Facebook, Inc.

Strategic Analysis
Faizan Qureshi
BPS 4305.502
Soo Jung Kim
Executive Summary

Facebook, a company which attributes its humble beginnings to a student in a college

dorm room, has had an explosive amount of growth in the past ten years. There isn‟t a major

website, corporation, or even a university that doesn‟t have its own Facebook page. This

staggering fact illustrates the profound impact that this company has had at all levels of business

and has embedded itself in contemporary culture. In fact, Facebook‟s position in the social media

market is so strong that there is no major platform that can directly compete with it. However,

many of Facebook‟s most vocal critics have used the “bigger they are the harder they fall”

approach when criticizing the success of Facebook by asserting that all it takes is another

revolutionary website that will blindly attract the masses to knock Facebook out of its spotlight.

It‟s a valid assertion given the fate of websites such as MySpace and Xanga. Given the fickle

nature of consumers collectively, Mark Zuckerberg torpedoed an approach to this website in

which the dynamics is constantly changing, new features are available, and most crucially,

branding the name of his company into different aspects of people‟s lives. Facebook is not only

an American name, but it is also an international brand which transcends to different nationalities

and different cultures.

Introduction

The fundamental problem of Facebook has always been the issue of Privacy of its millions of

users who unlike the founder, have a more limited definition of making the world a more open

and connected place. Facebook was originally founded by Mark Zuckerberg, who as of today is

still the Chief Executive Officer of Facebook. Originally intending to be just a „Harvard

Connection‟ Facebook‟s primary motive was to be a website exclusive to Harvard students and

as a way for them to be able to interact and meet with each other. Harvard University had a

policy that did not allow basic information of students, such as a photo and a list of individual
names next to the each photo being available to the student body. Mark Zuckerberg, seeing this

redundant policy, tried unsuccessfully to have Harvard release this basic information. He

ultimately decided to take matters into his own hands, and through hacking the Harvard

computer system, along with breaking a dozen school rules, he obtained the basic information of

the student body. He decided to share this information with the public through a website called

„Facemash‟ which portrayed photos of female students side by side and asked the user to rate

them based on attractiveness. After the Harvard staff discovered the incident, they disciplined

Mr. Zuckerberg and asked him to take down the website or face expulsion.

Mark wasn‟t discouraged, however, because internally he still believed that connecting

people and making his campus a more open place was the right thing to do. This led him to

create a website called TheFacebook.Com, which was anticipated for students to enter their

individual basic information, and subsequently have access to many students as contacts for

social interaction. In spring of 2004, TheFacebook.com was formally launched at Harvard and

as awareness of the website grew through word of mouth, many students started to create their

own Facebook page. Students would use it for interacting and meeting, for example, during

exam times, students would network online to create study groups. Everything seemed well at

the beginning, but little did Mark know that his legal troubles were about to begin. A few days

after the initial startup, three of Zuckerberg‟s classmates filed a lawsuit which asserted that Mark

used their own idea for a network connection, and promoted it as his own creation. The lawsuit

was later settled out of court. As Facebook grew at Harvard, Zuckerberg decided that it wasn‟t

prudent to keep the website exclusively for Harvard students and within a few months, Facebook

was available in at least thirty different campuses. This was the turning point of Mr.

Zuckerberg‟s fortunes, because at this time it was realized that Facebook was not only going to
be reserved at the local level or even at Universities, but it had the potential to expand to a

national and international brand name, which as history records, is exactly what happened.

After his second year at Harvard, Mark, and two of his classmates Dustin Moskovitz and

Chris Hughes, made the bold decision to move to Palo Alto and the Silicon Valley to which it is

home to. This was also when Zuckerberg collaborated with Sean Parker, founder of the peer to

peer file sharing program, Napster. Parker, being an experienced Entrepreneur, guided

Zuckerberg to find the big players of investment in his company because in the beginning Mark

didn‟t want to simply generate revenue form ads, which would make his website unique. This

was also the time when Mr. Zuckerberg was introduced to Peter Thiel, co-founder of PayPal and

managing partner of Founders Fund. Peter Thiel, invested $500,000 into Facebook, giving it the

trajectory to launch into the multibillion dollar company it has become. After passing the

1,000,000 user mark in November of 2004, Facebook received another investment, this time

from Accel Partners for a total of $12.7 million. With this new plethora of capital, Mark

Zuckerberg took the initiative to buy some office space, hire a network of engineers, and lead his

colleagues to a position on the Fortune 500 charts.

External Analysis

Before a discussion about the specific governmental guidelines that have inhibited profit

producing of Facebook, I want to have a discussion about the primary category that Facebook

belongs to and which market it hopes to prosper in. Facebook is a website which has substantial

complementary fields that divide into games, applications, and of course, social media

promotion. It is an online set of connections which aspires to restructure as its Chairman Mr.

Zuckerberg has frequently stated. It‟s a social listing where colleagues, clients, businesspersons,

and many other individuals can get in touch with another. The essential trade model and the
many divisions have vulnerabilities with regard to environmental regulation. Moreover, it will

specifically have particular consequences in many laws which state the privacy of the individual

extends to the data uploaded and also explicit guidelines amongst online ads to get rid of even

the smallest idea of a competitive advantage. Following the discussion of two ecological factors

which will extraordinarily affect the mode of operation of Facebook, there will be a discussion of

the Porter‟s five forces independently with a section committed to each part: bargaining power of

suppliers, bargaining power of customers, intensity of existing rival, threat of substitutes, &

lastly the threat of new competitors.

One of the most crucial repercussions as discussed above is indeed the privacy of those

that use Facebook with regard to the data they upload and this will be where we begin the

discussion. To give some legitimacy for this grievance, it‟s important to realize that there is a

legal precedent for this outcry of privacy. It can be traced to a regulation called the European

Data Protection Regulation. The basis of this law is defined in the following manner: Users must

be notified exactly when their data it is being used, for what purpose it is being used, and the

duration of its use. This is a direct contradiction with the essence of Facebook because Facebook

uses user data in the form of photos, wall posts, and many of its features that make up its

website. This essentially requires Facebook to set up protocols to directly inform the users how

their information is being used, which as opposed to all its progress is an issue that it has

significantly lacked in. In addition, if there is a data leak, for example, the servers being hacked,

then the company must inform its users within 24 hours. This is a sufficient amount of time to

notify and do a thorough cleaning to make sure that any breach of security has been dealt with.

The consequences of such leaks, which happen from time to time to many of the best companies
is more fines and regulations imposed by the government but even more importantly, consumers

will lose faith in the company, which could amount to revenue lost in millions.

The following point of discussion relates to Social Media Marketing. Facebook prides

itself at the fact that “It‟s free and always will be” Therefore, much of the revenue that it

generates is in the form of advertisements. Starting in the spring of 2013, Fair Trade Federation

guidelines have set an entire array of new standards and requirements for advertisements in order

for them to be “clear and conspicuous”. Before going into the particular ramifications of these

guidelines, we will have a short discussion on their specific contents. According to the FTF the

advertisement‟s disclosure must be “clear in intent, hyperlinks must be visible, and disclosure

supersedes any online transaction pertaining to the product.” The main ramification is the reality

that advertisements first and foremost produce revenue through the appropriate mix of directness

and shrewdness. To be able to market merchandise, one is required to only be attentive of the

positives. As an advertisement become abundantly “clear and conspicuous”, more social media

marketers statistically see a noteworthy plummet in the revenue derived from advertisements.

The lasting consequence of this action is that it will have a direct impact on the primary method

of revenue for Facebook.

In order to successfully analyze a corporation, there are few tools to use that are as

adequate as Porter‟s Five Forces. The first of these five forces will be the bargaining power of

suppliers. The best example with regard to this factor will without doubt be the large amount of

alternate input. By significantly escalating the surplus of alternate products, we‟re introducing a

stern hostility and of course a significant amount of competition. This competition will

fundamentally restrain the bargaining power that suppliers possess with regard to the producers.

The suppliers will not have the comfort of preference in this situation. This has a noteworthy
repercussion and the amplified competition will serve as constructive to Facebook in the short

run, however, it will seriously eliminate the net worth of the corporation in the long run.

Fortunately, this predicament is just transient and its solution is facilitated with the suitable

allotment of financial reason.

Let‟s compare and have a discussion the second factor in Porter‟s five forces which is the

bargaining power of customers. The most illustrious example with deference to this aspect will

undeniably be a circumstance where the buyers will require special customization. When given

special customization, it will be very complicated if not extreme for a client to switch to a

competitive website which basically cannot offer the similar set of customization features that

Mr. Zuckerberg‟s company will offer. This will have a very important outcome and is a

substantial advantage which should be protected to the highest degree to deter competitive

websites and businesses from taking this option. This is comparable to an employee who is

working for a corporation which is offering him a superior salary with perks including

healthcare, a physical activity center, a meal plan, a pool, private lockers, and a resting station as

contrasted with another company which offers zero perks and a fraction of the income. The client

would have to be utterly foolish not to take the former company‟s package.

The third factor in Porter‟s Five Forces is the intensity of existing rivalry. The best

example with regard to this attribute will definitely be a setting of low storage expenses. So what

are the benefits of a company that has a low storage cost? Any corporation with an exact

inventory which transcends an extensive assortment of merchandise would have a preference to

have the authority to and select how to maneuver the movement of the specific good according to

the financially viable factors. If the storage expense was large, it would be economically

ineffective for the respective situation described above to work out and instead it‟s necessary to
move it all at once. A low storage cost would allow for the best circumstance. This will

encompass immense desired results for Facebook in both short and long terms. In addition, it

will include a major advantage over their rivals who just don‟t have the resources of efficiently

allocating their inventory with regard to current market tendencies. To reiterate as affirmed

earlier, this is undeniably a very straightforward concrete benefit that can be undemanding to

preserve.

Now that we‟ve analyzed the first three factors in Porters Five Forces analysis, let‟s move

the discussion forward to the fourth factor in Porter‟s five forces which is the threat of

substitutes. The most leading example with regard to this factor will certainly be a circumstance

in which the alternate product is of a lower standard or even inferior. If Facebook‟s products are

of substandard quality, the poor standard can be associated to the much lower price in

manufacturing this item for consumption as contrasted to a superior end product. This will

unquestionably result in lowered costs and the outcome will have lasting ramifications. For

example, it will cause an immense consumer and client shift to a region where a superior quality

alternate product is being offered. This will have negative consequences for Facebook both in the

long and short term. It will certainly be a very noteworthy area where ramifications will occur

and should therefore be meticulously restructured and reevaluated.

The fifth and final factor in Porter‟s five forces analysis is the threat of new competitors.

The best illustration to exemplify this is a scenario in which sophisticated technologies are

necessary. This is a very complex field of debate and therefore, must be dealt with tremendous

caution. If superior technologies are necessary, then undeniably it will serve as a trajectory to

increase the level of excellence of companies and will serve to restrain and deter the smaller

corporations that don‟t have the capital or income to raise their standards to more advanced
technologies. Considering that Facebook is the zenith of technology corporations, moving

adequate assets to comply with these demands of the advanced technology would not be a

complicated but regardless it has the potential to be a strain on the company‟s financial

resources, so caution must be taken. Thus there is a potential to have a negative short term

impact but in the long term adding superior technology will have positive ramifications including

but not limited to the elimination of competition. This situation can best be related to the

analogy of an auction where the higher bidding price serves to deter other potential bidders. In

the end, even though the winning bidder has spent a significant amount of his capital, and it has

hurt him or her in the short term, the long term consequence of having this desirable item

outweighs what was lost in the short term.

Internal Analysis

The primary dilemma that Facebook was facing during the first two years of its inception

was that the website was only available to college students. After the students graduated from

college, they would have no use of the platform and would likely use another method of

interacting and connecting with each other. Towards the end of 2005, the company decided to

open its registration to high school users and shortly afterward it was made available to the

general public. Additionally, during these inception years, Facebook‟s biggest rival was a

website called MySpace. This social media website “open door” policy allowed it to take all the

users that Facebook initially had barred from being able to register from its website. However,

once Facebook was open to the general public, people began coming in waves and through a

superior product, it was able to virtually bankrupt MySpace of its millions of users. Although

MySpace was a failure, the reason many people gravitated towards the website was because it

allowed instant sharing of music on one‟s profile page and allowed its users to express
themselves in a way no website before had. Facebook, however, had a different approach by

developing the ability to use their website to share private messages, photos, videos, and much

more. This phenomenon of a new social media player crushing an established network is truly

remarkable, and a testimony to the fact that all it takes is one new idea to crush any competition.

Facebook‟s current ratio at the present time is at 13.06. MySpace on the other hand, was

owned by News Corporation and then by a private corporation called Specific Media LLC. The

current ratio of News Corp. is 1.80. This is clear evidence of how much more solvent Facebook,

as a corporation is. It can use its capital to push forward more ambitious projects while other

companies like MySpace, will have to do at a much slower pace. News Corps current return on

assets is currently -1.7%, while Facebook enjoys a 14.26%, clearly illustrating that an investor

would be much more prone to invest their time and money into Facebook with a relatively lower

risk. Facebook‟s current market-to-book ratio of 9.905 while News Corp has a current ratio of

0.77, which indicates that Facebook‟s stock, currently has the advantage of being overvalued

while its competitor is undervalued. When looking at all of this holistically, in terms of growth

potential, Facebook is the clear winner and therefore much more likely to be a company to invest

money in.

When it comes to the Strength factor in the SWOT Analysis, specifically because it is the

leading company in the world of social network and everyday it‟s growing more. It also has

more than 1.23 billion active users who use the website to interact, share memories, and mark

life events. The primary rationale of its popularity is its user friendliness and because it‟s

available to join with no cost to anyone. It facilitates communication without extra cost and has

become an important medium for business, sharing of the news, and also for the college students

it was originally intended for. It paves for a way for individuals to convey themselves through
status updates, photos, high definition audio and video, and much more. In addition, many

companies have developed applications that mobile users can use through Facebook. As a result

of all this innovation, Facebook has gone on to become a leading name not just at Harvard not

just in the academic setting, but as an established international symbol for ease of

communication. Wherever there internet, a new user has the potential to make a Facebook

profile, with the exception of China where it is blocked and regulated. Moreover, Facebook has

even bought out some of its competitors such as WhatsApp and Instagram which will allow for

additional sources of revenue other than just advertising. By expanding vertically and

horizontally, Facebook has dominated the internet and it is rare to see a website that doesn‟t have

the Facebook logo on its page.

Although Facebook has much strength in the respective factor of the SWOT analysis, it

also has a few weaknesses which must be addressed, the most prominent of them being its user‟s

privacy. This is a subject which has been very much debated because of ramifications of losing

such information. Users post their personal data on World Wide Web to share with colleagues,

relatives, and peers but the risk of hackers is always apparent. In addition, the lack of security

precautions has resulted in an abundant amount of fake accounts and identity theft. An identity

thief can easily pose as a loved one and extract personal information from users without them

being any the wiser. With such easy access, it‟s likely for criminals, con-artists, and many other

malicious individuals to use the platform. Furthermore, another weakness is their client service.

By being able to converse with customer service representatives, the individual user has a quick

reference to any problem that he or she might be having with the platform. However, Facebook

does not have any Customer service center and relies on individual queries which can take weeks

to reply to. Furthermore, there also a very vague explanation of the privacy settings which leaves
many users worried about who really is using their information. Another fundamental problem is

that users can virtually add whoever they want through a feature called „mutual friends‟ It

diminishes individual privacy because some users prefer to remain anonymous and would rather

not be bothered until they themselves took the initiative to add them to their friends list. This

lowers the standard of the type of friends who are really being added and once again it‟s a way

for criminals and ill intentioned people to take advantage of a susceptible user. Furthermore,

Facebook has exactly the same profile template for every user that registers, inhibiting

individuality and unique expression. Facebook should definitely pay attention to this factor of the

SWOT analysis because like its predecessor MySpace, it is susceptible to the same flaw of being

instantly replaced by a newer trend.

When it comes to available opportunities, Facebook possesses a variety of capital to

expand into new areas of business in the future, especially with the vast mobile market that is

available. The greatest opportunity that Facebook has is to use the mobile market to increase its

interaction with users. More interaction results in more ad revenue and more capital for

Facebook to invest in other ventures. Furthermore, in nations such as India, most people own a

cell phone because of its cost and convenience and through this Facebook has the opportunity to

interact with millions of more users. Although a relatively new market, the mobile app market is

growing exponentially. Through this mobile market, Facebook truly has a method of establishing

a firm grip on the international ground and generate ad revenue from them as well. Furthermore,

due to Facebook‟s diverse array of acquisitions in the social media market, such as Instagram,

WhatsApp, it has an opportunity to expand to an even greater sector of the social media market

and interconnect its social media application. With all this information Facebook has the

opportunity to analyze the shopping preferences, likes and dislikes, and many more personal
attributes of its billion plus users. Facebook has been controversially accused of selling this

information to websites like Amazon which can direct an ad to individual customers and this

establishes a strong link between opportunities and weaknesses.

Every corporation has its fair share of weaknesses that its competitors are just waiting to

exploit. Facebook is no different in that aspect, however, it is different in the way that its

competitors want to exploit it. The biggest threat to Facebook is a new website or trend that the

masses will rush over to, leaving Facebook obsolete. However, Facebook has learned the

valuable lesson that those who do not learn from history are doomed to repeat it, as was the fate

of its predecessor MySpace. If a new platform comes that successfully convinces the masses that

it is more dynamic, engaging, user friendly, and overall better to use than Facebook, then this

will be the end of Facebook as we know it. This is the primary reason why Facebook is

constantly changing its features time and time again. Users complain whenever Facebook

changes its features but little do they realize that Facebook is doing this specifically so that its

users don‟t get bored and move on to the next available social media platform. This has been a

masterstroke because it keeps the masses constantly engaged and exploring the platform and

therefore it never gets old. However, Facebook must constantly be aware and attack this threat

because all it takes is one idea to render another fad obsolete.

Facebook‟s largest source of capital is the quantity of data that it has access to through its

billion plus users and always growing. Therefore, everyday more data is available to analyze and

use. This is something that no company in the world has access to, and it gives Facebook an utter

and complete advantage when they are looking for new ways to expand and new areas to expand

into. Not only has Facebook holding such valuable information, it‟s also made itself a key part in

the lives of people day to day. Furthermore, Facebook has embedded itself into many websites so
instead of creating a username, you can simply “log in through Facebook”. By being so rooted in

so many different areas of the web and with so much capital to analyze, Facebook is absolutely

making sure that it has no intentions of being knocked from its throne as king of Social media.

Recommendations

My strongest recommendation for this company is to invest a significant portion of its

capital into the mobile market. Nationally, in the USA, the public is using its mobile phones to

access Facebook more often than through the PC. This something Facebook can take advantage

of because of the Global Mobile Market that is exponentially growing. Furthermore, in both

developing & developed nations, citizens are rapidly having greater access to mobile phones as

opposed to personal computers because of the obvious price difference. This strategy will allow

Facebook to gain a strong foothold in emerging mobile markets and achieve the status of an

established brand name. Furthermore, establishing itself as a brand name so early in the stages of

development of a country would allow it to dictate certain market patterns and pick and choose

which ventures to support. This is evident through the ventures of Google, because its search

engine has allowed billions to search the web for information and data. By embedding itself in

such an early stage of a nation‟s development, Facebook just like Google can also become a

brand name. In addition, a technological boom through Facebook‟s arrival would mean new

startups, more ad revenue and in a philanthropic sense, more development for a nation.

Currently, Facebook already has a high rate of interaction in the populace and therefore it would

be the primary choice for startup companies and new business. These businesses, with support

from Facebook, could integrate their businesses on the Facebook platform and further connect

the network of webs and allow Facebook to gain a further foothold in the free market.
 At this point in Time, Facebook‟s largest acquisition has been a social media application

sold for a staggering $19 billion, which was criticized by many financial experts as being overly

high-priced. However this purchase shows how important it was for Facebook to gain a foothold

in India, which boasts about 70,000,000 WhatsApp users alone. Furthermore, Facebook

purchased a company in India called Little Eye Lab responsible for Android development. With

this vertical integration into every aspect of the Marketplace, this strategy of Facebook will result

in staggering dividends.

Furthermore, with Facebook‟s recent acquisitions of popular social media platforms,

Combine Facebook‟s user base with that of recent acquisitions, Facebook has access to more

than a billion users in terms of their personal preferences, shopping habits, and their social

networks. With this constant expansion, it is time for Facebook to develop its own Marketplace.

This would be an ingenious approach because it would give Facebook access to the latest

innovations and idea and create a situation that pays to keep the bidding high. This would in turn

generate ad revenue of course, and because the social media platform for this marketplace would

be Facebook in itself, it would promote the brand name and create website traffic. This

marketplace would also be a platform for Facebook users to raise their concerns about the

website. a. Furthermore it would decrease the need for research, because tools such as „Likes‟,

will be used to keep a record of what the current trend is in terms of wants and needs. This would

allow Facebook to be a valuable instrument for any commerce industry that wants to have a

niche over their competition.

As Facebook has been utilizing lessons learned from failures such as MySpace, it could

also utilize the experience of its incorporation into the Indian Subcontinent when it makes an

attempt to expand into China, given of course China decides to repeal the ban of Facebook.
Furthermore, many developing countries would be able to use the emergence of Facebook into

their markets, especially the emerging markets in Central America and Sub Saharan Africa. Thus

by learning the lessons of its predecessors and its own experience, Facebook will know which

Markets to enter, and of course which markets to avoid. By having a design of how it was

completed globally, it would be able to incorporate faster and more resourcefully. This would

help it in a more enduring position to be a worldwide power for every aspect of business.

I truly believe that Facebook is in its prime at this moment, and it has opportunities that

businesses in the past could not even dream of. Facebook not only knows what their users want,

but provide a platform for their users to post the most personal moments of their lives. This is a

testimony to how much of a foothold Facebook has gained in society. Facebook has an

opportunity to expand to an even more exponential level by investing its capital and time into the

emerging markets of the developed world, and primarily through the Mobile Market base. By

engaging with billions of more users, Facebook will be able to analyze a whole new stream of

data, especially data that comes from users of the mobile market. It can use this information to

market its brand name and generate billions and billions in revenue. It‟s an astounding story that

a small venture that started in a college dorm room has grown to become a cultural icon,

embedded into the very fabric of every aspect of our lives.

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