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June 28, 2014

Strategic Analysis of Facebook

Facebook was born on February 4, 2004 in Palo Alto, California. The place of its birth is Harvard University where Mark Elliot Zuckerberg created it. The website was basically created to broadcast the pictures taken during the academic year, that is why Facebook was initially restricted to Harvard, then to other universities, then high school and finally to the general public in 2006.  It has now become the largest social networking site having approximately 900 million registered users.
Internet is revolutionizing our social organizations and our economic systems. Internet in 2007 has exceeded most expectations that fueled the speculative bubble of the 1990s. This makes it difficult to assess the value of a strategic player. Facebook is a strategic player like Yahoo, Google or YouTube. The big question is whether the leaders of Facebook and its current and future shareholders will transform this strategic position in economic success. Say that Facebook has all the ingredients for a new Internet success exceptional. Remains whether find the recipe for the sauce ready without spoiling.
To stand out in the industry, it is important to have a synergy across these components: the client interface, strategic resources and network partners (Grove, 1996). Strategically, Facebook has a mission that will use the Internet to empower people to share and make the world more open and connected. Not only this mission's goal is to engage people, but also the world's population.  Value at the heart of any social network is connection and communication between members. One of the major reasons for the success of social networking phenomenon on Internet is that it broadens the scope as significantly as the size of the time distance. Given the astronomical number of online social networks, Facebook has sought to differentiate. Facebook has emphasized on building a quality interface to improve the user experience. The satisfied users return and continue to interact with friends. Communities expand, and now Facebook has reached to almost 900 million registered users.
The competence of the client interface lies in its simplicity. Facebook programmers created a user friendly approach to optimally arrange the components of profile pages and the "newsfeed". Facebook is centered on the individual and not on its status (unlike MySpace or Linked In, for example) and, most importantly, it is at the same time an open platform for all content and applications that users want to use and add. In short, the power of Facebook is to offer tools of socialization, communication and sharing, rather than lock boxes.
The support of multiple languages ​​contributed to the internationalization of markets penetrated by Facebook. Facebook has become an industry leader in social networks because it has developed distinctive competencies. Firstly, its policy on privacy allows users to configure their preferences. In addition, Facebook has deployed the most sought web application, i.e. picture sharing. Picture sharing is a popular activity among members that Facebook has earned considerable success in the social networking industry. To support its business processes, the team has put in place appropriate technologies that can contain all the traffic and manage thousands of databases. Recently, Facebook has wanted to acquire Twitter. This strategic acquisition was partly due to the success in the world of Twitter micro-blogging. Communication is one of the foundations of a social network; the choice of Twitter is coherent.
To strengthen its network of partners, Facebook opened its platform to developers. For months, users can add applications programmed by third parties. This is in order to enhance the experience of members, Facebook has made available hundreds of applications. The fbFund was established precisely to promote the quality of applications and attract the best developers.
The primary source of revenue is advertisers who buy ad space. As announced by the Wall Street Journal, sales of $ 3.71 billion Facebook are already dependent on 85% of advertising. One can imagine the emergence of new relay from custom announcements, as a module search jobs, classifieds or dating website. However, there is nothing there to justify such a valuation. So where is the value of Facebook? The value of each Facebook is in user and, more specifically, in the information that can be extracted. This information becomes the full property of Facebook as indicated by the terms of use. The social network can therefore legally sell it to marketers and advertisers. However, in order that such information can be manipulated, it will develop the Facebook experience to the consumer-oriented content.
This development has already begun. Facebook is different from other social networks by the riches of the qualification links among users on the one hand, and the applications related to them, on the other hand. But the strength of Facebook is now able to spill over to other platforms, including the most intrusive features like Facebook Connect. If the user gains in simplicity and time, Facebook acquires new data of users.
 Facebook, the leading social networks and other Internet operators, wants to be the provider of a unique identifier, OpenID, promoted, including through Facebook Connect. While originally created to meet the demand for virtual goods, Facebook has developed its own currency, Facebook Credits. Gained from actual currency, it does today to buy applications or games on the platform. If Facebook follows the same logic, like Facebook Connect, Facebook user could invest virtual currency with other platforms, then it soon becomes a common currency and Facebook could become the next online payment system. Thus, in other words, Facebook may be moving towards a single platform and ubiquitous personal data collection helps to authenticate (and identification) and providing means of payment online. Thus, the social network itself, normally the heart of business, will be in the future, a small part of its business model. Facebook can become major player not only social networks, but the Internet in its entirety.
Like investment from In-Q-Tel in Gemplus, the company's creative smart card system has now become central to our economic system, it is not surprising to see these connections as the potential of Facebook. As described above, the Company may be required to become a central and strategic operator of the Internet in the process of authentication and payment online. However, the United States has this culture of strategic possession, as they do with DNS. If it does not actively monitor this system is at least to prevent other actors to take control of the future and damage to the information system and the U.S. economy.
The business model of Facebook is constantly evolving. The company, which is the second most visited site in the world, has a hard time to reap the benefits of its monetary operations. it has a lot to do before finding a viable business model.
The strategic leadership of Mark Zuckerberg is also one of the core competencies of the company. When Facebook was entering into the market of digital products, Zuckerberg knew he was not inventing new thing, but to innovate on those that already exist. For many, Zuckerberg represents the worst side of capitalism for its youth opportunism. But in the end he is respected for a reason that he designed a dynamic tool to eliminate borders and give freedom of expression to the common people. Zuckerberg was a typical dreamer who likes to break the rules (Evangelista, 2012).
The entrepreneurial success is based on a premise not let others modify the project. In 2006, to take off the network, Facebook stunned the world by rejecting the offer to buy Yahoo for $ 1,000 million. A year later, Microsoft bought a 1.6% stake in the company for $ 240 million; enough to get involved in the developments but far from taking major decisions of the company. Facebook went from being a challenge to the technological standards of Silicon Valley to integrate an organic system business.
Zuckerberg learned the importance of maintaining power over the business. In the past eight years, he has bought a number of start-ups: FriendFeed, Snaptu, Gowalla and Instagram. He proved himself a smart negotiator as CEO. There is evidence that some individuals have been programmed for life as fierce competitors (Boal & Hooijberg, 2000). In the case of Mark Zuckerberg, the explanations could go two ways: a) by his biography and his attitude to life, which will take advantage of others and pass over his friends to "settle down" as mature and responsible man-; b) for the professional discipline of every day, the modus operandi, the enterprising spirit, long-term goals, the character as a leader and negotiator, strategies and business habits. In general, people often feel uncomfortable with these emotions and choose away from the race. But aggressive competitors, like Zuckerberg, use these feelings in his favor. As experts say, one thing is clear: the entrepreneur did not become the world's youngest billionaire just believe the truism that "everyone is a winner." If so, why  there is no more young millionaires like him?
In conclusion, we believe that the future of Facebook is promising. Its leading position in the mobile apps industry will also monetize this channel (e.g. through payments fees). In the long term, the strategy is to seek commitment. Facebook will always try to support the customer interface quality and the pool of users will not cease to grow. Established community is a paramount strategic asset. Finally, Facebook has the key (customer interface quality, large pool of users, technologies supporting the model). It is not enough that the connection and bridge the gap with advertisers.
                                                         Task B
Strategic Success of Facebook through Prescriptive Models
The strategic analysis within a strategic model, integrates technical and descriptive tools that allow the prediction and identification of evidence for policy decision making.  The exercise allows the judgment and it is important to systematize the relevant decisions, to educate senior management in making long-term decisions to improve corporate communication and to define the consequences of resource allocation (Rowe, 2001). In this part of the paper we will discuss the strategic success of Facebook through different prescriptive models.
According to Michael Porter (2008), developing a competitive strategy is about taking offensive and defensive actions to create a defendable position in the industry generating better returns on investment, improving your strengths. There are only three strategies that are consistent to achieve superior performance to any competitor:
1.      Cost Leadership;
2.      Differentiation;
3.      Focus
A cost leadership position gives the company more competitive strengths and defends:
·         Competitive Rivalry: Keep costs down means more leeway to compete with lower prices than other companies;
·         Bargaining power of customers, because only very efficient competitors may improve prices;
·         Suppliers Power: it will have more room to negotiate and cope with rising prices;
·         New players in the market: It will be more difficult for them to compete in an environment where there are already established more efficient businesses and costs.
This strategy allows for a strong competitive position relatively quickly.
An alternative approach is cost leadership differentiation. In it, the company is less concerned with costs and more about being perceived as an entity that offers something no one else can. Such valuable features can be emotion, durability, innovation, service, reliability, tradition etc. The idea of​​competitive strategy for the product differentiation is appealing the interest of the market for its low price. The distinction is significant because it requires large amounts of investment in research, quality of service, promotion or route we take for our product.
The cost leadership usually achieved by the company with access to the best resources, but in the same industry can be multiple differentiation factors that can be exploited.
Porter says that companies can choose a defined group of customers in the market or choose a product line to implement this strategy. The focus strategy refers to be extremely efficient in meeting the requirements of a market group, usually referred to as "niche". Based on this approach we will determine the strategic success through different models.
Porter’s 5 Forces Model

The model developed by Porter combines analysis of these five forces: the barriers to entry, threat of substitutes, the bargaining power with suppliers, the bargaining power with customers and competitive rivalry. Now we will analyze strategic success of Facebook through this model:
1.      Threat of New Entrants: the chances of new entrants into the field of global social networking is dull because Facebook has already gained the major chunk of users and a new entrant cannot compete with it until it will not come with some very innovative or unique idea
2.      Threat of Substitutes:  Facebook has a moderate threat of substitutes as many countries are also using their local social networks. Nevertheless, the threat is not high because the circle of influence of these social networks is restricted to their countries of origin while Facebook is global in nature. It even curtailed this threat by providing multi-lingual support to Facebook. Thus, Facebook is one of the few social networking sites where people can easily meet and communicate with international friends;
3.      Bargaining Power of Suppliers / Customers: the users of Facebook are its customers as well as suppliers. They are suppliers because they supply their data to the service and customers because they use the services of the website. They have high bargaining power because it is actually the users which make Facebook one of the biggest social networks. The users/ customers /suppliers have shown their bargaining power in issues like privacy of their data and threaten to cease the use of Facebook or delete their account;
4.      Competitive Rivalry: although there exists some competitors of Facebook but still the intensity of competitive rivalry is low because none of the competitors has had such a large number of users. There are also some petty competitors but they do not cover the whole world. Thus, the intensity of competitive rivalry is very low. The following table depicts the position of competitors:

From the above mentioned model it seems that Facebook is a social networking site which has the largest user base and thus it is a market leader in its field having very low threat of any new entrant to enter into the market and steal its market share.
PEST Analysis
                PEST is a large-scale albeit a comprehensive means of envisioning multifaceted interrelationships of different aspects of the companies. While several theories have attempted to provide a structure for analysis, PEST became a popular framework that resolves the limitations of strategic thinking.
·         Political Factors: Facebook potentially leads to widespread surveillance of all for a social and economic exploitation of human relations, and an extension of the public space at the expense of what had until then the strictly private sphere. It is not certain that the users, better informed, are ultimately willing to pay that price to take advantage of the opportunities offered by Facebook. Rumors, manipulation, incentives for gathering, surveillance, disinformation, etc. the violation of piracy or at least the threat of violation of piracy could harm or even jeopardize Facebook’s strategy to use the data and information of the users for advertising purposes. Other countries have also shown their concern regarding privacy of Facebook’s user data. Similarly, users also not feeling secure while purchasing items and revealing their financial information through Facebook. Such fears, may harm the company’s strategic policy of earning revenue through advertisements because the data security threat may compel a huge user exodus from the company which limit the growth prospects of the company
·         Economic Factors: the steady, rapid and exponential growth of revenue of Facebook proved the company’s ability and potential of growth. Facebook enjoys the market leadership of social networking field and have all the potential to tap the underpenetrated market of advertising through social networks. As compared to its competitors (Miller, 2007), Facebook has relatively low expense which gives the company higher profit margins. The low expenses of the company also proved advantageous because Facebook can give lower advertising rates to the companies which give Facebook an added competitive advantage. Facebook has higher operating cash flow margins which was 41.7% in 2011 higher than 38.4% of Google. This has proved company’s ability to more effectively convert sales into cash. Facebook also enjoys high financial flexibility which is depicted through its high cash flow generation capability. This also provides the power to the company to aggressively follow its expansion policy
·         Social Factors: Because of their permanence and accessibility, Facebook has potential for harm far more important than oral ephemeral rumors. In addition, the function of socialization and relationship management of Facebook promotes transparency. Network intimidated, recent contacts (and contacts of their contacts or friends of their friends in the terminology used) becoming instantaneously and simultaneously accessible to bullies. This strong connectivity has the effect of promoting viral propagation of words or content deemed intimidating, as well as enhance the isolation of the victim who will be deprived of the control of its support network. Attacks on the reputation of individuals and organizations are the second most common risk associated with Facebook. Facebook also entered into the Mobile Application Market which is its first step to make use of its huge mobile user base. Facebook App Center not only facilitates the developers in developing their android applications but it also helps to market these products. Although it does not earn revenues for Facebook but the App Center uses Facebook login which helps Facebook to collect more data of the users which will ultimately help the company to generate its advertisements revenue. For non-platform social applications Facebook charge approximately 30% sales commission. Hence the app center provides the opportunity to Facebook to enter into a market which is so far dominated and controlled by major operating systems. With the launch of app center Facebook took the first step to capture the untapped market of mobile social networking
·         Technological Factors:  Facebook advertising based on displaying ads which is not as efficient method as adopted by Google which has already captured the online advertisement market and the market share of Facebook is 1/10th of the market share of Google (Helft & Hempel, 2011).  This statistics have shown that Google give more value to money to their advertisers in terms of results as well as options. This has been proved by the fact that General Motors has dropped its advertisements from Facebook pages claiming that these advertisements were not proved effective in increasing its sales. In addition, the exploits of Facebook (technical and functional) can divert tool for serving purposes more or less ethical or malicious
The opportunities offered by Facebook are indeed numerous, both social, economic, marketing, political and military, offering new opportunities for dialogue, progress and development. Facebook is revolutionizing and interpersonal relations, by passing the relation "1 to 1" relationship "to 1 x" in a single click. This new field of possibilities is such that it allowed the development of an ecosystem with and around Facebook, generating direct and indirect business very consistent. Facebook is a new and lucrative business model, based on innovative forms of advertising specific website. The effects of these changes are not neutral: extreme tension between the major players in the Internet today (especially Google), accentuated by the ruthless competition through mergers / acquisitions, until the market overvaluation of social networks. Regarding the political factor, Facebook plays a pivotal role in mobilizing the civil society, political movements and states (cyber warfare). The recent example of the "Arab Spring" shows that the lines of political power relations evolve, thanks in particular for the tools like Facebook.
But the risks related to Facebook are not less, questioning the reliability, acceptability and viability of the tool to run. Facebook is also strongly discredited by its lack of protection of personal data and its inability to meet the criterion of data interoperability. Some companies have already made the decision not to use the media and the slowdown in growth patterns in Western countries shows an early loss of confidence. The need for investment in Facebook is also involved financial powers (Russia, China ...), which puts a definitive end to the possible neutrality of the tool. More generally, the risks and vulnerabilities associated with the first social network moved on the side of network access (physical and virtual) controlled by operators and ISPs, and on the international bodies, more or less neutral, which continue to check the web in general, to the detriment of the principle of "neutrality" of the web.
It is certainly impossible to ignore Facebook today when addressing issues of competitive and strategic intelligence, but it is necessary to maintain an overview of these issues, including the entire media that they are virtual or physical. The world of social networking and more specifically Facebook is in full motion and their role in the field of strategic intelligence will redefine and evolve further with time.


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