers. What was the reason for this peculiar phenomenon? And why does this matter today?
• Fire has been one of the biggest dangers that humans have faced ever since they started living in structures. In the olden days, firefighting was a community responsibility. When a fire broke out, the people in a town or a village would form a "Bucket Brigade". 
• Visualize a double-line of people passing buckets of water from a nearby water-source to the fire, and sending empty buckets back to be refilled. That’s a Bucket Brigade. Eventually, tanks of water, hand pumps, & hoses became the preferred firefighting equipment. 
• Then came steam pumps, more powerful & efficient. Great, but the equipment got heavy & it became difficult for firefighters to pull it to wherever the fire was. What to do? 
• Enter horses. It wasn’t an easy change. Horses had to be trained to reliably run towards a fire. They also had to be strong. As horses became more commonly used to pull fire engines, places like Detroit even created a Horse College, along with report cards for each horse (!) 
• What happens when one is trained to do a job well, is systematically evaluated, & rewarded or punished based on job performance? One often gets rather good at that job. Same with these firehorses. 
• At some point, a firehorse would be retired from the firefighting job & given the job of pulling wagons on the street. A new job! Things were generally fine in the beginning. 
• But whenever a former firehorse heard a fire alarm or felt the presence of a fire nearby, it instinctively galloped towards the fire: terrorizing its drivers, passengers, & owners. 
• This firehorse did a rather poor job in its new context due to the very behaviors and patterns that were reinforced in its old context. Twitter, this is the Firehorse Effect. 
• The Firehorse Effect is why some accomplished business leaders fail to inspire, create a compelling strategy, eliminate drama, or rebuild the culture when they take on a leadership role in a new organization. The Firehorse Effect is also why a manager with a string of prior successes is just unable to execute at your startup. 
• What can be done about the Firehorse Effect? As with most such things, the solution needs to be grounded in Self-awareness, Organizational-awareness, & Sound Management. Leaders in a new setting should regularly think about the Firehorse Effect. 
• Leaders in a new setting should take the time to observe & learn. Doing is important, but doing without a deep understanding of one’s new role can be frustrating or even fatal. 
• The leader should invite people to challenge them. Ask "X has worked for me in the past, will it work here?" And the leader's managers & mentors need to help accelerate this process by candidly sharing organizational context & feedback during the leader's early days. 

This term is coined by Shreyas Doshi, I heavily recommend reading his writing for organizational and leadership development.  

How to negotiate a FAANG job offer

References

1. https://www.youtube.com/watch?v=pwnWD7uU-Y8&list=PL6eafD4u4Fa5n6lWAlBsKfM7vp-zOmbuY 
2. Salary Negotiation
3. Airbnb Negotiation Part 1 
4. How not to offer your offer negotiation

Conflict Resolution

Management is a lot of conflict resolution. Here is a framework to think about all possible kinds of conflicts that this job might entail

1. Conflict with your manager
2. Conflict with your manager's manager
3. Conflict with your PM
4. Conflict with your collaboration partner/stakeholder
5. Conflict with a peer team's manager
6. Conflict with your Tech Lead
7. Conflict some engineer on your team had with
1. Their Tech Lead
2. Another engineer on the team
3. PM
8. Conflict regarding technical decision

FAANG PM vs Ivy League MBA

Target Audience
If you can get a FAANG PM role prior to an MBA, this post is for you. If you cannot get a FAANG PM role, MBA might be a good platform for you to start with.

FAANG PM

Pros

• Level 3-5 can land somewhere between 300-500k a year. This could lead to half a million to a million dollar payout in a couple of years.
• Lead products with significant revenue/user impact in the FAANGs
• Grow silicon valley network
• Network with the smartest directors/VPs in the valley. Current high ranking FAANG executives are tomorrow's startup founders, thats how the valley ecosystem works. 
• Network with some of the smartest tech talent in the FAANGs who you can hire for your future startup. Access to top talent is crucial for startup success
• Jumpstart your career without spending 2 years in B-school and ending up in debt
• Gain valuable equity through FAANG refreshers

Cons

• VCs networking may still be hard to come by as a FAANG PM

Ivy League MBA

Pros

• Build a more diverse network from all backgrounds and all kinds of industries
• Get more wider set of career options and at least one internship to be experimental without committing

Cons

• Opportunity cost in terms of $$, network, silicon valley life; not worth it if you have FAANG offers
• 200k debt
• MBA job hunting may be hard as batch sizes can be pretty big - 900 at Harvard. If you are already an engineer or PM in a second tier tech company, there may be alternative and cheaper routes to FAANG
• MBAs may be looked down upon in some tech circles. It may be a liability rather than an asset. In some of the older companies it may be the other way round. 

Design interview questions - FAANG

Interview Questions

1. How would you design Instagram
2. How would you design Messenger
3. How would you design a Microsoft Word/Microsoft Excel
4. How would you design Youtube
5. How would you build the backend of Google Search
6. How would you design Uber's Marketplace
7. How would you build a News Feed
8. How would you design and distributed key value store / Cassandra ? 
9. How would you build a load balancer ? 

Reading Material

1. Scalable web architecture and distributed systems
2. Numbers everyone should know
3. HDFS Internals
4. The architecture of open source applications
5. Redis use cases
6. What to chose for your synchronous vs asynchronous communication
7. Nosql patterns
8. Scalable system design patterns
9. Bigtable vs Casandra vs HBase
10. Mesos
1. Application aware scheduling Mesos
2. SMACK stack
3. Docker vs Kubernetes vs Mesos
11. Zookeeper 
1. Explaination video
12. Spark
1. RDD Explanation
13. Hive
1. Schema on read - metastore, HCatalog to export the schema
2. Why HDFS
14. Facebook
1. Scribe
2. Scuba
3. Cassandra
15. sd
16. 
    

Preparation References

1. http://highscalability.com/
2. System Design Primer github link
3. Awesome scalability github link
4. Azure system design patterns
5. System design interview 

How to get into FAANG

Coding Interviews

Two words : Leetcode Hard

System Design Interviews

WIP

Behavioral Interviews

WIP

Referrals

Referrals count at FAANG. Hypothesis is birds of the same feather flock together. Smart people know other smart people. Referrals decrease in value in the following order

1. Your manager at a previous company who now works at FAANG
2. Co-workers who you worked with in past companies who have first have knowledge of your work
3. Co-workers in other teams who have second hand knowledge of your work
4. Friends from grad school
5. Social Contacts

Social contacts referral may not count in signal value added but can certainly help you with getting an interview call.