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Facebook Competitive Advantage (social networking)


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A term paper for a strategy class at the Asian Institute of Management. It talks about the competitive advantages of Facebook and how presents an industry model for the social media space.
(if you use this ppt - please give credit. thank you)

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Facebook Competitive Advantage (social networking)

  1. 1. Akash Senapaty @ the Asian Institute of Management, Manila SECTION B Facebooks belongs to the online social networking industry. Companies like Facebook and MySpace usually do not release official visitors or revenue numbers. But good estimates are available online. The stats for online usage are mainly provided by Comscore and Compete. However, due to the rapidly changing nature of this industry, this presentation will be outdated soon. Todays date: 10st April, 2009.
  2. 2. Company & Industry Background External • is a free social networking website operated by Facebook Inc. • Founded in 2004 by Mark Zucherberg as a network for Ivy League schools Social Networking Industry • Websites focused on building online communities of people having shared interests. Social networks have common themes of information sharing, person-to-person interaction and creation of shared & collaborative content • The industry have been successful in getting a large number of people at one place, but not very successful in monetization. • Two-thirds of the world’s Internet population1 visit a social network or blogging site and the sector now accounts for almost 10% of all internet time. *
  3. 3. External Environment Analysis External POLITICAL ECONOMIC - Greater affluence, leading to more - Pressure to crack down on child number of users online predators - Increased emphasis on privacy PEST SOCIAL TECHNOLOGY - “Everyone’s on it” & there is a - Increases in broadband speed and pressure to Belong penetration - Decrease in bandwidth and data center costs
  4. 4. Porter ’s Five Forces External Threat of New Entrants (Medium) -Network effects have historically not helped retain market share (but only to grow it) - Specialty networks (eg. are still entering the online space Supplier Power (Low) Industry Rivalry (High) Buyer Power (High) - Switching costs are minimal - Widgets and Appz - Intense competition - Users maintain 1.6 accounts providers are usually between competing sites on social networking sites and fueled by venture capital and small developers with check both accounts in speculative valuations little bargaining power transition periods Threat of Substitutes (Medium) OVERALL - Internet sites with large user bases - may create a social networking component (blockbuster, amazon) MEDIUM
  5. 5. Competitive Landscape : Worldwide External Key Takeaways Comscore: Worldwide data • Globally, the major players are Facebook, MySpace, Orkut, Friendster. • These global players face issues in countries like China, Japan and Germany (among others) where local Top 3 social networks in significant markets networks far outdo it in terms of visitors & reach.
  6. 6. Competitive Landscape – US Markets External Key Takeaways • Facebook now leads in the US market (in addition to worldwide) • MySpace still leads in terms of ad-revenue
  7. 7. Market Share: Worldwide External ComScore Data • Worldwide social networking market size is 0.58 billion • Asia markets are growing the fastest at 29% (American markets at 10%) • Latest data suggests 222million unique hits for FB and about 130mn. for MySpace Millions of Unique Visitors Key Takeaways 250 200 • The “market size” is ambiguous. 150 100 However, listed here are the 50 biggest social networks and the 0 unique visitors (non-duplicated traffic) that they receive.
  8. 8. Possible Success Factors for the industry External • Design – Ease of use, Attractiveness etc. • Target Market – Some sites target niches, some target goegraphies • Activity Focus – Target market can be connecting people over relationships, or over shared interests • User Engagement – Site needs to retain user minutes • Transactions– Innovative features like applications, people you may know, pokes, comments, likes etc., serve to increase user transactions. • Privacy –privacy filters and controls • Entry Barriers – Easy sign ups • Trust – Different outlooks to Trust. • Localization– Local content, languages etc.
  9. 9. But, what does success mean? External Question: How do we measure success in Social media like Social networking sites? Key Business Imperatives Answer: 1) Increase advertising revenue 2) Increase user engagement
  10. 10. Industry Strategy In this industry a social network can cater to the masses (MySpace, Facebook) or to the niches (,, The key is to increase user engagement (time the user spends on the website). This is of interest of advertisers. The number of users is secondary. This presentation focuses on the non-niche social networks. Mainstream and niche websites can have comparable user engagement
  11. 11. Strategic Map #1 External Mapping user engagement to revenues • It is interesting to note that even with much greater user engagement, FB cannot make as revenue much as MySpace MySpace • This graphic suggests that there $750 mil. is no link between both in sales metrics, but I believe otherwise. • In time I believe the co-relation will be obvious. • This result could be because the social networking industry in a state of rapid flux right now. Facebook $300 mil. From comscore data
  12. 12. Interface External Facebook has had a new design every year since 2005. Continuous improvement and innovation with site design has helped Facebook ! Pace of innovation is important
  13. 13. Strategic Map #2 External Mapping users to the pace of innovation Facebook 200 million users MySpace 130 Million users
  14. 14. Strategic Map #3 External • “Support from the website” - refers to how much the Application (App) can benefit off Facebook the website (MySpace/Facebook) 52,000 apps • This is clearly higher for available facebook since it has sophisticated ways of spreading MySpace the word that an App has been 7500 installed. It informs your whole apps friend list & gets your friends to available try it too. •Facebook is skilled at viral marketing •Also, Facebook allows developers to monetize without interference on their portion of the page.
  15. 15. Summary of Success Factors External KSF Weights MySpace Facebook Orkut Twitter People-to-People interaction 25% 4 9 5 7 Pace of Innovation (features, etc) 20% 7.5 9 7 7 Network effects 20% 6 7 5 9 Applications available 15% 6 9 6 3 User engagement 20% 7 8.5 7 7 TOTAL 100% 6 8.5 5.95 6.8
  16. 16. Internal Analysis Internal
  17. 17. Mission, Vision, Culture Internal Mission: To connect people on an innovate platform that fosters increasing interaction. It should have an emotional connection. Vision: To provide users with value beyond interaction. They should look to Facebook to find answers to questions like, “which car should I buy” – all this based on the power of social recommendations. Facebook Some of Facebook’s key personnel Facebook has a Name Desig Priors Mark young and innovative Zucherberg CEO Founder of culture. It sources its Chamath AIM, ICQ,, Palihapitiya VP Product Marketing people from top Gideon Yu VP Finance CFO of YouTube! silicon valley Sheryl companies. Sandberg COO VP of Sales at Google Apple, Director at several Dave Morin Sr. Platform Manager Startups
  18. 18. Positioning and Segmentation Internal •Feb 2004 (Launch) – Open only to Ivy league students and alumni • Mar 2004 – Opened to other US and Canadian universities •2005 - Opened to top companies •2006 – Opened to anyone with an email address Key Takeaways • Facebook has expanded its target segment over the years • It has done this without alienating its previous users Facebook is a social network for life
  19. 19. Facebook traffic break up Internal Facebook Users 60 40 Facebook Users 20 0 US Africa, Mid-east Asia Europe Latin America Key Takeaways • Facebook’s user-base is international • 29.3% of Facebook’s traffic is from the US (68.2% for MySpace). Therefore, it is less dependent on US traffic • They are well positioned to take advantage of the worldwide growth in social networking users
  20. 20. What is Facebook good at? Internal Strengths • Design – Organized, simple to use interface • Broad Target Market – Isn’t targeted to a specific demographic, but there is something for everyone (applications, musicians pages etc) • Activity Focus – FB focuses on connecting and not on a certain activity like music, business networking etc. FB is the largest repository of pictures on the internet (bigger than Flickr) • Transactions– Innovative features like applications, people you may know, pokes, comments, likes etc., serve to increase user transactions. • Privacy – Advanced privacy filters and controls • Entry Barriers – Easy sign ups • Trust – When approving a friend request, FB shows you the number of friends you have in common • Localization– Available in 40 languages (50 in development)
  21. 21. What is facebook NOT good at? Internal Threats and Weaknesses • Local Markets– Not the leader in key markets like China, Germany, Japan, India • User Engagement – There are early reports of ‘Facebook fatigue’. Not everyone is a fan of their new design • Applications – FB users frequently complain about the clutter brought about by applications • Infrastructure Costs – FB has been EBIT positive for 5 quarters but is not turning a profit because of (theorized) huge depreciation expenses for data centers etc. • It is not being able to monetize itself in keeping with the growth trajectory • Keeping the user base intact – Much of the recent growth has come from older people (and not the early tech-savvy adopters like earlier). The challenge is to not alienate the original FB users. •
  22. 22. Competency Ladder Internal The number of developers SUSTAINABLE COMPETITIVE working on FB apps & their ADVANTAGE collective innovation and energy The combination of: 1) DISTINCTIVE Innovation from the developers AND 2) the The strength lies in the Facebook team’s efforts to platform & the way the user retain user engagement interacts with it STRATEGIC COMPETITIVE ADVANTAGE The facebook platform resulting in the Maximum user engagement in the industry COMPETENCIES THRESHOLD Constant creation of new gimmicks to retain user attention (eg. The Like button) Creating a platform for users to interact with each PERIPHERAL other, using applications & The AJAX functionality, unlimited other means storage, easy to use interface – these will be copied with time INCOMPETENCIES Not good at ensuring privacy from applications. Inadequate rules
  23. 23. SWOT Analysis Internal STRENGTH WEAKNESSES 1. Huge active user base. 1. Weak at monetizing the user 2. Popular Platform for application base and delivering a high development number of ad’s per user 3. Present in all geographies 2. Inability to manage application 4. Translated in over 40 languages feeds leading to clutter on the 5. Email and Chat are integrated website & reactions from users OPPORTUNITY S-O O-W 1. Advertising is moving towards 1. Increase targeted 1. Work on ways to reduce the Targeted ads and not blanked advertisements and develop increasing amount of clutter on advertising. FB is perfectly “local ads” – A way of showing FB homepages positioned for this since it has a products relevant to the user’s 2. Create more monetization huge amt. of personal user location. opportunities information and preferences. 2. Improve quality of the 2. Improve Email and Chat integrated email and chat apps. THREATS S-T T-W 1. Social networking audience is 1. Try to deliver localized content 1. Always keep enhancing and fickle and thy frequently shift and ads (i.e. move beyond the innovating features to keep providers language translations) users coming back to the 2. People may grow tired of the 2. Improve development platform website. highly structured FB and move on aspects like security, privacy, 2. Increase opportunities to to MySpace monetization and limit clutter. customize pages without ruining 3. People have privacy concern design with Facebook
  24. 24. Long Term Objectives Internal To become part of daily life by becoming a complete communications tool Bring people and businesses on the same page to deliver services Create an enjoyable and useful online experience so that user engagement grows
  25. 25. Recommendations Internal • Focus on monetization to improve valuations when it needs to go in for further funding. Monetization • Use the ‘Status Updates’ to deliver targeted advertisements • Deliver “Local advertising” based on user locations. • The display of updates from applications annoys users & results in comparisons with MySpace. This Applications should be controlled • Privacy concerns from Apps to be addressed (rules & controls) • Clutter forces users to miss out on news about the people they are interested in • Improvement in storage, archival and search in the email and chat functions. (challenge is for FB to become the users primary email and chat client.) Communications • Solve the problem of how businesses can contact customer looking for services in a manner that does not infringe privacy
  26. 26. Industry Model for SOCIAL MEDIA 3 T’s Framework Social media can be broken down into Transactions the below 3 components to effectively analyze its competiveness. It needs to be able to do all three with varying competencies. Targeting Time T-Factor Question to be asked Function of Do the transactions on your site, make a Repeat Transactions difference to the users life? Are they transactions repeated? Can the site distinguish between the Targeted Targeting preferences, likes/dislikes of two users? Advertisements and Content Do your users spend time on your site? Are User Engagement Time you an industry leader in user enagements? & Content