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Facebook’s 3-Step Monetization Process

In this clip from the Industry Focus: Tech podcast, Motley Fool analysts Dylan Lewis and Daniel Sparks talk about Facebook's (NASDAQ: FB) tried-and-true three-step process for monetizing platforms. Listen in to find out what exactly the process is, how well it's worked in the past, and why investors shouldn't be too concerned about the company's ability to pull it off again with newer platforms.

A full transcript follows the video.

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This podcast was recorded on July 29, 2016.

Dylan Lewis: One of the things that I love hearing updates on for what's going on in their pipeline is, management has a very clear process as to how they're going to monetize these platforms. They've talked about it in the past with Instagram, and it came up again when someone was asking about what's going on with Messenger. I think it's worth highlighting here. They focus on this three-phase approach. One is grow the user base and engagement. Two is build organic interactions between businesses and consumers. Three is build commercial opportunities. Analysts asked, "Where are we seeing Messenger right now, and where does it fall on that spectrum?" And they said Messenger is clearly in phase two. They're looking for businesses to start reaching out to consumers in a very organic way, and make it comfortable for users to have those interactions. They'll worry about building the commercial opportunities and really monetizing it down the road.

When you hear that deliberateness, and you see the track record of them monetizing Facebook incredibly well, them starting to monetize Instagram pretty well, and now them taking the same approach to Messenger ... I know the application of the service is a little different, but the approach is so thorough and thought-out, I love it. If you're an investor -- I am not -- you have to really appreciate the fact that there has to be pretty big growth runways available on these other platforms for them. Right now, when you're seeing these revenue and earnings numbers, you have to realize, Facebook's main platform is bringing in the lion's share of those. I think you have a lot of reasons to be bullish about the company's ability to meaningfully grow their advertising business on these other platforms, particularly as they refine and iterate on this. Definitely something to be happy about.

Daniel, do you have anything to add?

Daniel Sparks: One thing on that. I do think it's really interesting, the phase one, two, and three. You mentioned, historically, investors can see how that played out for Facebook. We can relate that a little bit to Messenger, where they're in phase two. For some more context on that, when we look back to Facebook, we remember that the way they went through phase two was by giving businesses in general tools on the Facebook platform to work with and begin interacting with people. We're seeing exactly that on Messenger. We're seeing businesses get new tools and ways to interact organically with users. As Facebook users, you can log in and see that play out by watching them roll out these tools that users can use to interact with businesses.

Daniel Sparks has no position in any stocks mentioned. Dylan Lewis has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.