Facebook was started in 2004 by Mark Zuckerberg and a few fellow students as a platform for Harvard students to connect with each other and share their academic major, hometown, and photos. The site gained fast popularity and realizing its potential, Zuckerberg and Team quickly opened the platform to other local universities, followed by High Schools and International students. By 2006 anyone over the age of 13 with a verifiable email address could join the free social networking tool, which grew the site’s user base exponentially.
Facebook is now the world’s largest (free) social networking site that allows people to connect and share anything from photos to links to personal information to interest groups, with friends and family across the globe. Facebook reportedly connected 1.3 billion monthly active users (MAUs) in 2015, with the goal of connecting everyone in the world. Today the company connects 2 billion MAUs, which is over one-fourth of the world’s population (7.68 billion people), continuously inching towards the ultimate goal.
How it works
Having over a billion people openly share their likes and personal information makes Facebook an ideal platform for companies to place advertisements, which makes it easy to understand why Facebook’s primary revenue resource is third-party advertising services. As of Q4 2014 advertising made up 92% of Facebook’s revenue, with the remaining 8% being a mix of social gaming fees and platform developers. An analysis of Facebook reveals the company has certainly made its place in the social networking space, both financially and in active users.
The challenge for the company will be battling rivals with new apps and networking tools, fighting to protect user’s privacy and security of personal information, and balancing advertisements to be a win/win for the company financially without being a detriment to the user’s experience. Financial Analysis (internal) Facebook’s revenue has continued to climb since its inception but has seen significant increases since the IPO in 2012 and the mobile app launch in 2013. Along with the mobile app launch came online advertising which has been a huge revenue earner for Facebook.
The IPO was a jumping off point for Facebook and despite a rocky start, the price per share has more than quadrupled in value. As users continue to pour onto the social networking site, more advertisers and businesses pay Facebook for space to market their products and services expecting to be viewed by a large number of its almost 2 billion Facebook users. Facebook is positioned well among the social networking and messaging service competition. The company has significantly lower debt through the help of the IPO, and a significantly higher user base due to the ease of use, experience and capabilities the site allows to that of the competition.
There are however large opportunities that Facebook needs to be aware of, such as the sheer size and revenue of one of the larger competitors, Google. Google+ was launched in 2010 and redesigned in 2015, the parent company has significant revenues to put behind building a strong competitor to face off against Facebook. Facebook also needs to stay on top of technology advancements, new applications, and social media trends to continue enticing new users. SWOT Analysis (internal) Facebook has many strengths that support the company’s position in the market among the competition.
Facebook is a name that is known around the globe, with rapidly growing popularity, more and more people are being driven to create accounts on the leading social networking site. The company’s high revenues enable them to make investments and acquisitions that open doors to additional resources further advancing the Facebook platform. Among the company’s weakness is the realization that there is no user verification being done to assure users are over the age requirement and are who they say they are.
While advertising is a primary source of revenue for the company, the flooding of online ads can leave users irritated. Facebook could turn that weakness into an opportunity by offering users a pay option to unsubscribe from online ads, making their experience more pleasant. There are large regions of the world that have few Facebook users, with the right product enhancements or modifications, some or all those markets could be tapped into. Facebook’s largest threats are product imitation and the unpleasantries of the internet.
The threat of imitation is high among Facebook competitors, just as Facebook is competing with Google by creating GraphSearch, Google and others are trying to compete with the social networking aspect of Facebook. Active Facebook user or not, cybercrimes are prevalent in all online aspects, its a threat that Facebook needs to monitor and routinely to ensure the privacy and protection of its users. Porter’s Five Force Analysis (external) Bargaining Power of Suppliers The bargaining power of suppliers is low to moderate for Facebook.
The list of suppliers would include those that develop, support, back-up or house Facebook’s applications, software, networks, etc. (Wills, J. 2016 May). Facebook is large enough to take away some of the bargaining power from supplier, but at the same time those suppliers need to be able to support a platform as large as Facebook, which may take some of the suppliers out of the running, which would end up moving the bargaining power of suppliers needle from low towards moderate.
Bargaining Power of Buyers/Customers Facebook’s customers are the users of the platform and any company that uses the space for advertisements. Since there are other (free) social networking sites available, there is no switching costs making the bargaining power of the user customer base high. The advertising and marketing customer base has significantly lower bargaining power if they want to reach the billion-plus customer base that the Facebook platform offers.
Rivalry Among Existing Competitors Facebook has the largest base of active users among all social networking and messaging platforms, but that doesn’t mean there isn’t serious competition that the company needs to be cognizant of. Users go where they have the best overall experience and with new technology and apps rising to the surface, users have more options than ever. Another consideration is the fact that even though Facebook acquired WhatsApp, it is still a competitor, not in the way of revenue, but in the way of active users that aren’t on Facebook.
Threat of Substitution There are a considerable number of substitutions as indicated in Graph 1, that offer platforms and functionality similar to that of Facebook. Users can opt to use Twitter, LinkedIn, SnapChat, or Pinterest for a similar social aspect, however some of the platforms are geared towards a particular interest as LinkedIn is used more for professional socialization and recruiting, where SnapChat is social nature and similar to texting with better imagery. Users are also able to find any number of applications that could move them away from the Facebook platform to perform functions such as messaging or video conferencing.
Threat of New Entrants The threat of new entrants is moderate. The Facebook platform was initially created by college students, so anyone with an interest in and knowledge of computers could create a social networking platform. The factor that puts the threat slightly above moderate are the barriers that come into play when trying to compete with a company that has seen the quick growth and success that Facebook has, it’s difficulty to be considered a threat early on.
Another factor would be the creation of a new and innovative social networking site that pulls users away from Facebook, such as SnapChat, which is gaining popularity with 158 million daily users (Carson, B. 2017 February). This analysis reveals a heavy emphasis on the threat of substitutions and competition. Facebook has experienced rapid growth since inception in 2004, but that’s not to say another hot app or new technology wave won’t come along and entice users away from Facebook. The company needs to look at what its competition is doing and consider new platforms, branching out, and making new acquisitions in order to retain their competitive advantage and grow its user base.
Overall Analysis The analysis reveals that Facebook is leading the charge in the social networking space but is not without competition hot on its heels. The company has had to make several strategic moves to stay ahead of the competition and better align itself for sustainability and continued growth as well as continued success. The company is positioned well financially having a low debt balance and continued year over year revenue growth, 2017 saw a 32% growth in revenue over the prior year due primarily attributed to user growth and increased online advertisements.
With 2 billion active users, the company’s growth may plateau at some point in the near future with or without continued feature enhancements and continued innovation. The company will need to continue to grow revenue to tackle the threat of new entrants into the market as well as build a cyber fortress to protect users from cyber threats. The recent admission of Facebook’s cyber breach was likely what caused the share price to drop, this may also scare users into opting off the platform if they don’t feel their information is secure to the extend the company has promised.
Key Strategic Issues The key strategic issues that Facebook is facing are competition, advertising, and cyber security. Facebook is facing off against multiple strong competitors in the social networking space and they need to be aware of how those platforms are drawing customers into their space and away from Facebook. Advertising is Facebook’s largest revenue generator, but can the company continue to sustain its ad and revenue growth without affecting customer satisfaction and experience. And lastly, the ever-growing world of cyber hacking is a serious threat.
Recently it was made public that Facebook was breached during the presidential election and user’s personal data was accessed (Hayes, D. 2018 April). Facebook needs to have eyes and ears on the ground to leverage internal strengths and mitigate external threats. Recommendations Facebook has a strong presence in the social media platform, leading the market with the highest number of users, but can that be sustained when the competition is launching new and redesigned apps and social networking sites that pull people away from Facebook.
Facebook should tap into its audience and get real-time feedback on likes and dislikes to ensure current users remain users and tell others to use Facebook’s platform rather than another. The company could also try creating branches under the Facebook umbrella. Create different silos within the company platform that would users with a single login to select their preferred platform, whether that’s specialized socialization like cooking or travel or recruitment, or short message chats with friends and family. Users stay with Facebook but get the experience that best suits them.
It’s not hard to calculate the amount of advertising that is taking place on Facebook as it makes up 92% of the company’s revenue. What is hard to calculate is how that number can be sustained without disrupting the user’s satisfaction levels. Facebook might consider offering a minimal fee to users ($1/month) to opt out of all advertisements, with 2 billion monthly active users, that could generate significant revenue.
Another consideration is to limit advertisements to the user’s preferences, either by way of information provided in the profile, by way of an online survey about what the user would like to see ads regarding. Clicking the like button doesn’t mean the user wants to be bombarded with advertisements about that and other such things. Facebook needs to take a stand to protect its user’s privacy and personal information from cyber hackers and threats. Zuckerberg has been quoted as admittedly knowing that most of its Facebook user’s info has been accessed without the user’s authorization (Hayes, D. 2018 April).
The company needs to employee security specialist who will uphold the moral and ethical responsibility of ensuring that users are protected from both internal security threats as well as external cyber hacks. While company’s may be paying for access to users information, Facebook needs to either honor their privacy commitment to users or send a new agreement stating they are and will sell any information that users post on the social media platform.
It’s not unexpected, but it might allow users to limit what information they choose to share, knowing the data will get sold. Conclusion In conclusion, Facebook is a leader among social networking and messaging service platforms. The name and blue and white logo are recognized globally, regardless of user status, as a place to share pictures, videos, follow groups, stay current with the news, as well as staying connect with family and friends. The analysis looked at internal and external factors that impact the company’s performance and brought to light three key strategic issues for Facebook to focus on.
Recommendations have been made to help the company address these strategic issues to ensure it is well positioned to tackle competition in the market, balancing advertising to be a win for the company without hindering user experience, and protecting users from internal and external security threats and cyber breaches. Paying close attention to these areas will help ensure Facebook remains the number one provider for social networking platforms and continues to thrive in the technology industry.