Executive Summary
Facebook is a company and an online social networking service that is based in Menlo Park, California. It first was launched in 2004 by its founder, Mark Zuckerberg along with some of his classmates in Harvard University. The initial membership of the site was limited to Harvard University students, and then spread among ivy league students, and later on to the rest of the world (Carlson, 2010). The number of views to the site reached 1 trillion in 2011, and became the world’s second-greatest accessed site after Google (Fernandes, 2011). The analyses performed in this paper resulted in three main issues that need to be addressed. These are the issues of security and privacy, the need to attract and retain innovative and competent employees, and to work around the fact that there are potentially huge markets whose governments still censor websites and the Internet within their boundaries.
External Environment Analysis
Political
There has been increased pressure from the various regulatory agencies and governments themselves for Facebook to enhance its safeguards such that the privacy of the information placed by the members of the site is secure, and can be shared only to those selected by the member himself. Privacy advocates as well as legislators have long been demanding this of the company. This implies also that the company has to strike a balance between its overall mission of information sharing while protecting the privacy of its members (Reisinger, 2010).
Economic
Facebook has helped generate many jobs and has defined the online social media industry. It is estimated that the company in 2013 was worth about USD 100 million due to its enhanced capabilities and applications for mobile phones (Womack, 2013). In 2012, it is said that the company generated about 450,000 jobs worldwide. While the overall employee count at this time was 3,000 worldwide, due to the almost one billion users worldwide. The job generation is said to be due to business offering their products and services onsite, therefore being able to generate sales through the business pages of Facebook. On the other hand, there are those who say that businesses are losing because the employees spend too much time on Facebook, with researchers in the UK saying that the country is losing $ 204 million every day because employees are spending more time on Facebook than on their jobs (Gustin, 2012).
Social
The impact of the company on the social environment has been tremendous. Family members who have not seen or heard from each other for many years are now able to communicate through Facebook. Old classmates, friends from way back and other long-lost acquaintances are immediately found on Facebook because of the wide reach of the platform. Businesses too, are allowed to have a “social life” and connect to the people in their respective target markets.
Technological
Facebook has raised the bar for the technology that is used in this industry. All the other online social media networking sites are working hard in order to achieve the level of technology savviness enjoyed by the site. The site allows for the use of a number of apps to include free games and other funny applications that users may enjoy and share with their friends online. The site is also very user-friendly, such that even an individual with very little computer skills can manage to navigate through the site. He can immediately send messages, upload pictures and play games with little instruction. As there are over a billion members and users of the site, then this means that the storage of information and data of the company is quite sophisticated as well. This also means that the users enjoy a great bandwidth depth and speed, and in all probability, the company has enjoyed economies of scale in terms of decreased bandwidth and data center costs.
Legal Environment
Just like any other business, the company is governed by the laws of the United States and the State of California, where it is headquartered. Also, as many users of Facebook use their smart phones to access the site, the Electronic Communications Act and several other laws govern the use of smart phones in the United States (Privacy Rights Clearinghouse, 2005).
Environment
The online social media industry is dominated by a few players, namely, Facebook, LinkedIn and Twitter. The industry thrives in a very dynamic environment that experiences a lot of changes especially in the areas of technology, and that there is a need for significant amounts of investment if one wishes to be technologically advanced as compared to the competition. The main areas of competition are the size of the user base, the degree to which the site is integrated with other websites and applications, and the unique features of the platform that each company uses or is based on (Stelzner, 2012).
Porter’s Five Forces Analysis
Industry Rivalry The industry rivalry is high as the competition in the industry is quite stiff. The speculative valuation as well as the surge in venture capital as shown by the growth and profitability of these sites (Zhang, 2012). There are also new social networking sites attempting to be at par with Facebook with regard to its technology and innovation.
Supplier Power Supplier power is low in the industry, as the application and other widget developers have little bargaining power. As with the other tech companies, these small developers are often purchased by the bigger players.
Threat of New Entrants The threat of new entrants is at a moderate level. This is because the new players have elected to focus on a certain kind of social networking activity rather than match the other players’ platforms and activities.
Buyer Power The power of buyers in the industry is quite high. It does not cost a lot to move from one site to another. Also, many users have accounts in more than one site.
Threat of Substitutes Beside the other players in the industry, there are other retail-based networking sites that can adjust or tweak their platforms to include a social networking component. They can do this because of their large user base. Examples of these sites include Amazon, Barnes and Noble, Target, etc). Thus there is a moderate level of the threat of substitutes.
VRIO Framework
A simple VRIO analysis for the company can be seen below:
At this point in time, it is essential that the firm take care of its talent, and also create and implement recruiting strategies in order to attract the most innovative and the most creative talent for the organization. As of now, the organization has grown because the users are attracted to what the talent of the organization has presented in the site – the content that is generated by the users themselves, and because of the structure and the applications that users can take advantage of.
Financial Ratios
(Nasdaq, 2016)
The company is very liquid indeed! It is rare to see a current and quick ratio of over 11 times! This means that the company has so much funds that it will be able to cover for all its short-term debts should they fall due altogether eleven times over. The gross margin is also unusually large, while the profit margin is almost a fifth of all the sales. This would certainly allow the firm to plow a huge amount into the company as a reinvestment. The company certainly has more than enough cash to fund activities such as advertising and research and development.
SWOT Analysis
(Huessner, 2012).
Issues and Recommendation
The first issue that must be addressed by the company are the issues of security and privacy. Should many more accounts be hacked, then the users would deactivate their accounts and move to another social networking site, and would most probably spend their money on those new sites. This then translates to lost income and profits for the company. If the users feel that their private information can be stolen, or that their names and information can be used for less than proper intentions, then they will certainly move to other social networking sites.
The second issue that must be addressed by the firm is how to attract the best and the most talented in terms of innovation, and how to keep them in the firm. Part of the firm’s success is due to the innovative integration, information sharing and applications that are available to all the users of the site, and so, later on, if the perception of the users is that the platform is no longer interesting or innovative, again, users will flock to the latest and most innovative site. Again, when this happens, this means lost revenues and profits.
A final issue would be the need to address how Facebook would operate in countries where the government is known to establish censorship. China is one country where the potential market is huge; but then censorship also exists such that the operations in this country may be less than optimal.
Alternatives
The first alternative would be the status quo – that is, to do nothing and let things go the way they are going right now. This should be fine, because financially the company is doing very well. However, there may come a time when the users no longer have a delightful experience on Facebook. Also, fearing for their privacy and security, the more technologically savvy users may just move to another site where they feel that their information will be more secure and will be held in privacy.
The second alternative of course would be to address all the three issues – the issues of privacy and security, the need to be more innovative and attract the best employees, and to learn how to take care of the threats posed by governments that censor activities of websites. Creating and implementing strategies that will address these issues will always have the effect of attracting more and more users to the site who will potentially be able to spend on the site. With one hundred million users, if each spends a dollar a day, then that is revenues of about $ 100 million a day! Therefore the best and the most creative and innovative employees are needed for this endeavor. Finally, censorship can certainly be worked upon through open dialogue with the proper authorities. China is a big market that any merchant would not want to give up on.
The second alternative would certainly be the best to do at this point in time. It is better to stay head of the pack, as they say.
References
Carlson, N. 2010. At Last – The Full Story of How Facebook was Founded. Retrieved from: http://www.businessinsider.com/how-facebook-was-founded-2010-3#we-can-talk-about-that-after-i-get-all-the-basic-functionality-up-tomorrow-night-1
Fernandes, R. 2011. Facebook the Second Most Accessed Site, Behind Google in the US. Retrieved from: http://tech.firstpost.com/news-analysis/facebook-second-most-accessed-site-behind-google-in-the-us-24393.html
Gustin, S. 2012. Facebook is Responsible for Creating 450,000 Jobs! Really? Retrieved from: http://business.time.com/2012/01/31/facebook-is-responsible-for-creating-450000-jobs-really/
Huessner, K. 2012. Internet Advertising Still a Growth Business, But Pace Slows. Retrieved from: https://gigaom.com/2012/10/11/internet-advertising-still-a-growth-business-but-pace-slows/
NASDAQ. 2016. FB Company Financials. Retrieved from: http://www.nasdaq.com/symbol/fb/financials?query=income-statement
Privacy Rights Clearinghouse. 2005. Privacy in the Age of the Smart Phone. Retrieved from: https://www.privacyrights.org/content/privacy-age-smartphone#issues
Reisinger, D. 2010. 10 Ways Facebook can Improve Privacy and Security. Retrieved from: http://www.eweek.com/c/a/Cloud-Computing/10-Ways-Facebook-Can-Improve-Privacy-and-Security-856070
Stelzner, M. 2012. 2012 Social Media Marketing Industry Report. Retrieved from: http://www.socialmediaexaminer.com/SocialMediaMarketingIndustryReport2012.pdf
Womack, B. 2013. Facebook Market Value Tops $100 Billion Amid Mobile Push. Retrieved from:
http://www.bloomberg.com/news/articles/2013-08-26/facebook-market-value-tops-100-billion-amid-mobile-ad-push
Zhang, K. 2012. Social Media Competition: Differentiation with User-Generated Content. Retrieved from: http://www.parisschoolofeconomics.eu/IMG/pdf/PSE-comm-and-beliefs-june2012-Sarvary-Zhang.pdf
