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Facebook (in 2013): Will Wall Street Hit the LikeButton Case Solution
The Social Media Industry also known as the Social Networking Market is a rapidly growing area of business globally as it helps marketers in influencing public opinions and decision regarding personalities, products, services, events, etc. Social Networking has always been around since the advent of internet but the industry has had rapid growth since 2007 with the number of users on social networking sites doubling and tripling year after year showing a trend of a high growth market. This is primarily why the industry is so lucrative in the current business arena with new companies being found and lost every single. A major chunk of the industry is held by a few market leaders including Facebook, Twitter, LinkedIn, Microsoft and Google. These sites are usually free for sign up with a friendly, interactive interface aimed at connecting people, gathering the user data and analyze it to predict market trends and customer's opinions about different brands of products and services. For this reason, this data is very valuable to marketers and businesses alike, worldwide, in order to target and reach a large number of audiences through such large social platforms and help the customer form and suggest good opinions about the company's products.
Following questions are answered in this case study solution:
Internal and External Analysis of Facebook
Facebook: Strategies, Location Advantages, Market Selection and Entry
Facebook as an Organization
Conclusion and Recommendations
Facebook in 2013 Will Wall Street Hit the Like Button Case Analysis
Introduction to Facebook
Facebook is a social networking company found in February 2004 by Mark Zuckerberg while he was at Harvard, as an online student directory. It was then further expanded with new features being added, as the original version improved, and access was provided to students in more colleges and schools. By December 2012 Facebook was a fully established company with 1.06 billion monthly active users, those who logged in to Facebook at least once a month, and this was more than a 200% increase (taken from Exhibit 1 of the case) from December of 2011. Also, Facebook had 618 million daily active users, who logged on to Facebook at least once daily, and this was a 30% increase from December 2011 (taken from Exhibit 1 of the case). As of July 24, 2014 Facebook was worth $190 billion and although Facebook's IPO was a bit shaky, it has managed to go up continuously and the competition is predicting that it will keep going up (Dillet, 2014). This can also cause problems for the competitors as the investors may go bullish on their stocks if the Facebook stock price keeps climbing at this rate. Now Facebook is worth more than Amazon, more than eight times of Twitter and almost half the worth of Google and Microsoft, and it keeps rising to new heights with each innovation that the team makes.
Internal and External Analysis of Facebook
1. Internal Analysis
The internal analysis tools used for conducting the analysis for Facebook are Value Chain and VRIO, which includes Value, Rarity, Immutability and Organization.
i. Value Chain
The concept of the value chain was put forward by Michael Porter, showing the relationship of how the supporting activities and the primary activities deliver customer value (Appendix 1, Figure 1). The core activities of the organization are divided in to two categories, the first is the support activities and the second is the primary activities. The support activities include Facebook's Firm Infrastructure, that is, the general management of the organization. It also includes Human Resource Management, Technology Development and Procurement. All tasks that fall under these categories such as the procurement of servers, the hierarchy of the organization are included in the support activities. The Figure 2 in Appendix 1 shows the division of activities in Facebook's value chain. Primary Activities include Inbound Logistics, Operations, Outbound Logistics, Sales and Marketing and Service and Support.
The VRIO analysis observes if the company's resources have the qualities for sustainable competitive advantage (see Appendix 1, Figure 2). Facebook has a sustained competitive advantage because its resources are valuable, rare, and inimitable and are organized to create value as this is where Facebook derives its value from. The company's main resources are its loyal users who are loyal to Facebook, and are rare and inimitable by the competition. These core values are all well aligned with the needs and requirements of the company and its core competencies so as to collectively derive strategic competitiveness from it. Also, another distinctive resource is Facebook's employees as Facebook has substantial data that it can use for the purpose of employee management. Facebook can identify the best candidates for a particular job based on their qualifications, activities, connections, etc. and can then also monitor the skill level of their employee. This is also an added advantage because traditional firms do not have access to this kind of information and it is difficult for them to get information regarding all the variables of an individual's personality but it only gives temporary advantages to Facebook (see Appendix 1, Figure 3) as Facebook's competitors, especially Google, has an even larger database so its no inimitable.
2. External Analysis
The tools used for conducting the external analysis were PESTEL Analysis which includes Political, Economical, Social, Technological, Environmental and Legal factors and Porter's Five Forces (Appendix 1, Figure 3) which includes threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers and intra-industry rivalry.
i. PESTEL Analysis
The political aspect of Facebook's domain is the privacy issue primarily as Facebook login requires the customers to share all their personal details, so most Facebook users at times do not feel safe about making purchases via Facebook. This is also the primary reason why Facebook is not popular in Germany as it is in violation of European privacy rules. From an economic perspective, Facebook has been doing fairly well over the years as the costs associated are comparatively low, and the margins derived are particularly high. This gives Facebook a competitive edge as due to the low expenses; it can sustain a competitive advertising rate and thus attract more advertisers as compared to the competition.
From a social standpoint, Facebook has expanded into the mobile apps arena and is aligned with all major app platforms so that they require Facebook login. This allows Facebook to collect even more information from its users that can in turn, be capitalized upon by the advertisers and Facebook for future development. From a technological perspective, Facebook uses display ads that are an inconvenience to the user, so the clicks per ad are low for Facebook especially as that compared of Google. Environmentally Facebook doesn't have any repercussions as it is an online company. Legally, it has to abide by the governing laws of US which have different privacy rights than the European and the Asian countries. Whatever permission Facebook needs is included in the fine print and users do not read them and due to this Facebook has faced several lawsuits over the years.
ii. Porter's Five Forces
According to Porter's Five Forces the threat of new entrants is moderate for Facebook as the market is already saturated with some major player in the big leagues and they mostly have a loyal customer base that are addicted to one social platform. So the chances of the customers of an existing brand that has a mass following are very low. The threat of substitute products, on the other hand, is high as substitutes already exist in the market that have a good brand reputation and the differentiation between the products is very low or nonexistent. The bargaining power of the suppliers is low as the supplier concentration to firm concentration is almost equal for the social media industry. Hardware and storage providers are easily available in the open market, and the differentiation in the supplier offerings in minimal, so it is easy for the firms to switch vendors as per needs. The bargaining power of the buyer is high as for them multiple brands already exist in the market, and the switching costs are very low as the sign ups are free. The only possible problem can be of contact lists but now, even that is not an issue as most individuals are present on multiple social media platforms. The customers or buyer are the ones who contribute to the brand equity, so their Facebook's brand equity is high and if Facebook loses its customer's, the brand equity will drop significantly. The intra-industry rivalry is also very high as there are several major players in the market including Google, Microsoft and Twitter. With such giants playing in the major leagues, Facebook has a constant need to innovate and introduce differentiated products to sustain its market share.
The tool used most commonly for combined internal and external analysis is the SWOT analysis (Appendix 1, Figure 4) which analyzes the Strengths and Weakness of the company; these are the internal factors, and the opportunities and threats which are the external factors. One of the main strengths of Facebook is that as of September 2014 Facebook had 864 million daily users making it one of the most popular social networking forums to date (Newsroom Facebook, 2014). This allows Facebook access to an extremely large amount of data and personal details that can be used by marketers to target a specific audience for their products and brings in large amounts of revenues from advertisers. The fact that the site is available in over 70 languages ensures its accessibility and usability worldwide and serves more benefits to Facebook and the advertisers. The open format platform allows for the development of third party applications on Facebook's own platform, which has an easy to use interface without much clutter of information of text or advertisement.
The most widely faced problem for social networking sites is monetization as the click-through rate is usually very low and this is a weakness at Facebook as well and the issue discussed in the case. Also as a social networking site, Facebook has access to all the users' private data which it then sells to advertisers to allow them to better target their customer. This creates privacy issues for Facebook especially in countries like Germany where the social networking site Orkut is still prevalent as it assures user's privacy. Another weakness of Facebook is that due to the amount of content and the algorithms, the time taken for the site to load is 2.537 seconds which is too long, more so with a bad internet connection while almost 75% of the other sites are much faster.
With the increasing consumer acceptance of social media marketing, several opportunities have sprung up of which targeted marketing is one of the most profitable ones. With its ever increasing consumer database, profiles and consumer trends, Facebook can facilitate marketers in taking a more targeted approach. Facebook can further promote this system to include streamline purchasing to ensure a hassle free platform for its consumers. This will also allow the advertisers and special media marketers to create content for specific target audiences which are another opportunity for Facebook to capitalize on. Another opportunity for Facebook is to provide web search, with its consumer specific databases it has the capability to provide web searches specific to the customer's requirements. Also with better privacy policies Facebook can tap into markets like Germany and maybe even China and Brazil where its competitors or local sites are more prevalent.
One of the most major threats that Facebook faces is that the entry barriers for the social media networking are very low and the users can make accounts on both new and existing sites (like Facebook) as there are no costs associated with signing up. This allows new entrants to grow at an exponential speed and cater to the existing and new markets at the same time. Facebook is at the verge of losing its modern and hip image as more and more people between the ages of 30-45 are signing up to get connected with their kids and friends. LinkedIn and Google+ have managed to maintain reputations as professional networks so Facebook needs to counter this threat or it may lose its biggest segment, the youth. Also many regional networks also threaten Facebook, for example, MySpace is widely popular in North America, Vkontakte in Russia, Renren in China, etc.
Facebook: Strategies, Location Advantages, Market Selection and Entry
1. Internationalization Drivers and International Strategy
The internationalization drivers may be market drivers, cost drivers, competitive drivers or government drivers (Appendix 1, Figure 5). In case of Facebook, the market drivers are the global customer base to which it caters to, and the customer needs, so constant innovation is required to satisfy those needs while the marketing is also transferrable in case of IT. The cost drivers are economies of scale as the costs are low, and the profit margins are maintained at a constant high. The competitor's driver is that the competing firms such as Google also have global strategies. The government driver is that the technical standards vary amongst countries for example Facebook is banned in China.
Facebook applies the Transnational International Strategy (Appendix 1, Figure 6) as it is a global forum with users spread in various countries worldwide. Facebook has a worldwide market and the worldwide spread of its value chain system as discussed in the internal analysis. Also, Facebook's products are global and not specific to one locality; similarly, its marketing is also global. Facebook is one of the firms that are born-global, so it collects and shares data worldwide, the ads are also placed according to the user's profile that Facebook makes from all the data collected.
2. Business and Corporate Strategies
Facebook employs the Differentiation business strategy and Facebook's core business is standing on three main pillars which are News Feed, Time Line and the Graph. Facebook enjoys three competitive advantages over its rivals that include, firstly, the technological capabilities as it has its innovative technology and complex algorithms that hold Facebook together. Secondly it enjoys the economies of scale in its infrastructure because the organization is performing efficiently. As it is only a social media platform, the only costs are of hardware and network which are both easily available at cheap rates from a vast number of suppliers. The third advantage that Facebook enjoys is that of Network Effects as the people who want to connect socially will join Facebook as this is the most socially active platform. The Facebook corporate strategy of Product Development as explained by Ansoff matrix (Appendix 1, Figure 7) as Facebook is focused on introducing new products in to the existing market. For this purpose Facebook has employed the innovation strategy so far, that is, to innovate and keep providing better products to its users. It innovates and updates its user's profiles to apply the change and attains feedback from the customers and makes the fixes accordingly. First it added the NewsFeed that was an innovative way to know what your friends are doing, and then a Timeline feature was added so as to create a sequence of events for a social profile. The latest addition has been the Graph search which allows Facebook users to discover and make new connections.
3. Locational Advantages for Facebook
Facebook is a part of the social networking industry which carries with itself certain factor conditions that give Facebook an added advantage as examined by the Porter's Diamond Model (Appendix 1, Figure 7). The first part is the factor conditions were good in Facebook's case because firstly human resources were easily available for hire. Physical resources such as servers were easily available by this time, and the founders of Facebook had the relevant knowledge skills. The capital resources were also easily available as Zuckerberg managed to raise capital easily, and the infrastructure for development was in place. The demand conditions were also fully met as the public needed a social networking forum where everyone could be present simultaneously as the world was shrinking to a global village with technological advancements. Related and supported industries were all already in existence; so Facebook just needed to build the right connections and relationships in the industry. The firm structure and strategy were aligned to each other and focused on the company's vision. Rivalry already existed in the industry from giants like Google and Microsoft.
4. Market Selection and Entry
Facebook was primarily focused on college students in its early days and till today its prime target market is the youth worldwide. Facebook targets the youth in all countries across the global as researches have shown that the psychology of the youth remains almost constant worldwide. This is also the reason marketers for Giants like Coca Cola can use the same advertisement within a particular region. Facebook is a born global firm as it was born over the internet and quickly spread across the span of various countries through word of mouth as it provided various options that previous social media networking platforms did not have at the time. None of the traditional rules apply to it as it is a service that is available for free to anyone who has an internet connection and a .com email address.
Facebook launched itself formally as a public company with its IPO on May 18, 2012 and although initially the stock price went down, it rose up again as the NASDAQ system improved while Facebook's increasing performance level also contributed to the mix. Facebook had been evaluated at $100 billion in the stock market and was now in the same ring as its major competitors Google and Microsoft.
Facebook as an Organization
1. Organizational Structure and Controls of Facebook
Facebook has a divisional organizational structure whereby the division have specific task and they function on them independently within the scope of their assigned resources, Instagram is also now a division of Facebook and it is maintained as a separate brand and functions independently from the parent company. The Facebook Management includes Mark Zuckerberg, who is the founder, chairman and CEO of the company. His second in command is Sheryl Sandberg, who is the COO at the Facebook and deals with all the strategic decision making for Facebook as Zuckerberg focuses on the development. David Wehner is the CFO; Mike Schroepfer is the CTO and also the Vice President of Engineering while Chris Cox is the Chief Product Officer, and they are responsible for the teams under them. Zuckerberg and Sandberg sit on the Board of Directors along with seven other members to decide the development path of the company which is then communicated to the Head of Departments mentioned, who then communicate the goals and objectives to their teams. The control is mainly in the hand of Zuckerberg and Sandberg, who make the tough decisions while the Head of Department's is empowered to make the decisions relevant to their areas of business. The final decision about the future of the company, however, lies in the hands of the Board of Directors.
2. Innovation and Entrepreneurship of Facebook
Facebook started off an entrepreneurial venture by Mark Zuckerberg and the other co-founders but as the company gained momentum, and its audience increased, the need for innovation also arose. The company still has an entrepreneurial culture as the focus is still on delivering the best possible product. The original Facebook did not have any of the three pillars of News Feed, Time Line or Graph. These were all innovations that were added to the system along the way by observing the user demands and needs patterns. The innovation and entrepreneurship at Facebook are not centralized so all employees can suggest new ideas and products and contribute to making a better customer experience.
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