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Firm Strategy Analysis - Facebook
Firm Strategy Analysis - Facebook
Firm Strategy Analysis - Facebook
Firm Strategy Analysis - Facebook
Firm Strategy Analysis - Facebook
Firm Strategy Analysis - Facebook
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Firm Strategy Analysis - Facebook

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Porter's Analysis and Resource Based View of Facebook.

Porter's Analysis and Resource Based View of Facebook.

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  • 1. SYRACUSE UNIVERSITY Firm Strategy Analysis Facebook, Inc. Manan Kakkar 2/5/2012A look at Facebook’s strategies and competitive threats using Porter’s Five Forces and the ResourceBased View models of analysis.
  • 2. IST 755 Firm Strategy Analysis 1Manan KakkarTable of Contents Porter’s Five Forces analysis of Facebook................................................................................................. 2 Bargaining Power of Customers:........................................................................................................... 2 Bargaining Power of Suppliers: ............................................................................................................. 2 Threat of New Entrants ......................................................................................................................... 3 Threat of Substitute Products ............................................................................................................... 3 Competitive Rivalry within Industry...................................................................................................... 3 Resource Based View of Facebook ........................................................................................................... 4 Resources .............................................................................................................................................. 4 Capabilities ............................................................................................................................................ 4 Conclusion ................................................................................................................................................. 4Bibliography .................................................................................................................................................. 5
  • 3. IST 755 Firm Strategy Analysis 2Manan KakkarFacebookA social networking website started out of a dorm room at Harvard, Facebook has a fairly-tale successstory. The company recently filed for an IPO to raise $5 Billion (ODell, 2012).Porter’s Five Forces analysis of FacebookPorter’s five forces and their impact on Facebook:Bargaining Power of Customers:For Facebook, the advertiser is their customer; the advertiser is the one paying Facebook to use theplatform. According to Facebook’s S-1 filing for their Initial Public Offer (IPO) with the Securities andExchange, Facebook says off their $3.7 Billion revenue, $3.1 Billion was from social advertising(Ebersman, 2012). The staggering number is a 69% increase compared to the $1.85 Billion in 2010.Facebook’s financial details point out that 18% ad revenue increase was due to increase in average adprice.While Facebook currently has leverage while negotiating with its customers which has allowed them toincrease the average ad price, inability to add new users or lose existing customer due to platformfatigue, new entrants, substitutes. If Facebook is not able to retain their existing user base by providinga better experience, the customer’s bargaining power increases.Facebook says, they have 425 Million active mobile users each month but have not monetized themobile platform. For their customers, this could be a deal breaker if a new entrant or substitute can fillthe gap. 12% of Facebook’s ad revenues in 2011 came from a single supplier (Zynga), this gives thesupplier significant bargaining power.As of now, bargaining power of customers is low.Bargaining Power of Suppliers:According to the S-1 filing, Facebook currently has 845 Million monthly active users (Ebersman, 2012).Precise information about 845 Million users’ likes, dislikes, interests and preferences is what Facebookoffers their customers. This data voluntarily supplied by the user and Facebook’s algorithms to showtargeted ads lets Facebook have leverage over their customer and increase ad prices.However, as mentioned by Facebook in their S-1 filing, the company risks losing the suppliers for variousfactors; these include: • Inability to enter new countries or lose users in existing geographical locations due to privacy laws • Users switching to new entrants or competitor products like Google+While Facebook has no cost-of-entry barrier for the supplier, Facebook is seeing some resistance inadding new users (Wortham, 2011). Having said that, for 845 Million interconnected usersinterconnected with an existing social graph, migrating to new networks is a tough choice, hence thebargaining power of suppliers is medium.
  • 4. IST 755 Firm Strategy Analysis 3Manan KakkarThreat of New EntrantsFor Facebook, mobile journal Path is a threat as they are new, focused and gaining traction (Miller,2010). Path is a mobile only social network that added nearly 1 Million new users in two months; theynow have a nearly 2 Million users (Gannes, 2012).As noted by Facebook in their S-1 filing, the company has 425 Million monthly mobile users and thecompany hasn’t been able to monetize this user base (Ebersman, 2012). As users start using newplatforms like Path can pose a threat due to a new user experience (Lynley, 2011). Despite rapid growth,products like Path offer low threat since they are limited to smart phones (iOS and Android) whereasFacebook can be accessed on multiple platforms.Threat of Substitute ProductsSince Facebook is essentially a social network that allows users to stay in touch with friends, services likeWhatsApp, iMessage and Skype can be a threat. WhatsApp and iMessage are Internet based shortmessaging services that integrate with a user’s phonebook and allow the user to send short messagesusing their phone. (iMessage is iOS specific, whereas WhatsApp is multi-platform.)Video calling services like Skype and Google Hangout can attract users by allowing video communicationover mobile phones and PCs. To counter both these threats, Facebook has introduced independent textmessaging apps and tied up with Skype to offer video calling. Since Facebook has taken steps to realizepotential substitutes and neutralize them, the threat of substitutes is low.Competitive Rivalry within IndustryAs Facebook’s growth has grown, competition from Google has strengthened. In June 2011, Googleintroduced Google+, a new social network leveraging existing Google infrastructure to compete withFacebook (Miller, Another Try by Google to Take On Facebook, 2011). According to Google CEO, LarryPage, their network has 90 Million users According to Google’s revenue numbers; the company has 350Million Gmail users, 250 Million Android devices (Page, 2012). 96% of Google’s $37.9 Billion revenuescame from advertising (Abell, 2012). Given Google’s wide product range (Email, Blogging, Search,Mobile, and TV); Facebook can find strong competition in retaining users. Every Google product user is aGoogle+ user and hence the threat of industry rivalry from Google+ is high.
  • 5. IST 755 Firm Strategy Analysis 4Manan KakkarResource Based View of FacebookResourcesFacebook’s biggest resource and asset is their information database on 845 Million users worldwide. Asmentioned earlier, competitors like Google+ and new entrants like Path have not reached even half theuser base Facebook caters to. This makes Facebook’s database their most valuable resource.Facebook introduced functionality that allowed merchant websites to embed Facebook’s Like button. Asusers continued to browse the web and “like” webpages or products they liked, Facebook was able tobuild a rare utility to track product acceptance and user preference (Kessler, 2012). Though Google hastried to introduce similar functionality, Facebook’s first-mover advantage, user-base and brand havegiven the company an upper-hand.For a competitor like Google+, new entrant like Path or substitutes like WhatsApp, collating andaggregating such a huge database of user likes, dislikes, moods and preferences will take several years.Facebook is in their 8th year of operation and introduced features that continue to add more data pointssuch as comments on other websites, ability to use Facebook credentials to login to other services andepayments. All these services in one place and 845 Million users make Facebook’s resource very toughfor competitors to imitate.Google’s user base across their portfolio of services such as Gmail, YouTube and Android gives thecompany a competitive chance against Facebook’s existing database. With the introduction of +1,Google’s version of Facebook Like, the company can build their own treasure of user information;however, a competitive product alone will not result in substituting Facebook’s database. Thecompetitive product will have to offer better capabilitiesCapabilitiesFacebook has been working on developing new products and ways for users to communicate in order tomaintain and build a competitive advantage. Introduction of features like Subscribe, Timeline, Spotifyintegration and a new app platform, the company has been able to adapt how users use the web.Mentioned in their S-1 filing, CEO Mark Zuckerberg has explained how he has modeled the company’sinternal organizational culture to maintain what he calls as the Hacker Way (Ebersman, 2012). TheHacker Way at Facebook lets the company build new features and fix problems quickly and in aniterative process.ConclusionDespite having threats from various sources, Facebook’s consistent innovation and Hacker Way ofdevelopment has let the company build resources and capabilities that have given them a competitiveadvantage.
  • 6. IST 755 Firm Strategy Analysis 5Manan KakkarBibliographyAbell, J. C. (2012, January 23). Who Buys All Those Google Ads? An Infographic Breakdown. Retrieved February 5, 2012, from Wired: http://www.wired.com/epicenter/2012/01/google-ad-buyers- infographicEbersman, D. A. (2012, February 1). Facebook Inc. Form S-1. Retrieved Fenruary 5, 2012, from Securities an Exchange Commission: http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm#to c287954_2Gannes, L. (2012, February 3). Path Now Has 2M Users, Having Doubled Since It Relaunched Two Months Ago. Retrieved February 5, 2012, from AllThingsD: http://allthingsd.com/20120203/path-now- has-2m-users-having-doubled-since-it-relaunched-two-months-ago/Kessler, A. (2012, February 2). The Button That Made Facebook Billions. Retrieved February 5, 2012, from The Wall Street Journal: http://online.wsj.com/article/SB10001424052970204652904577196992203069570.htmlLynley, M. (2011, December 11). Heres Why The New Path Will Make You Want To Delete Facebook. Retrieved February 5, 2012, from Business Insider: http://www.businessinsider.com/path-will- make-you-want-to-delete-facebook-2011-12#for-starters-the-app-looks-flat-out-gorgeous-1Miller, C. C. (2010, November 15). Start-Up Plans a More Personal Social Network. Retrieved February 5, 2012, from New York Times: http://www.nytimes.com/2010/11/15/technology/15photo.htmlMiller, C. C. (2011, June 28). Another Try by Google to Take On Facebook. Retrieved February 5, 2012, from The New York Times: http://www.nytimes.com/2011/06/29/technology/29google.html?pagewanted=allODell, J. (2012, February 2). BREAKING: Facebook files its S-1; let the IPO hoopla begin. Retrieved February 5, 2012, from Reuters: http://www.reuters.com/article/2012/02/02/idUS291585087920120202Page, L. (2012, January 19). Larry Page - Google+. Retrieved February 5, 2012, from Google+: https://plus.google.com/u/0/106189723444098348646/posts/jcyvVa5K4JWWortham, J. (2011, December 13). The Facebook Resisters. Retrieved February 5, 2012, from The New York Times: http://www.nytimes.com/2011/12/14/technology/shunning-facebook-and-living- to-tell-about-it.html

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