The Key to Software Innovation

The reason companies should continue experimenting.

“Software is not a destination. The process never ends. We are never going to reach some utopian state where everything is perfectly satisfying.” — Tom Occhino, Ex-Facebook Engineering Director

In the following excerpt from Move Fast: How Facebook Builds Software, coming out July 6, I discuss the reason Facebook started to experiment and continues to do so. Subscribe to this newsletter for daily advance content from the book.

Facebook’s mobile ad business is a cash cow.

Broadly defined, a cash cow is an income stream that generates a large amount of money relative to the funds required to run that line of business. Google’s biggest cash cow is the “AdWords” search ads business. Amazon’s biggest cash cow is Amazon Web Services.

Many companies are built without a large cash cow, and a business does not necessarily need one to gain traction.

When a software company does not have a cash cow, its main priority is to figure out how to develop one. From 2011 to 2012, Facebook was looking for a cash cow business model that would grow with the rise of mobile.

Once the mobile ads business started to work in late 2012, Facebook could safely expect revenues to grow with the expansion of mobile. Such a durable revenue stream put Facebook in a position where its large cash flows could be used to fund experimentation with products such as virtual reality, low-flying Internet drones, and neural interfaces. Even these costly explorations are a rounding error compared to the volume of cash generated from mobile advertising.

But Facebook has been experimenting with new products since the beginning of its existence.  A quick search for “Facebook failed products” reveals products such as 2011’s “Facebook Deals,” which was a Groupon competitor, and “Facebook Gifts,” a service for buying physical gifts for your friends that was cancelled in 2013.

Facebook’s habit of experimentation helped it find a cash cow. Now that the company has one, its culture of exploration ensures that new product ideas continually bubble up from within the company.

While you are waiting for Move Fast: How Facebook Builds Software, learn more about how Jeff Meyerson found his business idea and how you can do the same.