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Teaching An Old Dog New Tricks

|Includes: AAPL, AMZN, Facebook, Inc. (FB), IBM, MSFT

It may seem strange calling Facebook FB an old dog considering that the company is only about 12 years old but it is a compliment to Facebook that in a very short time, they have managed to completely revolutionize the world that for many people, a life without Facebook is unimaginable.

Nevertheless, it is time that we begin to look at Facebook more closely as its meteoric rise has placed it under more scrutiny than many other companies of its age but it is important that we ask the question 'what next for Facebook'.

Facebook has undoubtedly been very successful in connecting people but for a new investor into the company or indeed for current investors, everyone is wondering where will future growth come from or maybe it is time to start to exit Facebook as it has reached its peak.

Furthermore, it is very unusual for a young company to be so acquisitive, since 2007, it has acquired more than 50 companies and the strategy for these acquisition seems to be a mixture of acquiring the talent and neutralizing the competition.

Facebook's main income to date has been from advertising, while I admit that their earnings have been impressive, I am always sceptical of the long term strategy of a company whose main income is from advertising.

I believe advertising fads change so quickly and everyone knows that the advertising business is very susceptible to slowdowns in the economy as short sighted business owners always cut the advertising budget first in order to save cash.

So in order to answer the question about Facebook's strategy going forward, I want to first introduce my history of the internet model which will place Facebook's past, present and future within the historical context of the internet.

The evolution of what we today know about the internet has gone through a number of stages and is still expanding as it is a very malleable instrument that can be continually shaped and adapted based on the needs of the users.

The internet originated as a crude networking and communication system, then came the first stage which was growth, in this time, the internet was becoming more widely used around the world as a technological breakthrough particularly for research.

The next stage was education and experimentation whereby we began to experiment on what can be done on the internet, this culminated in the dot com bubble.

After that stage, we went into the information age and we saw significant growth in information companies like Google, Yahoo and others because globally we had a huge explosion of information.

From there, we entered the age of connectivity with Facebook, Twitter, Linkedin, Whatsapp, Instagram and many more but it is only now that we are now beginning to see the internet come of age and mature.

What does a mature internet look like? The best way to explain it is to first say that each new age of the internet was built upon the preceding age so in the age of experimentation, companies like Google and Yahoo were formed and were instrumental in the information age.

Facebook and other social network sites built on that information gathered to build the age of connectivity and this age of connectivity has integrated information around the world.

With regards to Facebook, social networking and advertising has not simply been about connecting people as much as it has been about connecting data points around the world in order to gather a full body of global data so today at the most basic level, we can integrate a person's likes and dislikes on Facebook into a credible market strategy for a global company.

This has enabled what we colloquially call 'big data', it is not simply about having the data but it is the ability of using big data for seeing newer patterns that were not seen or understood before and using them to inform and develop newer capabilities in diverse fields like the stock markets, politics, marketing, healthcare and of course manufacturing.

This is a mature internet age whereby the internet can help to usher us into a unparalleled world of applied technology or what was originally called 'ubiquitous computing' whereby our individual worlds are constantly being modified to match our preferences which have been gained from numerous devices that have gathered data about us.

An example of this is when we wake up, our showers can adjust itself to the temperature we prefer for our bath and our electric stove knows we like our eggs hard boiled and so on in a seamless fashion.

In this article, we can read how Mark Zuckerberg described Facebook's 3, 5 and 10 years strategy, he spoke regularly of connecting people even in relation to its acquisition of Occulus.

Nevertheless, I cannot help but wonder if this is the correct strategy, in this second article; we can see Apple and IBM collaborating to do what I believe Facebook needs to be doing.

Virginia Rometty, the CEO of IBM is correct when she said "the industry is rearraging itself around big data analytics, cloud, engagement, mobility and security", I will also add to that 'robotics'.

This is where I see a company like Facebook really moving into and it is very interesting that recently, it has been acquiring various companies with intelligent systems and robotics like SportStream, ProtoGeoy and most recently Surreal Vision and Pebbles.

A number of the very large companies including , Apple AAPL, Microsoft MSFT and Google GOOG are far advanced in this journey but none of them have the competitive advantage of Facebook which has extremely detailed data on very large number of people to the extent that it can create a very accurate profile of more than 95% of its users including their mood swings, deepest thoughts and much more.

The main reason why Facebook should look in this direction is because there are constantly newer forms of communication and connectivity entering the markets every year.

While it is a good strategy to by Facebook to buy out these companies like Whatsapp, these are not enough anymore and some will argue that we are already overconnected, what we lack now is privacy.

The next shift is how to use these platforms to make better lifestyle decisions, become more productive and more generally to engage better with people and with the objects around us.

This is clearly the trend we are seeing and it is my belief that going forward, the largest companies in this space like Facebook, Google, Apple, IBM, Microsoft, Amazon AMZN, General Electric GE and others will need to come together to create a shared platform that includes both hardware and software on which this 4th industrial revolution will be built

While this shift in strategy for Facebook and the maturation of the internet can bring dangers, it also has the power to transform the world for good.

In emerging markets like Africa more than any other region in the world, this can help them accelerate and leapfrog other regions in terms of manufacturing capabilities because with a levelling of the technological playing field globally, the superior innate qualities of Africa with its young population, greater spending power, highly educated workforce and so on will help to create phenomenal growth in that region of the world.

So in summary, I do not believe we have even begun to witness the transformative power of Facebook and I believe investors should look to a more meaningful move in this area as part of Facebook's overall strategy, in my opinion, this will show that they are investing into relative virgin territory and will assure me of future profitability.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.