Facebook Strategic Analysis

Introduction

Facebook is a very popular social network. The official date of foundation of the website is February 4, 2004. Facebook began as a site for communication students of Harvard University. The service was founded by Mark Zuckerberg. He has mounted the portal in the university dormitory. Thanks to this site, Mark Zuckerberg became the youngest “paper” billionaire in his 23 years. In March 2008, according to Forbes, Zuckerberg was in the list of the richest people in the world. The main difference from the social Networks of that days has become precisely the possibility of contact: Zuckerberg offered people a simple and convenient way to share information about each other. Up to September 2005, the site was used only by the students. In June 2006 Facebook was opened to the professional societies, and in September the free registration was offered (Kirkpatrick, 2010).

Facebook Strategic Analysis

PESTLE external analysis

Facebook is an international social network; therefore the generalized external analysis does not allow seeing the peculiarities of its usage in the countries.

Politics factor:

· A wide variety of political demands of various countries to the information systems, the presence of some countries, government regulation (China, Korea, Russia1, etc.) can reduce the number of Facebook users by censorship.

· The need to exert political influence on the citizens from the forces of opposition and those in power (Egypt, for example) and the constant political activity in one country, then another, then a few at a time (elections, changes in legislation, etc.) may limit access to the social network as a result of the activity of the special services.

· Property law may slow the development of the social networks and integrate them into daily economical factors (Jarzmensky, 2012).

Economic factors:

· A wide variety of economic characteristics in different countries (inflation, recession, etc.) allows the local competitors have a privileged position at the expense of deeper acquaintance with these features.

· The presence of an unstable and poor economic conditions (the Dominican Republic, Egypt, India, etc.) can reduce the cost-effectiveness of the network, etc.

· Different levels of welfare in different countries and different purchasing power affect financial performance.

· The constantly changing exchange rates and ratios may create a competitive advantage to the competitors.

· Different costs for energy, communications, etc., in different countries and the constant changes of these parameters complicate the work and create the ground for the emergence of substitute products.

· Transnational economic cooperation (national payment systems, acquisition, merger, partnership, etc.) and the development of e-commerce contribute to a more successful financial turnover of the company and its benefits (Helft, Hempel, 2012).

Social and cultural factors:

· Multiple languages of different language groups, the abundance of dialects, as well as the diversity of cultures, religions, and every day practices, different attitudes toward leisure and communication that reflect the desire of many users to communicate with representatives of the country, has the advantage of in-country competitors.

· Different levels of the computer literacy in some countries do not develop the network properly.

· Increasing intercultural and inter-state interaction among the people has supported the need for inter-country communication systems.

Technological factors:

· Unequal terms of access to the Internet and the development of this field in different countries complicate forecasting the development of the network and are indirect evidences that the increase in the number of Facebook users will come from countries where Internet access is unsatisfied.

· Different levels of development of the national lines in some countries can use Facebook as a means of the constant communication, while others are irregular.

· Different levels and pace of R & D and technologies in different countries are hampered by the inclusion of users and application developers.

Porter`s Analysis of 5 Forces

Porter`s Analysis is the analysis of the key competencies of the company.

In 2011 Facebook brand was valued at $ 3.7 billion. The key competencies for today can be considered (Helft, Hempel, 2012):

· The ability to establish and maintain the interest and the loyalty of the vast number of the users, to stimulate their activity. Facebook have over 620 million registered users, half of which come to the site daily. These users are active: in total they spend on the site 700 billion minutes per month. On average, each has 130 friends and creates about 90 pieces of content (links, news, photo albums, etc.) and they also install more than 20 million applications per day.

· The ability to motivate the staff and independent developers of applications, and the ability to manage them. Today it has been created a variety of more than 550 thousand applications (Helft, Hempel, 2012).

· Professionalism and dynamism of the team. Moreover, the team can be divided into core (the people working on the staff) and, relatively speaking, the freelancers (people creating a variety of applications for Facebook).

· High brand recognition by number of users, number of developers, quality and usability of applications. Also the so-called fashion trend of interest in the short term made the workers of Facebook rich people (the film “The Social Network” and the title “Man of the Year 2010” for M.Tsukerberga are the expression of this trend).

· The financial system (including investment), and the relationships with various major companies. Goldman Sacks has invested $ 450 million.

· The system of partnership: over 2 million websites are integrated with Facebook. Among them are as big as Twitter, Microsoft, MySpace, Yandex and etc.

· The ability to achieve high growth of the income’s rates and the value of the company: 177% revenue growth (Forbes, 2011), a five-fold increase in capitalization in 2009 (Forbes, 2011).

· Attracting a large share of small companies in the advertising revenue: 60% of small companies. This ensures more stability than a few large advertisers.

SWOT Analysis

Strengths

· The company has more than 620 million registered users, which is each 13th person in the world.

· Strong Facebook user: often comes to the site and downloads the application. 48% of people aged 18-34 check Facebook as soon as awake.

· Continuous development of range of applications due to the abundance of independent developers and full-time.

· The professional staff (full-time and independent).

· Well-established in many examples the system implementation and promotion of Facebook applications.

· High profitability: $ 1.86 billion Facebook earned in 2010 (iFacebook, 2011).

· The cost of the global Internet brand of 3.7 billion dollars, the interest of the public network (a movie, a success story, etc.) (Zuckerberg, 2010).

· Growth in the value of shares.

· A wide network of partnerships. More than 2,000 sites. Back in 2008, Facebook has released an application that allows the site to integrate with the social network (Zuckerberg, 2010).

· Facebook – is second only to Google in providing video traffic.

· Involvement of the social network of communities. As an example, Facebook is open to journalists.

· Social projects, such as programmes to prevent suicide.

· Support for start-ups (Hoffman, 2008).

· Instrument to influence the social and political situation (known people post on their pages, etc).

· Opportunity for some time not to report its financial results officially.

· Emphasis on the development and innovations.

· Constant maintenance of audience interest.

Weaknesses

· Virtuality of the resources. Relying entirely on the Internet and other characteristics. The greate reliance on human resource.

· Low representation in some countries because of the political or competitive situation, and the technical features (access to the Internet, for example).

· Tight relationship with the brand name of the founder.

· Opacity of financial activity: lack of public annual financial reports to display the company’s IPO pushes some investors and developers (Zuckerberg, 2010).

· Impossibility of an objective assessment of the value of virtual resources. May be very significant and rapid changes in the value of the company.

Opportunities

· Establishment and maintenance of a permanent durable presence on the network, and the prolonged consumption of the content, advertising, etc. The average time in social networks is 25 minutes (Zuckerberg, 2010).

· Development of the direction of video content. Facebook generates 9.5% of all video traffic, which puts the network in second place after Google (55%).

· Co-branding and co-operation with other companies from different sectors, expanding partnership.

· Development of the new and emerging applications.

· Creation and / or distribution of the third-party products and services. The best of the modern “trend” industries related to the development of the information society.

· Recreation, work, socializing, hobbies, community, commerce, etc.

· Continued support for the start-ups and the third-party developers.

· Having access to such a large audience, in order to sell and offer a wide variety of goods, such as electronic devices. The popularity of such devices is growing with the development of the society.

· The development of service offerings to Facebook, as many countries of the world are deepening presence by learning and using specific.

· Planned in 2012, access to the IPO – the potential to increase financial and intellectual investment.

· “Trending” provision industry. Internet development is developing the trend of the global information society, one of the most important characteristics which are: the ability to express their views;

Threats

· The investigation of the soaring stock Facebook can lead to the negative consequences for the value of the brand and the company, especially before placement on the IPO (Lacy, 2006).

· The explosion of “bubble”: the disappointment in the brand and the company’s structure, the sharp decline in the value. The statistics Exchange assesses Facebook to 25 times higher annual income (Google, by comparison, only 9 times) (Locke, 2007).

· Planned in 2012, access to the IPO is the threat of negative assessments of the company and, as a result it will cause the reduce in its cost (Jarzmensky, 2012).

· The breakthrough in competitor’s activity and as a result the emergence of the substitute products hazard to the number of users and their activity. Negative activity of potential Facebook buyers to reduce the cost of the company (Apple, Yahoo …) (Lacy, 2006).

· The negative impact of the partners and investors on the financial, intellectual and technological activities. Among the partners there is a very large company with the potential to make changes in Facebook (Locke, 2007).

· Hacking and piracy networks.

· The weakness of the copyright, the immaturity of legislation in different countries. The potential increase in the number of claims on Facebook;

· The potential political influence of the network. Some countries may prohibit or restrict the access to Facebook with the intension of preserving the political system (in particular, the example of the Vatican) (Rosen, 2005).

· Interest of the security services to the resource policy in some countries (China, Korea, maybe, Russia …) (Hoffman, 2008).

· The rapid development of the Internet. Perhaps the emergence of the new customers, imitators and substitutes in the short term;

· Reduction of the rate of the Facebook development. As a consequence of this and the preceding paragraphs the audience interest may blur, there will be overflow to other resources and loss of activity (Hoffman, 2008).

· The outflow of the users for technical reasons, because of the inconvenience. According to some business people, Facebook is not easy in maintaining the service and business relations (Zuckerberg, 2010).

· The danger of cultural mismatch. Work in many different countries makes it necessary to be specific, but it is pretty hard.

· The need to access the Internet and the level of skilled users.

Conclusions and Recommendations

Thus, carried out the SWOT analysis of micro environment, the PETS analysis of Macro environment, having used the 5 Porter`s forces and Market Mix analysis it can be concluded that the main strength is the numbers of the users and the access in different parts of the world. The PETS analysis showed, that the company has very good economic strategies, thus the advantage is in releasing the new type of product in the country, where the similar ones have not been released.

Referring to the economic factor, we emphasize the two most important theses. The first is the explosive growth in popularity of social networking if not inevitably end in failure; in case of collapse it surely will go to the stagnation. The analysts agree that social networks could suffer an ignominious downfall of the dot-com bubble. Thus, the company Datamonitor predicts that the peak of growth of the number of users of social networks was in 2009 and by 2012 growth would come to naught. The experts believe that by the end of this year, the total number of users of such sites will reach 230 million in turnover, received by owners of social resources; this year the price will rise to $ 2.4 billion, and then begin to decline. So unreasonably large investment leaders in the IT-industry social networks, apparently, will not bring the proper dividends (Socialbakers employee, 2011). Recall, we are talking about acquiring corporation AOL social network Bebo for $ 850 million and investments in Microsoft Facebook $ 240 million (Helft, Hempel, 2012).

The major component of the social networking is the selling of advertising space and charging a user fee for providing the service. The first option for the optimization of the work of Facebook is the “emotional” factor; the second is the “rational” one. It is obvious that transferring the social network exclusively for paid basis immediately leads to the collapse. The most users are not willing to pay even $ 2 per access to social networks (Helft, Hempel, 2012). Therefore paid accounts are available only those who need an expanded package of services for example, in LinkedIn – only in this case, their implementation is feasible. The indirect sources of income for the owners of social networks include invaluable marketing information about the preferences of the category of users. Another popular means of monetizing traffic are “wish list” and spontaneous purchases based on user preferences. Thus the social network should be better developed in this field. Due to its development, Facebook could get rich by signing partnership agreements with the Internet shops.

Furthermore, evaluating the weaknesses we can make the conclusion that Facebook is very powerful set of information which is someone might be willing to have, therefore the protection level should be better.

Finally, low representation in some countries because of the political or competitive situation, and the technical features (access to the Internet, for example) can be overcame due to the creating the partnership with the other companies.