How Facebook Fuels Rise of the Super Start-ups

Published: 11th August 2015 09:09 AM  |   Last Updated: 11th August 2015 09:10 AM   |  A+A-

Countless column inches have been dedicated to the meteoric rise of technology services such as Uber, Spotify, Netflix and Airbnb that are springing up, seemingly out of nowhere, and making life difficult for the established titans of their respective industries.

But there's one superpower lurking behind all these startups, fuelling the astronomical growth of the app economy: Facebook.

Through the Facebook Platform, which provides developers with the creative and analytic tools to build, grow and monetise their companies, the social network claims to be one of the major forces shaking up classic business models.

And at its epicentre is Julien Codorniou, a soft-spoken, floppy-haired optimist who hails from Gruissan, a fishing village on the south coast of France. Codorniou is Facebook's director of global platform partnerships, managing relationships with countless companies using Facebook's platform to reach its almost 1.5bn users.

Facebook Platform launched in 2007 with the purpose of allowing developers to create external content such as games and news to be played and consumed on Facebook.com. Within a year, around 30,000 apps existed on Facebook, and later the Menlo Park-based company unlocked the platform so that anyone could build an app designed to exist outside of the website.

Today, any app that connects with Facebook's 1.49bn monthly active users - around a fifth of the global population - is considered to be part of the Facebook Platform, and a tool as simple and powerful as "Login with Facebook" has allowed millions of apps to piggyback on the social network's audience of half the world's internet users.

The social network, which just reached $4bn in quarterly revenues for the first time, has grown its monthly users by 13pc over the last year and its daily users by 17pc. One out of every five minutes spent on a smartphone in the US is spent on a Facebook app.

"When people think of the Facebook platform they think of a gaming platform on the web, such as Farmville or Candy Crush", Codorniou told The Daily Telegraph. "Nobody connects the dots with Airbnb, Uber and Spotify that Facebook is behind each of these companies. We want to fuel their growth, even if it is invisible to the user."

Tools such as ones that allow users to login with their Facebook details, share content such as a news story or a quiz result on their Facebook timeline and invite their friends to use an app in return for perks are free to use.

Facebook Platform sells ads to developers who wish to target their apps. Facebook also charges a 30pc commission for in-app purchases made through its payments system. These apps also exist on Apple's iOS and Google's Android, but Codorniou believes they are very different to Facebook's platform.

"The unique asset we have is distribution - we provide the opportunity to reach more than a billion users on any device, and nobody could say that before us," he said. "And we are definitely the only platform company in the world that has a vested interest in making its ecosystem cross-platform."

Facebook claims direct responsibility for 3.5bn app installs across desktop and mobile devices in 2014 and says that more than 5bn pieces of content from third-party apps were shared across the Facebook platform last year.

A recent Deloitte report, commissioned by Facebook, found its platform contributed $29bn to the global economy and supported 660,000 jobs in 2014, most generated by third-party apps that exist outside of Facebook.

More than a third of that financial impact was felt in EU countries, making Europe the largest beneficiary of the platform's economic effects, boosting the bloc's economy to the tune of $10.5bn and supporting 198,000 jobs.

If you're a fledgling startup looking to grow a unicorn horn, you need to get your company in front of Codorniou. Some of Europe's most successful startups that have benefited from the platform include King, the maker of Candy Crush Saga, which has a $4.9bn market cap after its London flotation last year; Spotify, which with an $8.5bn valuation is the most expensive venture capital-backed startup in Europe; and Supercell, the Finnish studio behind the world's highest-grossing mobile game, Clash of Clans, that some analysts have valued at $11bn.

"I call that the rise of the European super-startup," said Codorniou, who lives and works in London. "Our mission is to identify and engage with these companies early. Who's going to be the King.com of e-commerce in China, or of dating in Sweden?"

Codorniou pins the success of companies such as King, "the most famous example" of Facebook's platform at work, on the social network's reach. "If you look at all the companies raising money, going public, being acquired - they are all using the Facebook platform to build or to grow or to monetise their applications," he said. King's founder and chief creative officer, Sebastian Knutsson, has said joining Facebook was "a big pivot" for its fortunes, along with the "big lift" from expanding to mobile in 2011.

Sceptics question the sky-high valuations reached by these companies in their infancy and ask how businesses such as Uber, a purportedly loss-making six-year-old startup, can reach a valuation of $50bn. But Codorniou, who worked in venture capital before becoming director of business development at Microsoft and then moving to Facebook, believes the valuations are well founded because, driven by Facebook, the companies have "crazy reach", quickly attracting millions of users, or "crazy engagement", with people spending a lot of time using their products.

"Supercell is a 150-employee company which has three games, but it made $1.7bn last year. The valuation is justified by its reach, engagement and profits - and that's very new."

A decade ago - when Facebook was still a college website - a startup would have to build its own software, hire a team of people and make distribution deals. Today anyone can create an app at minimal cost, publish it on a platform such as Facebook or iOS or Android and ship it globally in one click.

"It's extremely easy for anyone in the world to build a great app and become potentially a billion-dollar company," Codorniou said.

Flappy Bird, a game created in a few days by a Vietnam-based developer living with his parents, was at one point last year the most downloaded free game in Apple's app store.

"It had 50m users. He was making $50,000 a day," Codorniou said.

Europe, which had suffered from not having the capital, experience or momentum of the US startup scene, has profited well from this democratisation of resources and reach. Between April and June, European venture capital-backed companies raised just over euros 3bn, 12pc more than the first quarter of 2015 and a 31pc increase on the same period last year. "Emerging markets will benefit too. Everywhere you see technical talents, you will see billion-dollar companies," Codorniou said.

Facebook plans to profit as newly disrupted industries follow in the footsteps of gaming companies. "When Facebook Platform launched, we became, by accident, the largest gaming platform in the world - it was not something we expected."

The social network plans to be better prepared for the next stage: first with chat services, with the launch of its Messenger Platform, and then with virtual reality, following its $2bn acquisition of Oculus, which Codorniou feels confident will become not just a platform for gaming but also for education, entertainment, shopping and sports.

"That disruption in gaming is happening in other industries like e-commerce, media, entertainment, travel and dating, and it's just the beginning," Codorniou said. "Every industry has realised the opportunity and the strength of platform - even banks and food-delivery and cleaning services."

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