Why is Architecture important for Strategy and how does it impact how good a technology firm is as an investment?

The title of the post is a mouthful, and so is the connection I am trying to draw in my blog. Its a long shot, by any stretch. Let me start by breaking down the challenge.

The challenge

Understanding technology firms as an investment is tough. Most standard metrics are not easy to explain the valuation of the firm and the risk in the assumptions. Most Technology firms start off as product firms with differentiated offerings, and end up as becoming solution companies for a specific market segment, or monopolies within their markets. The latter is more true for the really successful companies.

Now, let me try and breaking down the hypothesis.

The hypothesis

The hypothesis is, that true indicator of a technology firm's future is the architecture that they adopt. This is because, the architecture determines how well the organization's offerings are aligned with their strategy.

The Evidence

There is quite a lot of evidence on this topic, though mostly anecdotal. This includes insightful blogs from ex-employee, on how Amazon's single minded focus on Services Oriented Architecture (SOA), allowed it to develop a platform for buying and selling goods, and even general computing.

Apart from that we can take apart, the firm's architecture, as well as performance in relation to that architecture.

Hopefully we will learn something along the way.....

Customer Segmentation and Strategy for Facebook

Recently, I posted a valuation for Facebook stock based on what I thought was the most likely outcome. However, these projections are simply projections (and perhaps reasoned speculations) on the kind of growth the firm will get. Let us see if we can decipher Facebook's strategy and its likely impact on the long term prospects of the company.

This is a topic that will require some research. Rather than adding multiple posts on a topic, my approach would be to continuously refine this post, as we go along.

First, Understanding the Customer (Segments)

No company today can have a single strategy that serves all customer segments that it follows. Facebook segments its customers as following (lifted from the 2012 Annual Report):

Users. We enable people who use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

Developers. We enable developers to use the Facebook Platform to build applications (apps) and websites that integrate with Facebook to reach our global network of users and to build products that are more personalized and social.

Marketers. We enable marketers to engage with more than one billion monthly active users (MAUs) on
Facebook or subsets of our users based on information they have chosen to share with us such as their age, location, gender, or interests. We offer marketers a unique combination of reach, relevance, social context, and engagement to enhance the value of their ads.

This is a great initial overview of the segments that Facebook has. Each of these segments can of course be segmented further into further categories.

User centric strategy

As I looked closely at the mission statements for different user segments, I was a little perplexed as I could not relate these to what Facebook does today.

Turns out, these are a very much evolving strategies. Let us look at the first mission statement.

Statement	My Analysis
“We enable people who use Facebook to stay connected with their friends and family ...”	Makes perfect sense. This is exactly what most people understand Facebook's core offering to be.
“.... to discover what is going on in the world around them,....”	Really!!?? how does Facebook do this? Turns out, it does, and you can view a blog post from Facebook on exactly this topic.
“....and to share and express what matters to them to the people they care about.”	Okay, this is still stretching things a bit. Facebook does allow people to share stuff (and so does Instagram”), but other than express an opinion in a FB post, how exactly does it allow people to express themselves? And as far as limiting readership to people the user cares about, that makes sense.

This tells me that Facebook may be starting to offer additional formats that allow people to express themselves more fully.

I will continue in future posts.