The Facebook APP Killer

For the last few months I’ve been working on a social media project for a client. The social media app isn’t intended to be a Facebook killer, but rather a solution for a smaller group of users who want something other than Facebook, or any of the other social media apps out there. However, talking to some colleagues about the app I’ve been developing, the question came up, is it still possible to build a Facebook killer app, in other words, another Facebook-like social media platform that replaces Facebook.

The short answer is no, but with a caveat.

The advantage, which is substantial, that Facebook has is its user base, which is about 1.86 billion monthly active users. That’s a billion with a “b”. It’s core user base provides Facebook with an ecosystem that makes it extremely difficult to compete against. The problem lies in that there have been too many other Facebook-killer apps in recent years that active users have gotten tired of creating accounts only to abandon them soon after. “Not another account” is the complaint I often hear as users are tired of having to create another account to try out the new Facebook killer.

The problem lies in that a user participates on social media for the engagement by other users the user receives for their post. When a user posts something on Facebook, their Facebook friends “like” or comment, or even share the post with other Facebook users. It’s instant gratification for making the post.

In any new social media platform, the user must first encourage others to join him, or her at the new platform to get the gratification they want for their shares. Getting other users to join them in the new platform is time consuming and difficult as most simply reply with, “not another account.” Thus, Facebook remains the go-to social media platform because of its built-in user ecosystem that does not require the creation of new accounts or passwords.

Even when a new social media platform is launched that encourages millions of users to create accounts, Facebook simply buys out the competitor, Instagram, for example. In 2012, Facebook paid $1 billion for Instagram. When a competitor refuses to sell itself to Facebook, Facebook just adds a competing service to its existing platform. Facebook offered to buy Snapchat for $3 billion in 2013. Snapchat refused the offer and Facebook, instead, added a Snapchat-like feature – Stories – into Instagram to take users away from Snapchat.

To compete against Facebook, you need to overcome the resistance to create new accounts on a new platform for as many users as possible in order to build a core userbase to leverage new users to create new accounts. To do that, your platform needs to offer users something Facebook doesn’t give them, something substantial that helps them overcome the resistance to creating a new account. As you do that, you need to be aware that Facebook might make an offer to buy you out, and if you refuse, they will just build a competing add-on to their service.

As you can see, it is difficult to build a Facebook-killer app before even looking at attracting the technical knowhow to do it. This gets us to the caveat.

There are always smaller niches of people who want something unique or just do not want to be on Facebook, or any other established social media platform for whatever reason. Instead of building a Facebook-killer app, you, instead, need to build a social media platform to serve a specific group of people. The size of your target audience defines your possibility of success.

But there is another issue you need to be aware about. Facebook and other social media platforms have created the notion that social media apps are free to use, to make and to run. What many social media users do not understand is that a social media platform, with an active group of users in the thousands, has significant costs associated to it. Most of the costs are in storage fees and bandwidth for delivering content. When looking at cloud services, like Amazon AWS or Google Cloud, the fees seem reasonable at first. They are pennies per GB and cloud servers seem to cost dollars a day.

But as your Facebook-killer app grows, the costs to keep it alive increases exponentially. The more your users upload, the more your costs increase. You need the users, but along with them, your costs increase. This leads to the conundrum of monetizing your user base.

Your users do not pay Facebook to participate in it. So why would they pay you to be on your Facebook-killer app?

Social media platforms make money off their users like television and radio stations make money – by selling you to the advertisers. This year, you are worth about $4.23 to Facebook. That’s how much your participation on Facebook generates for Facebook in advertising dollars.

In the meantime, as you are building up you userbase so that you can monetize your users, you are paying hosting and bandwidth fees. Facebook, Twitter and most of the other social media platforms own and operate their own servers. It is cost prohibited for anyone to build out datacenters as they buildout their Facebook-killer app, so you must rely on cloud services from Amazon, Google and others.

In 2016, Snapchat had about 166 million daily active users. Unlike, Facebook, Snapchat pays Google for hosting its users’ content. Because Snapchat went public recently, we get to look at their financials. Snapchat pays Google about $400 million annually. It has a five-year, $2 billion, contract with Google. According to Snapchat’s regulatory filing, it spent about 61 cents in hosting fees for each of its daily active users in the second quarter of this year. Obviously, economies of scale play a significant part in the calculation, but the costs are important to keep in mind as your Facebook-killer app ramps up to generate enough users to attract advertisers.

Simply put, the more users, the more advertisers are willing to spend marketing dollars, but the more users also translates into higher hosting and bandwidth costs – the classic chicken before the egg conundrum.

I believe that the days of a Facebook-killer app right around the corner are dead. But a social media app delivering a specialized experience to a niche group is very much possible. The question is, will the niche be willing to pay to use the service or will it be significantly large enough to monetize them through the traditional advertising model?

That’s the question that I’m, yet, unable to answer.

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