How did Facebook become worth so much money that it could file for the biggest IPO in tech history? By building a highly defensible product, platform, and advertising business on top of brilliant talent and valuable data. It now has several competitive advantages that protect it from disruption and could give it a long life as the primary online identity provider. Here are the 5 components that make Facebook a smart long-term bet for investors, regardless of its exact IPO pricing.
Displacing Facebook as the mainstream online social network would be next to impossible. It brought authenticated identity to the internet –a crucial utility that compelled users to join. No other service may be able to add on top of Facebook something as valuable as what Facebook added to Myspace, friendster, and other services where you didn’t have to be yourself.
Facebook’s ingenius distribution strategy, detailed in The Facebook Effect by David Kirkpatrick, allowed the service to capitalize on this value-add and spread to the farthest reaches of the globe. Eventually the network effect took hold, with Facebook’s ever-growing user base making it ever-more valuable and attractive to new users.