CASE Study 1- Facebook - Assignment PDF

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BPMN 6023 STRATEGIC MANAGEMENT GROUP 1: CASE STUDY 1: FACEBOOKLecturer: DR. MOHD TAIPOR BIN SUHADAHPrepared by:SITI FARAH NORBAINI BINTI MOHAMAD (826177)Table of ContentsEXECUTIVE SUMMARY....................................................................................................................

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BPMN 6023 STRATEGIC MANAGEMENT GROUP 1: CASE STUDY 1: FACEBOOK

Lecturer: DR. MOHD TAIPOR BIN SUHADAH

Prepared by: SITI FARAH NORBAINI BINTI MOHAMAD (826177)

Table of Contents EXECUTIVE SUMMARY.........................................................................................................................2 INTRODUCTION.......................................................................................................................................3 DISCUSSION.............................................................................................................................................4 MARKET & TARGET MARKET..........................................................................................................4 INDUSTRIES PERFORMANCE............................................................................................................7 FACEBOOK PERFORMANCE..............................................................................................................8 ANALYSIS OF CASE.............................................................................................................................9 Michael Porter 5 forces analysis..........................................................................................................9 SWOT analysis..................................................................................................................................12 Crafting and executing Strategy.........................................................................................................13 RECOMMENDATION.............................................................................................................................15 CONCLUSION.........................................................................................................................................17 REFERENCES..........................................................................................................................................18

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EXECUTIVE SUMMARY Founded in 2004 by Marc Zuckerberg, its mission is to give people the power to build community and bring the world closer together. Facebook has become social networking giant nowadays by evolving rapidly since going public in 2012. Even though experiencing some fair amount of criticism and a bit of investors uncertainty at the beginning, Facebook has made it by surpassing the Wall Streets’s expectation just a year later back in 2013.

The social networking market is highly competitive and is prone to rapid change through the introduction of disruptive technologies.with these challenges, Facebook needs to continuously innovative and adapt to changing user trends to keep the engagement levels stable on the platform.

However, Zuckerberg and his top management team has made it so far by adapting a few brilliant strategies to ensure its long term and profitable growth. The strategy they adapted also evolves over time to match the market condition, emerging market opportunities, shifting buyer needs and preferences together with some other factors. Clearly the success of Facebook story also contributed by strategic leaders they hired. Zuckerberg succeed in hiring the professional and performing team that is able to bring Facebook to the next level, which has the right attitude and skills to help Facebook to achieve strategic competitiveness and above average return.

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INTRODUCTION Facebook has a massive growth since its launching on 2004. It has gone public in 2012 and has gone beyond prediction of business people by surpassing their expectations to survive the business. Instead of surviving, Facebook team has made it successfully and considered to be excellent in the market of social media. What started off as a place for college students to connect with each other has now grown into the world's largest social network.

Mark Z, the founder and his management team had adjusted their firm’s strategy to compete as a public company and to ensure its long-term and profitable growth by applying a few strategic strategies to achieve above-average return. Above average returns are earned when firm are able to effectively study the external environment as the foundation for identifying an attractive industry and implementing the appropriate strategy.

This case study has evaluate Facebook’s strategic planning, internal and also external factors by using SWOT analysis and Michael Porter 5 forces analysis that has made Facebook as the top giant player in Social media within short period of time. Apart from the fact that Mark Z is excellent at using Resource-Based Model of Above-Average Returns to ensure its ability to to earn above-average returns.

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DISCUSSION MARKET & TARGET MARKET In early days the Facebook begin with an application named FaceMash developed by its founder Mark Z. Mark Z at first developed FaceMash during his sophomore year in Harvard. Not surprising he did it well as Mark Z took major in psychology, but took plenty of computer science classes along with it. At first The Facebook targeted students in Harvard. In December 2005 Australian and New Zealand universities were included, along with high schools from Mexico, the UK, and Ireland. That meant there were now 2,500 colleges and 25,000 high schools with access to Facebook.

It wasn’t until September 2006 when the platform became open for everyone (well, anyone over 13 with a valid email address). Facebook had now gone fully global. We also started to see the rate of membership growth: December 2006: 12m April 2007: 20m July 2007: 30m October 2007: 50m

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In May 2007, Facebook open their Marketplace, which lets users post classifieds to sell products and services. It also saw the launch of the Facebook Application Developer platform, opening the gates for developers to create their own applications and games that integrated with Facebook.

The platform was also looking beyond personal profiles to how businesses could use the site. By the end of 2007 over 100,000 companies had signed up, with Facebook launching Pages for Businesses to support this. Already they’re making plans to build on existing ad revenue to make advertising on the platform accessible to even the smallest of businesses. Then in 2008 we see a huge release from Facebook. April, 2008 saw Facebook Chat roll out, allow us to more instantly annoy our friends and family. We also see the People You May Know, Facebook Wall, and Facebook Connect released in the same year. Meanwhile the user count continues to grow: August,

2008:

100m

January,

2009:

150m

February

2009:

175m

April,

2009:

200m

July,

2009:

250m

September, 2009: 300m

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We also saw one of the big Facebook games appear. Farmville was released in June, 2009 and, despite being a rip off of a game called Farm Town, became a huge success. By August it had 10m daily active users. So, so much virtual corn.

By doing all above, Facebook is attracting more users, made it as the most powerful social media company nowadays. With 2.41 billion monthly active users as of the second quarter of 2019, Facebook is the biggest social media worldwide. It is no secret that Facebook is making money by offering targeted advertising opportunities to companies and small businesses. In fact, over 98% of its revenue derived from advertising. Here is the detailed breakdown of how Facebook monetizes. Facebook relies on user data to make money through multiple platforms like : 1. Self-serve advertising. 2. Targeted advertisements. 3. Facebook messenger ads. 4. Video ads. 5. Facebook mobile. 6. Data generation.

INDUSTRIES PERFORMANCE

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Social media refers to user-created content (audio, text, video, multimedia) that is published and shared online. It is also the online technology that allows users to share content and communicate with one another. Social media has changed how we live our lives and affected how nearly every industry does business. People use social media to stay informed, compare and buy products, and keep in touch with family and friends. Companies also use social media to reach customers. They have in-house social media departments or hire consulting firms to help them develop a social media strategy, market their products, and manage their profile across various types of social media. Nonprofits and government agencies use them to spread information about their programs and services. Social media has become extremely popular (and a lucrative industry) in recent years. Social media accounted for 19 percent of all online minutes at the end of 2015, according to Cross-Platform Future in Focus U.S.: 2016, from ComScore. Revenue in the social media industry is increasing rapidly. In 2015, worldwide social networking advertising revenue reached $23.68 billion, according to eMarketer. This is a 33.5 percent increase from 2014. Social networking serve three main purposes in addition to connecting people : 1. Advertising 2. Employee and idea screening 3. Application development and gaming. The social networking industry is growing rapidly, imitations cost are low, and it is difficult for companies to protect their competitive advantages for extended period.

FACEBOOK PERFORMANCE

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Social networking giant Facebook has shown tremendous growth in the recent past, resulting in almost doubling of its stock price from the IPO level of $38 per share. The market values the company at more than $200 billion, with a P/E ratio of around 70. Its top-line has risen by over 60% during the last nine months, and this impressive growth is expected to continue in the future. In addition to its core platform, Facebook also has other platforms including Messenger, Instagram, WhatsApp and Search, each of which have the potential to become multi-billion dollar businesses. In many respects, the company has not even begun scratching the surface of this opportunity.

According to our analysis, the social networking market is highly competitive and is prone to rapid change through the introduction of disruptive technologies. Facebook needs to continuously innovative and adapt to changing user trends to keep the engagement levels stable on the platform. The low barriers to entry in the Internet business further intensify the competition in this market. Moreover, Internet usage is increasingly shifting to mobile devices, where the landscape is quickly evolving; hence we think investors need to keep an eye out for popular mobile apps as they could impact Facebook’s popularity. The switching costs for users are low and hence they could easily shift to newer apps for sharing information and microblogging.

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ANALYSIS OF CASE Michael Porter 5 forces analysis

A Five Forces analysis of Facebook Inc. reveals issues that affect the company’s position as one of the top players in the international social media market. Michael Porter developed the Five Forces Analysis model to evaluate the external factors that influence companies’ industry environment. In this business analysis case, such external factors influence the level of competitive rivalry that firms like Facebook experience in the global social networking market and the online advertising industry environment. As one of the biggest competitors in the multinational industry, the company enjoys the benefits of high revenues and popularity among users and advertisers. This position helps ensure the fulfillment of Facebook’s vision and mission statements. However, to keep this market position, the company must counteract the negative effects of external factors shown in this Five Forces analysis of the business and the online display advertising industry environment.

 Competitive rivalry or competition (moderate force)

Even with its leading social media market position, Facebook Inc. experiences the significant impact of competition. This element of Porter’s Five Forces Analysis model determines how competitors affect Facebook’s industry environment. There are only a small number of companies that offer online display advertising services similar to that of Facebook Inc. For example, YouTube LLC (a subsidiary of Google LLC) has a social media website that offers targeted online advertising service. Apart from that Google Plus, Twitter, MySpace and LinkedIn also make the competition rivalry intensified as they have their own advantages and 9

disadvantages. This competition normally will challenge the Facebook to improve its market position.

 Bargaining power of buyers or customers (strong force)

Customers impose pressure on Facebook Inc. in terms of what they want from the company. The impact of consumers or buyers on the online display advertising industry environment is examined in this element of Porter’s Five Forces Analysis model. Facebook provides social media services to its members/users. However, advertisers are the company’s primary source of revenues. These advertisers have the option to use substitutes, which are highly available. For example, instead of advertising on Facebook, customers could advertise on television, radio and print media, all of which are widely available and effective in reaching target audiences. In this Five Forces analysis, such a condition exerts a strong force against the business, despite the social network’s strong popularity (see SWOT analysis of Facebook Inc.). In addition, low switching costs are an external factor that makes it easy for customers to shift away from the company’s social networking website, mobile apps, and advertising services. This factor exerts a strong force against the business. The high demand for online advertising buffers the potential shift of advertisers and slightly weakens the bargaining power of customers. This element of the Five Forces analysis shows that Facebook Inc. must prioritize its customers to ensure competitive advantage.

 Bargaining power of suppliers (weak force)

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Power of suppliers like those companies who supplied storage solutions, power solutions, software, data center and office equipment, technology are considered weak because as Facebook is a large scale customer holding significant buying power. Since in the market there are only a few reputable companies offering these, Facebook able to raised their bargaining power to the extend.

 Threat of substitutes or substitution (strong force)

It is easy for advertisers to pay for substitutes, such as television, radio and print advertising, instead of paying for Facebook’s social media advertising. In the Porter’s Five Forces Analysis framework, this condition exerts a strong force on the company. In relation, the high availability of such substitutes strongly affects the industry environment. Nonetheless, many of these substitutes, especially television advertising, are more expensive than Facebook’s advertising services. Such cost condition exerts a moderate force on the company. This element of the Five Forces analysis shows that the threat of substitution is one of the major issues facing strategic management at Facebook Inc.There are a large number of social networks that facilitate sharing of information, and hence customers could choose these other platforms over Facebook. A number of social networks cater to specific interests such as cooking and gaming, and hence any increase in their popularity could impact engagement levels on FB-owned properties. Apart from this, new and innovative mobile applications keep entering the market and they could potentially impact user growth on Facebook in the longrun.

 Threat of new entrants or new entry (moderate force)

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Rapidly evolving mobile landscape could resulting newer (more innovative) players enter the market. The Internet business is characterized by low barriers to entry. It is relatively easy to build new sites and applications. However, significant amount of resources are required for marketing and for gaining brand recognition, and this raises the barriers to entry to an extent.The introduction of innovative and niche social networking sites could potentially be a threat to Facebook. The rapidly evolving mobile landscape is an area to watch out for as Facebook’s usage is increasingly shifting to mobile platform -mobile daily active users (DAUs) comprised for more than 80% of overall Facebook’s DAU in September 2014. Hence, we believe investors should closely track the rising popularity of new mobile apps (in areas including social sharing, messaging, micro-blogging) as this market is still emerging with the advent of smart phones.

SWOT analysis STRENGTH 1. Strong brand image 2. Large consumer base with externalities 3. High revenues 4. Innovative workforce OPPORTUNITY 1. Business diversification 2. Product innovation 3. Market penetration and development

WEAK 1. Imitable products and services 2. Negative impacts of online advertising on user experience 3. Low diversi�cation of business THREAT 1. Imitation 2. Cybercrime 3. Market saturation

Crafting and executing Strategy Strategic Leaders

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Its not surprising that Facebook was able to thriving to be among the top player within short period of time. This is contributed by a few strategic leaders and their management team. Strategic leaders are people located in different areas and levels of the firms using the strategic management process to help Facebook Inc to achieve its vision and fulfilled the mission. Strategic leaders contribute to organizational culture that are shared throughout Facebook and influence how they run the business. Among the strategic leaders in Facebook are : 1. Mark Z, Chairman of the Board and CEO. Founder. 2. David Ebersman, CFO. Brought his expertise regarding public companies and his strong operational background. His presence has resulted in greater confidence for Facebook’s team and its shareholder. 3. Theodore Ullyot, VP and General Council. Ullyot’s experience in government as well as public and private companies coupled with his telecommunication expertise and high level connections make him a perfect fit for Facebook. His current responsibilities includes examining, addressing the rising concerns about data privacy among Facebook users. 4. Sheryl Sandberg, COO. A very influential leader in Facebook’s top management team. Her knowledge of international market and finance is valuable as Facebook forms and implemented its international strategy.

Acquisition

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Acquisition has played a significant role in Facebook’s success. Facebook has forged relationships with many influential companies over the years to add product and technologies into the market. Not only that it is more crucial strategy for them to actually gained access to valuable human capital. From 2008 to April 2013, Facebook acquired over 30 companies. The majority of these companies were never intended to survive as independent businesses. Facebook uses the acquired employees to improve Facebook capabilities and develop new businesses. Each acquired business brought knowledge to Facebook in a strategic area of its weaknesses. Facebook utilizes partnership to help strengthen and enhance products offerings to customers. These strategic partnership broaden and expand the Facebook experience and provide the firms users with an engaging and complete products.

RECOMMENDATION 14

Facebook Inc. benefits from its market position in the social media business. However, this SWOT analysis points out a number of issues that the company must address to maintain its growth and pro�tability. For example, imitation enables other firms to compete in the online advertising industry. Also, Facebook is a prime target ...