Facebook Dilemma

Introduction:

According to Zuckerberg (2010), Facebook has become one of the most popular social networking
websites in the world; surpassed only in the United States by one of its competitors, MySpace.
Ultimately, Facebooks success is best measured by its extensive user-base, which, at over 400 million
users worldwide, is an indication of how appealing Facebook has become to customers. This appeal is
likely to grow, especially since more and more users are becoming familiar with digital technology.

As a digital firm, the majority of Facebooks business processes occur online; however, this environment
is both volatile and uncertain, which, according to Robbins, Bergman, Stagg and Coulter (2009), can
heavily influence the ongoing success of an organisation. Organisational success is also affected by
competitive forces, such as the power of customers, suppliers, competitors, new market entrants and
substitute products/services. In order to increase capital yield and to preserve market share, Facebook
utilises information systems. Additionally, Facebook continually innovates, uses e-commerce in the form
of advertising, develops and refines Web2.0 technology, and strengthens customer/supplier intimacy.
These key strategies can bring success; but, such strategies are a compromise, as their implementation
may also result in negative implications, such as a loss of customer privacy.

In order to explore the dilemma Facebook is experiencing, it is important to answer the following
questions. Both e-commerce and Web2.0 are technologies that have played a role in ensuring
Facebooks popularity; but, how have they been used to achieve such an outcome? Similarly, how has
Facebook been so successful in the short-term, and how can it continue to be successful in the long-run?
Which competitive force possesses the most influence over Facebook, and which strategy can best deal
with this competitive force? What are the weaknesses of Facebooks privacy policy and how can these
problems be rectified? Lastly, can the needs of advertisers, who supply Facebook with the majority of
their revenue, be balanced against the need to protect private, personal information? This report will
attempt to answer these questions by providing a detailed analysis of Facebook, including its business
processes, strategic management and information systems.
Question 1: The Effect of Web2.0 and E-commerce on the Popularity of Facebook

Facebook has utilised the advanced technologies of Web 2.0 and e-commerce in a simplistic manner to
create a new way of social networking. Consequently, the popularity of the online organisation has
experienced continual growth and success.

OReilly (as cited in Sheun, 2008, p.17) states that, Web 2.0 is the business revolution in the computer
industry caused by the move to the internet as a platform. RSS, wikis, widgets, APIs, blogs, UGC and
AJAX, are all parts of a relatively new technology called Web 2.0. These terms may sound daunting to
the general population and this has previously inhibited their use; however, Facebook has renamed and
utilised the technology in a user friendly way. This has resulted in a social networking website which is
simple to use and is growing in popularity. On each users profile is a collection of posts which are
displayed in reverse chronological order. This easy to use function, named, a Blog, is paramount to the
user and allows them to communicate with other users. The idea of user-generated content (UGC) from
Web 2.0 is utilised in Facebook when users upload their own photos, videos, and audio clips. This
method of communication allows users to further personalise their account. These uploads and blog
posts are then combined using an RSS feeder; a tool which collates the data onto one page, named the
News Feed. This allows users to easily see what their friends are doing. This central data source also
saves time and effort which would otherwise be spent searching for the necessary information in
separate web pages. It also allows for filtering; the process of limiting a search to include only certain
criteria.

The word friend, as used by Facebook, refers to users who have been given permission to view and
comment on another persons account. Users can organise their friends into groups; whereby, they can
start conversations, view and post photos, and make comments only on and by, the affiliated members
of the group. This is another function of Web 2.0 which is named wikis. Application Programming
Interface (API) and Widgets take Facebook to another level of social networking; whereby, users are
allowed the ability to tap into Facebooks database and create applications which can be added to the
system and adopted by users (Henry, 2007). We have opened (the) Facebook platform with a belief that
community innovation can give people the tools, and the power, to share and communicate in ways that
Facebook cant build on its own (Facebook, 2007). API, which is named F8 Platform by Facebook, allows
for an increased level of interaction, as users become both programmers and users. One example of an
application created by a user using F8 Platform is Chess, an interactive game whereby users can find and
add it to their account and play with their friends. F8 Platform allows the creation of these applications;
however, it is the use of Widgets that allows the designer to add the application to their profile so that
others can utilise its potential. Another part of Web 2.0 which is used extensively is AJAX. This allows
users to see what their friends are doing or thinking in real time with no delay. With the collaboration of
all of these features, Web 2.0 has assisted to ensure that Facebook is the worlds most popular social
networking website, which, according to OReilly, (as cited in Sheun, 2008, p. 10) literally get better the
more people use them.

Zuckerberg commented that Facebook is the most powerful distribution mechanism thats been
created in a generation (as cited in Kirkpatrick, 2007). E-commerce technologies play a fundamental
role throughout the organisation and allow its exponential growth and popularity. The marketplace
consists of consumer-to-consumer, free classified advertising; while, banner advertisements provide
business-to-consumer advertising. By utilising collective user value, Facebook is able to provide a
channel for mass distribution and create new opportunities for businesses. Partnering with Microsoft,
among others, to build profitable advertising spaces, the mass distribution element of Facebook is taken
to an even greater level with the ability to direct marketing to specific target markets. Marketers do this
by using profile information and also by utilising the consumers ability to pass on information to others
in their network. This ability to direct marketing to a specific audience is enhanced by the ability for
users to see what others in their network are buying or using, and, as stated by George-Cosh (2007), if I
know something about the person selling and if that person is in my network, I have a bit more
confidence in working with that person. Facebook, is successful as it offers a free social networking site
that attracts millions world-wide, and can then utilise this power of masses of people to attract and
advertise. This is where the company makes most of its revenue, and, as the number of users increase,
so does the popularity and success of Facebook as a global marketing tool for business. Furthermore,
through the combined use of Facebooks platform for creating new applications with Web 2.0, and e-
commerce capabilities, the organisation is capable of devising new business models. E-commerce is the
marketing side of Facebook which is ever growing in popularity, and therefore like a snowball pulling in
more revenue from companies as they use the success of Facebook as a social networking site.

The second generation Web service, Web 2.0 is used with great success by Facebook and this has
resulted in an extremely successful e-commerce organisation. By utilising the technology to increase the
overall satisfaction of consumers, and therefore increasing the popularity of the company to be the
worlds largest social networking web site, Facebook has also increased its benefits and popularity to
advertisers and made it a more successful e-commerce company.



Question 2: Technical and Organisational/Managerial Weaknesses of Facebooks Privacy Policy

Denham (2009) states that social networking sites such as Facebook are a cultural phenomenon due to
the fact that in the last five years, the popularity of such social networking sites have exploded. Millions
of people around the world are joining Facebook to keep in touch with their friends and family and to
meet new people. This represents a dramatic shift in the way people communicate, and the use of these
social networking sites raises interesting questions about long-held views on what it means to have a
private life or a sense of privacy.

Facebooks privacy policy is a four page document comprising over 2000 words. Bankston (2009) states
that to expect that every one of the 350 million world-wide users of Facebook have read this privacy
policy before they agree to the terms and conditions of Facebook is exaggerated. This demonstrates a
weakness in Facebooks complicated privacy policy and settings.

Facebook highlights in its privacy policy that members have control over what information they wish to
share with their friends or third party applications by selecting privacy options accordingly. With such
basic goals, you would assume that there is a simplistic and user friendly privacy system. Bankston
(2009) mentions that the weaknesses in Facebooks privacy policies and features have recently led to
the company conducting a complete overhaul of these features. These weaknesses include the
complicated privacy settings, external companies gaining access to user profiles and the inability to
permanently remove a users profile.

Management & Organisational Factors that have contributed to the weaknesses in Facebooks Privacy
Policies and Features:

In December 2009, after much scrutiny, Facebook revamped and simplified its privacy controls. Mark
Zuckerberg, Facebooks Chief Executive Officer, sent an open letter to all Facebook accounts explaining
the new privacy controls. Users can now choose whether their post is viewable to just friends, friends-
of-friends, or everyone. Facebook also combined some options in the privacy settings page to make
things simpler.

Some of these changes have been met with much criticism. Bankston (2009) states that in its attempt to
simplify its privacy settings, Facebook have actually removed some valuable privacy features. For
example, when a member signs up for a Facebook account, the default privacy settings enable the
sharing of personal information with anyone in the network. Facebook fails to inform users that failure
to alter the default settings constitutes consent to sharing member's personal information with the
world. Your name, profile photo, list of friends, favourite web pages, gender and networks that you
belong to are considered to be publicly available information. Members need to go searching for options
to restrict this access. Denham (2009) continues to add that Facebook does not direct users to the
privacy settings when they complete registration, when uploading photos, or, when Facebook alters
these settings. Although things have been simplified, these changes have also made users more
vulnerable to the outside world accessing members private details.

Management at Facebook argues that if you dont want to share a particular piece of information with
the world, select the option (per post) ie. every time you post something, select who you want to see it.
Bankston (2009) at the Electronic Frontier Foundation (EFF), recommends that it is a much safer option
to do the reverse; to set your general privacy default to something restrictive like, only friends, or, to
set your per post privacy to everyone for the posts that you are sure that you want to share with the
world. Personal information shared by users should have Opt-In consent to share with the world,
rather than current Opt-Out feature.

Bankston (2009) also explains that in its recent privacy overhaul, Facebook has actually removed the
users ability to hide their friend list from the world. This is an issue as members do not wish to subject
their friend list to any would be advertiser looking to gain more contacts and email addresses.
Management at Facebook has given advice that you can bypass this issue; however, these instructions
are in a difficult to find location and are entirely separate from most user privacy settings.

Denham (2009) explains that Facebook fails to receive meaningful consent from its members for its
collection and use of personal information. The issue of retaining personal information is sensitive as
members may not delete a nonusers profile, it just remains inactive.


Technology Factors that have contributed to the weaknesses in Facebooks Privacy Policies and
Features:

Tate (2009) explains that previously, Facebook used an advertising Platform called Beacon. This system
was based on a spam type advertising scheme, and would automatically tap into Facebook user profiles.
In this way, the advertiser could then absorb data about the web usage of individual Facebook users and
develop its own profile of the member for advertising purposes. Members were furious about this
Platform accessing their personal information and notifying members friends of websites people were
visiting. This eventually led to a lawsuit which resulted in Facebook shutting Beacon down in September
2009.

Another issue related to Facebooks privacy policy is Facebooks content tool system. A system defined
by ONeill (2010) as rogue marketers looking to expand their email lists. These marketers visit the
friend finder page on Facebook using a fake account. This method bypasses Facebooks search privacy
settings, resulting in a marketing company accessing members basic information (name, profile photo,
gender and location). This continues to be an ongoing issue.

Another privacy issue with Facebook is highlighted by Bankston (2009). He states that the new Facebook
privacy transition tool that guides users through the configuration of their privacy settings will
recommend (pre-selected by default) to share the content they post with everyone on the network.
This occurs even though members have previously limited access to friends only.

Laudon & Laudon (2010, p. 434) explain how Facebook enhanced APPS can access Facebook accounts
through the Facebook Platform. These applications are independent companies gaining exposure
through Facebook by inviting users to play games or interact using advanced features. Out-Law.com
(2009) describes the issue of privacy within Facebook APPS as a major concern. Members were
previously able to select a privacy option telling Facebook not to share any information about me
through this Facebook APP. That option has now disappeared and APPS can get all your public available
information whenever you or a friend adds an APP. Rather than eliminating this option, Facebook should
have made it more prominent and done a better job of publicising the change.

Denham (2009) reported that Facebook did not have adequate safeguards in place to prevent the
unauthorized access by APPS companies to Facebook members personal information, and Facebook
was not doing enough to gain the appropriate consent from users. Furthermore, Denham (2009)
concludes that social networking sites, members, employers and data protection authorities are only
beginning to develop the appropriate rules of engagement in this new digital world. Tate (2009) reminds
us that members should never forget that Facebook is not a community, but a Silicon Valley company
always looking for growth and new revenue streams.

Question 3: The Power of New Market Entrants and the Adoption of Customer/Supplier Intimacy

In every industry you will almost always find a stand-out firm. In the social network industry, Facebook is
considered the leader; serving over 400 million people across the world. CEO Mark Zuckerberg (2009a,
para.1) states Its a large number, but the way we think about this is that were just getting started on
our goal of connecting everyone. For Facebook to reach such a goal, it must adopt a strategy which
involves strengthening customer/supplier intimacy.

Customer/supplier intimacy has been defined by Laudon and Laudon (2010, p.127) as the use of
information systems to develop strong ties and loyalty with customers and suppliers. For suppliers,
Facebook represents a unique opportunity to reach targeted audiences based on demographic
characteristics, hobbies and personal preferences (Laudon and Laudon, 2010, pp.434-436). Companies
who attract large numbers of users to their applications are able to sell goods, services or advertising.
This is evident in the case study whereby it states that Scrabulous, an adaptation of Scrabble, receives
over 400,000 daily users who play, resulting in the application earning advertising revenue (Laudon and
Laudon, 2010).

To strengthen relationships with members, Facebook relies on an open and transparent system, where
all proposed changes are posted on the site in an effort to solicit feedback from the people who actually
use Facebook (Zuckerberg, 2009b, para.2). This feedback system, operating since 2008, is unique to
Facebook and has helped achieve many successful application changes, whilst providing valuable insight
into customers wants and needs. One such change is highlighted through the recently publicised
problems in relation to privacy controls (as discussed in the previous section). The resolution of such
privacy issues came from the actions of members who protested. These protests resulted in Facebook
modifying programs and allowing more than 350 million users to personalise information and select
who, when and what information will be distributed. This is part of Facebooks continuing response to
requests from both users and experts and, is the reason they continue to attract such a broad and
diverse group of users around the world (Zuckerberg, 2009c, para.1)

Strategies are determined by an analysis of the business and environment in an effort to identify forces
that have a high impact on the organization whilst providing knowledge on how they do, or can, achieve
a competitive advantage. One model used is Porters Five Forces Model, a model which provides a view
of the firm, competitors and the general business environment (Laudon and Laudon, 2010, p.120). These
Five Forces being: traditional competitors, new market entrants, substitute products, suppliers, and
customers. It is evident, from the case study, that the force most likely to impact Facebook is new
market entrants (Laudon & Laudon, 2010).

Laudon and Laudon (2010, p.123) state that some industries have either high or low barriers for new
companies to face when entering a marketplace. One such industry, with extremely low barriers, is the
technology industry encompassing the world of social networks. Today there are approximately 400,000
existing developers, with estimations that there will be as many as 250,000 sites calling themselves
social networks within one year (Swatrz, 2008). Facebook is defined within the industry as a first-mover,
with a very powerful brand recognition catering for an enormous audience. However, as highlighted by
Swatrz (2008), competitive advantages can be easily lost to rivals such as My Space and Twitter if
Facebooks performance and strategies fail to provide value to members. Value, which is not necessarily
monetary, can take the form of appreciated privacy protection policies. Laudon and Laudon (2010,
pp.434-436) express that members are reluctant to switch networks for fear of leaving friends and
family behind; however, applications such as Beacon, continue to damage the sites already shaky
reputation and provide new entrants with the motivation to entice Facebooks current members and
friends to switch to new innovative systems.

Zuckerman (as cited by Locke, 2007) emphasizes that Facebook is different from other network sites
available. They are about making their services efficient for people to communicate, gather information
and share information. Furthermore, additional applications will provide customers with the ability to do
more of the things they like on the web, without leaving Facebooks site. This continuous effort by
Facebook acknowledges that they provide more value in their products than the competition.

Question 4: The Balance Between Privacy and Financial Return

With Facebooks profits mainly obtained from advertising, it is essential for Facebook to maintain high
levels of advertising whilst protecting the privacy of their users.

Facebook allows companies to target their audience by using information users have provided on their
profiles.

CM Photographics, a wedding photography company, uses the relationship status on users profiles of
engaged, to identify which users would be most likely to use their company (Facebook Advertising,
2010). It would not be practical or worthwhile for CM Photographics to advertise their company on the
Facebook page of a user who is eighty years old, married, and male. By only advertising on females aged
between 24 and 30 who have their status as engaged, they are targeting the very audience who may
be interested in purchasing their product. Through using this tool, CM Photographics was able to
generate nearly $40 000 in revenue directly from a $600 advertising investment on Facebook (Facebook
Advertising, 2010).

Facebook has incorporated many user-defined settings into their site so that users can select who can
view their complete personal information. However, at the present time, default settings allow
everyone to view your family and relationship status as well as your education and work status.
These are the main details which companies rely on to decide on which users to target (Facebook,
2010).

For a beginner user of Facebook, adjusting these settings may prove to be more difficult than it should.
A beginner user may not even think about the consequences of posting the fact that they are engaged.
This status may be something that they wish to inform their friends and family about. They may not
realise that their updated status will have an affect on their lives; however, they may soon find
themselves subject to the advertising campaigns of companies who monitor Facebook profiles in the
search of engaged users.

With the privacy of users being one of the biggest concerns, Facebook needs to find a way to provide
information to its advertisers without infringing on the privacy of its users (Eldon, 2010). Some ways in
which this problem could be rectified is by displaying a short description of who can view your details
when you enter or update them. By also having privacy settings available to change next to each field,
users could view and change these settings easily. At present, there is no information displayed or
changeable on Facebooks profile pages regarding this matter. By adding this feature, Facebook could
put a lot more responsibility onto its users to manage their own security settings. This could allow
Facebook to concentrate a lot more on luring more companies to advertise on Facebook and not have to
worry about users being unhappy with who can view the details of their profiles.

Another feature that could be incorporated into the Facebook system is a monthly summary of which
companies have gained access to a users personal information. When users purchase items from a
company, this personal information can then be accessed by the company at any time. (Eldon, 2010) By
providing this summary in the form of a pop up window when a user logs on, they could view which
companies have gained access to their private information and by simply clicking a remove or allow
button, users could have much more control on who sees this sensitive information.

The best way for Facebook to improve the satisfaction of its users, so that Facebook can concentrate
more on the marketing and advertising of its invested companies, is to put a lot more responsibility on
its users by adding easy to use advancements. As suggested above, these advancements can be used to
provide a user-friendly way to adjust settings. The more satisfied Facebook users are, the more
comfortable different companies will be to invest and advertise on Facebook; which, will result in
increased profits for Facebook.

Question 5: The Success of Facebook in the Past, the Present and Future

Facebook has been fast expanding ever since it was created in 2003. It was originally only available to
Harvard College as a way for students to get to know each other. In March 2004, students at Standford,
Columbia and Yale were allowed access, and soon after, all Ivy League and schools in the Boston area
were using Facebook. On 26 September 2006, Facebook was opened up to all people over thirteen years
old who had a valid email address. Today, there are over 400 million active Facebook users in the world
(Facebook, 2010).

In the past two years, Facebook has become very highly used due to the number of new applications
that have been introduced. Some of these applications include friend networking, notifications, chat,
pokes, status updates, gifts, walls, photos, video uploads, news feeds, emails and games (Facebook,
2010).

The most popular application on Facebook is the Photos application. Users are able to upload unlimited
photos onto the profiles. For this reason it is the most popular photo application as other sites limit the
number of photos which a user may upload. In Facebooks Photo application, users comment and tag
photos. Users tagged in photos are sent notifications on their walls, saying that they have been
tagged. Users can visit their linked friends photos and comment on the photos that have been
uploaded. Users can also nominate privacy settings for their photo albums so that they can choose who
accesses their photos. This is a great way for people to interact and keep up to date on what their
friends have been up to (Facebook, 2010).

Another feature that increased the popularity of Facebook over the past few years was the introduction
of applications on Facebooks Platform. Facebooks applications range from Chess to Farmtown, an
application where you can manage your very own farm. By November 2007, seven thousand
applications had been developed. By July 2008, applications had grown to over thirty-three thousand
and the number of developers producing these applications had reached forty-four thousand (Eldon,
2010).

The introduction of the Facebook application on the iPhone as well as Facebook access on other mobile
phones has greatly increased the use of Facebook in current years. As of July 2008, over 1.5 million
people were using these services on a regular basis. Since the release of this service, Facebook has
become more accessible to many more people around the world (Eldon, 2010).

Facebook has constantly updated and released new applications which have kept it continuously
expanding ever since it was created. To maintain the current growth rate and popularity, Facebook
needs to continue this trend if they wish to remain the most successful social networking website. With
the release of new technologies allowing for more portable services, Facebook would be wise to
continue devising new and easier ways to access their website (Eldon, 2010).

One way in which Facebook could expand their current applications on the iPhone would be to create
separate application icons for each function the user wishes. For example, if you used Farmtown as
well as your Photo applications more than anything else, you could have an icon on your screen for each
of these applications which directly took you to the correct place with just the touch of an icon. With the
current population devising more efficient methods of doing everything, from grocery shopping online,
to managing personal finance online, it is obvious that people want to save as much time as possible.
This function would be a great way to modernise Facebook.

Facebook is constantly coming up with new applications every day. They have kept a fresh look to their
website, coming up with six different designs which they have used since its creation. As long as
Facebook continues to come up with new and exciting applications, as well as keep the feel of Facebook
modern and easy for everyone to use, Facebook will continue to grow at a steady pace.
Conclusion:

This critical report found that both Web2.0 and e-commerce have played a significant role in the
widespread popularity of Facebook. These two online features, which have become increasingly popular
today, have also become increasingly complex, so much so, that the average user may find it difficult to
decode unnecessary terminology. Facebooks simplification of these technologies has helped to
differentiate Facebook from their competitors. This, along with a minimalist design, intuitive Web2.0
applications, and an easy-to-use interface, has assisted in ensuring Facebooks popularity.

In addition, this report found that Facebook has adopted a strategy of customer/supplier intimacy in
order to combat new market entrants. This competitive force was shown to have a great effect on
Facebook, who relied on a transparent and open feedback system in order to strengthen the intimacy
between themselves and their customers.

However, Facebooks privacy features, although functional, are generally flawed in that they allow
personal data to be misused. Due to its great length, Facebooks privacy policy is often scanned or
disregarded, and, opt-in/opt-out features tend to trick users into disclosing personal information.
Furthermore, undesirable sources, such as marketers or advertisers, have access to basic user profiles.
As Facebooks primary source of income, advertisers need to be effectively managed to retain profit
levels; however, there must be a compromise so that sensitive information is protected.

Lastly, this report concluded that, in the short-term, Facebook has been successful because of its
innovation. By keeping ideas fresh and introducing new applications, growth has occurred at a
substantial rate. Furthermore, this report predicts that Facebook will continue to experience growth if
the same formula is adhered to.
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