Jan 21, 2019 in Analysis

Introduction

Facebook, Inc. is the global foremost social networking company. It became recognized as the public traded company in May, 2012, recording an initial public offering of $5 billion, making it the largest in technology and in the history of the internet (Tangel & Hamilton, 2012). It is a social service meant for networking that was established in 2004. Its headquarters is in Menlo Park, CA. It constructs products to generate utility for advertisers, users, including developers. Users are the people who use Facebook to share and to stay connected, and at the same time, put across what is crucial to them with their families, friends, and the entire community via their user profiles. Developers utilize the platform to generate websites and applications that incorporate with Facebook to arrive at its worldwide network of users and to establish custom-made social products. On the other hand, advertisers’ usefulness originates from engaging with more than 900 million active users on Facebook every month.

Porter’s Five Forces

Bargaining Power of Customers: Facebook customers are the advertisers who pay Facebook to utilize the advertising platform. The company indicates that the previous year, out of their total income of $1.085 billion, 83% about $.901 billion was created from advertising. This becomes an advantage for the company since the customers are obliged to compensate what they ask for, as its advertising platform has been the most important ways presently to get in touch with the customers. In this case, therefore, the bargaining power is low.

Bargaining Power of Suppliers: With a recorded base of over 1 billion people globally and with a clear-cut information concerning their likes, dislikes, favorites and significances Facebook has a lead over other suppliers (Espinosa 2012). This data is secretly utilised for the exclusively targeted ads. Therefore, the company has a periphery over its customers and can raise its prices anytime as needed. Other suppliers like Friendster and Google+, are providing the same, however, they offer at a fairly smaller scale. Hence, the bargaining power of suppliers is fair.

Threat of New Entrants: the greatest threat for Facebook is from Google+. This is because, ever since its establishment, the website is composed of over 700 million users. Google is at the second position after Facebook, followed by You tube. Facebook is said to undergo numerous issues come the near future (Gordon 2012). Path is a new social networking site that is posing a threat to the company. In this case, Path has achieved recognition in a short period of time. Therefore, the risk of new entrants is on average to high.

Threat of Substitute Products: Facebook, being a social networking platform that enables users to connect with friends, other services like messenger, Skype and Whatsapp can be a danger. As an advertising site, alternatives can be radio, print media and television, however, the changing styles are more connected to Facebook than the sources.  BBM, Whatsapp and imessage services are mobile based SMS service that is joined to a particular operating system and Skype, on the other hand, is a video calling application. To safeguard itself from the risks, Facebook has established its own video calling and messaging services. This move has decreased the threat substitutes (Albanesius 2012).

Competitive Rivalry with Industry: the greatest competition is from Google, both as an advertising site and in social networking platform. Statistics indicate that the revenues from Google comprises of 96% from advertising platform becoming a great threat or danger for Facebook (First Research n.d). Google+ as a networking platform, has a benefit from the users of Google that includes the one who uses Android, Gmail and Google itself, which is a bigger user base. Other competitors for example Twitter and Path are companies that have posed a great competition to Facebook. Therefore the threat of industry competition is high.

Environmental Analysis

Demographic trends: Facebook being a free social networking platform, enables users from 13 years old and above to use it.

Socio - cultural influences: Facebook enables its users to always stay connected with families, friends and the community at large wherever they are globally, provided there is ability to obtain internet. The service has also been identified to join up lost friends and family members due to its broad coverage of network. An example of this was between Watson and his daughter, who he had been searching for about 20 years. They reunited after Watson established her Facebook profile. Tony and Frances, was another father-daughter meeting. The two had not seen each other for almost 48 years (Summer 2013).

SWOT Analysis

Strengths 

Incorporation with websites and applications: To enhance user experience and employ more users to utilise Facebook, the social networking site has established several aspects that would enable a closer incorporation with other producers and websites of application that run through Facebook. A simple incorporation and utilization of application leads to a competitive advantage over other social networking platforms that fight to offer an equal level of service.

Over a billion active monthly users: For a social network site to develop, it should have users. The extra users the Facebook has, the extra socially linking it is. With more than a billion lively users, Facebook has the capability to link up individuals both locally and globally.

Outstanding user experience: The company comprises of a trouble free user interface that is incorporated with many websites and can link up people via mobile phones or PC devices. It is also interpreted into over 70 languages and comprises of several other features that other social networking sites lack.

Understanding of needs and behavior: No other business apart from Google has numerous data collected on what users like, dislike, requirements and the way in which the users present themselves online. Despite too much data, Facebook is aware on what precisely to provide to its users and how to improve more on their experiences.

Weaknesses

Weak CTR of advertisements: The company has a lesser click-through-rate than a typical website that is only 0.05% and almost 4% correspondingly. In a bid to make more money from the advertisements, Facebook has to alter the manner in which it exhibits the ads, however, devoid of interfering the experience of its users. 

Social network lacks of some features: Despite the fact that Facebook has a broad range of aspects that other social network sites do not have, the site still, does not have dislike buttons, group chats, video chats, including the capacity to turn off from alerts.

One source of revenues – advertisements on Facebook: Over 80% of the company’s revenues originate from advertising platform on its site. The growth of revenues openly relies on the growth of its users. The company is therefore, left very susceptible and reliant on constant growth of users, which will ultimately be only insignificant as the company has by now attracted several users.

Attitude towards users’ privacy: The Company gathers the information from private users and stores it. This information is utilized for the purpose of the company, hence, such treatment of the private information from users illustrates unconstructive thought that reduces its popularity.

Lack of website customization: Several users of the company use quite much time on the website to reveal their characters, but are not in a position to modify the website to suit their requirement, and are then obliged to utilize uniform outline for all users. As compared to Facebook, Google+ enables for much individualisation of the social account. 

Weak protection of users’ information: The Company, having several users that upload their personal information to the social network, is an objective for attacks that steal personal information, including passwords from the users. Such attacks take place daily and several passwords stolen. In this case, the company is doing nothing to ensure protection of its users from personality attacks.

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Opportunities

Escalating number of people using Facebook through mobile devices: Presently, the company consists of over 600 million users who utilize Facebook through mobile devices. Regardless of that, this group is composed of 60% of all the users, the mobile advertising platform only accounts for only 14% income for the company. The company has a prospect to generate a podium that could be utilized to present ads for mobile users hence, increasing the income for the firm.

Diversify sources of revenue: The company greatly depends on advertising platform as an income source, however, being the second website globally and with over 1 billion active users in a month, it could utilize other opportunities draw the money.

Open Facebook marketplace: With several users and a far-reaching coverage of the world, the company is well-placed to unlock its marketplace. If victorious, it would fetch more revenues than the advertising platform, therefore, enhancing the growth and future projection.

Threats

Increasing number of mobile internet users: At present, Facebook consists of over 600 million users through mobile phones. Despite the fact that this constitutes 60% of user, the mobile advertising platform is 14% income only for the firm. If the organization will be defeated to monetize mobile users, it will experience a reduction in advertizing income as several PC users will shift to mobile users (Essers 2013).

Users using ad-block extensions: The learned internet users, in most instances, set up extensions that obstruct advertisements from the websites (Facebook, 2013). The escalating number of such users is posing a threat to the company’s model as they cannot see advertisements and click on them.

Slow growth rate of online advertising: Regardless of the online advertising still growing in twofold, that improvement is reducing, therefore, posing danger to the company’s advertising income.

Identity thefts: Until today, identity thefts are frequent on Facebook. The more identities are tolen, the increased condemnation the company will get robustly destroying its brand for incapacity to safeguard the private information of its users (Hull, Lipford & Latulipe 2011, pp. 289-302).

BCG Growth Share Matrix

It is trouble-free to see that in the very small niche market of social networking platforms that Facebook is the market leader. However, it is complicated to relate the BCG Growth Share Matrix to Facebook for a number of reasons. First, it would be disputed that the company has very little low-growth products so the representation does not apply, however, for various reasons a BCG Growth Share analysis might not be the crucial technique to employ. First, due to its latest IPO, chronological data is tricky or apply or is not in essence, precise more so when evaluating the market share. Secondly, Niche businesses, in most instances, consist of dogs, but in this case, Facebook’s dogs can be benefiting (Gajic & Budinski-Petkovic 2012, pp. 208-214). On the other hand, as the company adopts new technology start-ups, the BCG technique do not take into account the value of synergy that exists between the new units. Finally, the industry is infantile to the extent that its life-cycle does not adequately fit into the customary technique well as it might be difficult to mention if some of the start-ups that barely established, but made income a great deal ever went through a customary turn down cycle. 

Now and the Future for Facebook

The company acknowledges its present market leader position very well, but also recognizes that their inconsistent IPO and delay in the mobile industry has placed them in a susceptible position in a few months ago. As the mobile industry develops, daily that the company is not actually in the game they lose possible revenues but may also become more sellable to the future. With Facebook strategies and challenges to come by, they are still placed in a pleasant position, and if it will keep on growing at the same speed and actually be able to get well from the IPO, then they are projected to beat Google 7 times by 2016 (Cusumano 2012, pp. 20-23).

The question is whether they will be able to address all of those if's and stay focused on their goals of mobile, and ads. Virtual currency or digital currency combined with mobile is the future for Facebook with the potential to create juicy revenues especially if they create strategic alliances with companies that will accept their virtual currency as cash (Edwards 2012). As the technology, and in particular the social networking site industry heads into maturity Facebook will need to stay the course and continue their market share focus. 

Recommendations

Long-run adjustments as described by McConnell, Brue, Flynn, are when firms, already in an industry, have sufficient time to either expand or contract their capacities (2012). Since the main commodity (along with capital) are users/consumers in the social networking industry, in order to main relevant Facebook needs to devote most of its energy on maintaining its user base. Some of Facebook’s long-run adjustments pertain to expanding their capacities regarding this user base, specifically increasing the number of people using Facebook in relatively less-penetrated, large markets such as Brazil, India, Mexico and Japan. They also intend to increase the size of their network by continuing to market and enhance their mobile applications, in order to make Facebook more accessible, useful and engaging, for instance, the possession of the mobile-based and photo sharing service. 

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