Last week, Facebook reported first quarter revenue of $3.54 billion, which represented a 42% increase over $2.5 billion from the year-ago period. While some in the press focused on the fact that revenue came in lower than analyst expectations ($3.56 billion in revenue was the consensus estimate from Thomson Reuters), a very important detail was overlooked.
Facebook missed on purpose.
Now, I don’t mean to imply that the company made a conscious and calculated decision to miss the consensus number. But Facebook could have easily increased revenue enough to meet the demands of Wall Street. However, to a (still) fast growing company like Facebook, there is another metric that is so important, it takes priority over everything else, including revenue or profit.
Optimizing the user experience.
Facebook makes virtually all its money from advertising. And yet, absolutely no ads are shown on Facebook Messenger (600 million users), or the white hot WhatsApp (800 million users). Even within the Facebook platform, the company severely limits the number of ads seen by its users. As quoted in the New York Times, Ben Schachter, an analyst with Macquarie Securities, noted that “they have advertisers pounding at the doors to get to their customers.”
But Facebook is not interested in showing you more ads. Instead they are focused on showing you better ads. And it is working. While Google’s cost per click declines (the shift to mobile lowers Google’s overall cost per click, since mobile ads bring in less money than PC ads), Facebook’s price per ad rose an astonishing 285%, even while the number of ad views declined 62%.
Clearly, Facebook has internalized the lesson that many pay lip service to, but few actually execute against. Namely, a positive customer experience should be a relentless focus, because if done well, it will lead to a host of positive outcomes. In fact, a recent study demonstrated that customer experience leaders outperformed the S&P 500 by 26 points over a seven year timeframe. Even more striking, those defined as customer experience laggards actually posted a negative return – despite the S&P 500 returning over 50% during the same timeframe.