Done by STOJANOV Marica KAMALI Ismail

Supervised by : Professor FINGER Matthias

Industry Dynamics Models & T Trends SPRING SEMESTER 2011


Table of Contents
I. II. 1) 2) 3) 4) 5) 6) III. 1) 2) 3) 4) 5) IV. Introduction and problem statement ................................................................................ 3 Presentation of the industry ............................................................................................. 5 Definition of social networks and its players .............................................................. 5 Social Networks history............................................................................................... 7 What is it attractive about Social Networks and consequences of it? ......................... 8 Dynamics of industry................................................................................................. 10 Product life cycle ....................................................................................................... 10 Industry life cycle ...................................................................................................... 14 Strategic analysis ........................................................................................................... 16 STEEP Variables ........................................................................................................ 16 Porter’s five forces and value chain ........................................................................... 18 Business Model .......................................................................................................... 21 SWOT analysis .......................................................................................................... 25 Regulation .................................................................................................................. 29 Conclusion ..................................................................................................................... 32

Industry Dynamics Models & Trends



Introduction and problem statement

By its evolution, Internet as a global network not only provides us with the wide range of information, but also allows us to connect with each other. Sites that offer this kind of service are undoubtedly becoming more and more popular. Nowadays, almost every single Internet user watches videos online, make online conversations, chats with his friends or uses the Internet to get information about his relatives and more generally to get news around the world; so, there must exist an industry that provides such services, and that makes money out of this, and this industry is called the social networks industry. Several companies are working in this industry; each of them has a different way of creating traffic on its website. Some focus more on video sharing, others on photo sharing, another kind of companies focus on chatting, or audio/video conversations; and there are some companies that gathers all features or almost all of them in its website, those companies are the most successful ones. The figure below shows a variety of social networking companies with their focus feature. Some of them are these companies are known worldwide, like Facebook, Twitter, MySpace and YouTube.

Figure 1: Social networking companies

Industry Dynamics Models & Trends


we decided to focus more on the biggest player in the industry. Figure 2: Social Network Revenues : Industry Dynamics Models & T Trends 4 . or has a different way of making money and of creating traffic. And from share this data. we will give an analysis of the industry as a whole with focusing more particularly on Facebook Facebook had 53% market-share in the industry in share 2010 with $1. and the forecasts say that Facebook’s income will triple in 2012 and reach $5. this led us to have this problem statement: What makes Facebook such a successful company in the industry of social networks? To answer this question. the size of the industry was $3. So the industry of social networks appears to be a very fast growing industry.According to eMarketer. But since each player in the industr has a different industry focus.47 Billion in 2010. which means a growth of more than 100% in two years.86 Billion. Facebook. that is the reason why the main reason we have chosen to analyze it. we can assume that Facebook is the company that is shaping the industry.74 Billion with a market-share of almost 70%. . he the size of the industry will be around $8 Billion in 2012. and the biggest players in this industry were not even existing few years ago The forecasts says that ago.

Social Networks nowadays allow people to do much more than just connecting. and Scholarship” By Danah 3 Social Networks and Labor market outcomes: http://www. knowledge or prestige. in order to attract partners. Presentation of the industry 1) Definition of social networks and its players First of all. 2005: http://Social Networks09. Here topics would mainly be from economics and areas of businesses people are involved in. 1By creating different kinds of profile and controlling personal information. 1 2 “Social Network Sites: Definition. The nature and nomenclature of these connections may vary from site to site. History. working experience and preferences.jstor. customers and experts from their market recruitment. and find that people in 50% find their jobs by recommendations of friends and relatives3. or relationships of beliefs. people can stay in touch not only with offline friends. kinship. Accordingly. financial exchange.II. dislike. Ellison. Majority of Social Networks “allow individuals to: 1) Construct a public or semi-public profile within a bounded system 2) Articulate a list of other users with whom they share a connection 3) View and traverse their list of connections and those made by others within the system. such as friendship. They help business people not only to connect with their colleagues and other potential collaborators with similar vocational interests and ideas. Nicole B. We can observe the fact that these Social Networks are connecting individuals with companies too. whom statistically2 they search more Industry Dynamics Models & Trends 5 .pbworks. the advertisements will be highly specialized. We can also look at statistics about employment. but also to find a job according to their education. However. but also with the unknown people. how do we classify them and by which strategies they are so appealing to us. LinkedIn and Xing are specialized in displaying professional side of individuals. we assume that by social networks we imply social network sites the web-basedservices that allow individuals to keep in touch with others that share one or more specific types of interdependency. common interest. Haythornthwaite. and usually having an account is not free. Boyd. sexual relationships. Here. The core of these services is fulfilling human need for socializing and discovering new things. we are going to see what are their main services.

but also because of Facebook’s policy. and even skew the picture of usual relationships among people. person that follows the stream of posts of other one does not have to be followed by the same one. none of them is actually a real competitor to this giant. On the other side. photos. in order to have more efficient advertising. By giving lots of free online space for putting photos. Actually. voting and commenting others videos is basically what a user can do here. Flickr is another example for connecting people with similar interest from a narrow area. This is discovered to be poorly managed by users. Nevertheless. some Social Networks have put emphasis in sharing information. Instead of having indirect graph of connections. sport. there are many different topics that gather However. health. One instance of many in this class. Territory or institution. and at the same time different advertisings embedded into social networks. With popularity the profitability of these services is increased. They presume themselves as a community. This idiosyncratic structure of direct graph has great success and Twitter is the second most popular Social Networks in the world. Industry Dynamics Models & Trends 6 . Personal data or topics are used to be filtered and examine. This is the exact way in which Facebook commenced in 2004. or StudiVZ in Germany. to online gaming. this public network will not ask you do you want to be followed. can also define the main condition for creating a profile for some networks.Apart from professional profile. Facebook offers wide set of functionalities for users. or to say having two persons being friends to each other. Temporally. and by being a member is considered “Let others find my channel on YouTube if they have my email address”4 Sharing. extremely popular that appears in many other Social Networks as a source of information. videos and interest. etc. art. such as vKontakt in Russia. Topics and services from this domain can be also travelling. this industry is very special and sensitive due to human- 4 http://www. (http://www. very precisely determination of the scope of personal privacy.ebizmba. there are many substitutions to Facebook from country to country and institution to institution. there are different strategies in attracting As shown. creating applications and what can be the most important. which gives unconditional criteria to visibility of your is YouTube. due to its highest popularity of utilization from more than 640 million users. from sharing personal information. because of their careless attitude.

surf the Friends Industry Dynamics Models & Trends 7 . Nicole B. Scholarship” By Danah allowed people to affiliate with their high school or college and surf the network for others who were also affiliated. 2) Social Networks history5 According to the definition given above.Boyd. list their Friends and. but users could not create profiles or list Friends until years later. Profiles existed on most major dating sites and many community sites. beginning in 1998. this website allowed users to create profiles. After SixDegrees. each of one supported various combinations of features to differentiate from the 5 “Social Networks Sites : Definiotion. Twitter. although those Friends were not visible to others. Each of these features existed already separately in some form before SixDegrees. the history of Social Networks began in 1997 with SixDegrees. several websites started in the business of social networks.factor. Ellison. History.. and by having examples of its dominant players – Facebook. AIM and ICQ buddy lists supported lists of Friends. SixDegrees was the first to combine these features. we are going to discover the consequences and influences to which is this industry exposed. etc. Classmates. and until 2001.

news. but it was over passed by MySpace due to a rumor that emerged saying that Friendster would adopt a fee-based system. Ryze. then expanded increasingly from a one-university based social network to all-US-high-schools network in 2005.86 billion dollars) are usually from companies that want to display ads on their sites.others. The way Facebook became the leader in the industry of Social Networks at the expense of MySpace will be explained in details in the strategic analysis of the industry. But secondly. MySpace was able to grow rapidly by capitalizing on Friendster’s alienation of its early adopters. and anything else we find important enough to put on our wall. Social Networks are all about freedom. We can personally advertise music. The current dominant player in the industry of Social Networks is Facebook. companies do not have to pay for their advertisings inside Social Networks. By putting the links of their own did not acquire the mass popularity. and even praise about how social they are. etc. photos or music if they are artists. personal inventions and web pages. their professional background and their work. Theoretically. But in the was launched in 2001 to help people leverage their business networks. people sell themselves through these sites. gaining many contacts and in profile advertising their work in an apparent or hidden way. then people can express their creativity. and it is LinkedIn which was launched in 2003 that became the most powerful business social network. 3) What is it attractive about Social Networks and consequences of it? The whole purpose of Social Networks is advertising. status in Twitter. politics. By this strategy user and their recommendation broadcast influence culture. and people just enjoy it. or even paintings. to end as a worldwide social network in the in end 2006. In profile information can be put various types of interests. if it is about Facebook. Then a new wave of professional Social Networks began when Ryze. Industry Dynamics Models & Trends 8 . And thanks to this. public opinion formed inside these networks will influence any other industry as well. anything one can think of. ideas and achievements. Friendster started in the business in 2002 and which had a considerable popularity in USA. Consequently. everyone is advertising themselves within their profiles. as shown. it started as a small Harvard network in early 2004. Many small companies would make their own or fake profiles. then to a corporate network in the US in the early 2006. the profit from which majority of these services “survive” (Facebook’s 2010 annual sales is 1. Firstly. By themselves can be. thoughts. economic.

That’s up more than two hours from last http://www.wikihow. To another extreme.For instance. People connected can be purely online “friends”.Facebook. and be up-to-date. that only serve as a multicast distribution of real-time information. who would like to read it. and by doing that these rapidly-growing network informs 8 http://articles. the global average time spent per person on social networking sites is now nearly five and half hours per month (February 2010 data). there is a noticeable growth by the years: “According to the Nielsen Company. This sometimes goes into addiction and new services (maybe Social Networks) will appear to help it being recognized8 and additionally getting rid of that bad 8 http://theoatmeal. almost half of the users will check out the news feed after waking up.cnn.” Ten countries were participating in the research and the table bellow gives us their results. Industry Dynamics Models & Trends 9 . Surveys 6 show us clear dominance of Facebook. There is also an interesting issue for the time spent in front of computer while using these services. 6 7 9 http://www. the site businessinder7 site shows not so bright statistics about people’s habits related to these networks. with Facebook accounting for the majority of that time. Twitter is nowadays recognized to be the fastest source of information. In order to stay in touch with before going to sleep and in any other unexpected occasions. but also a bit scaring results when contemplating over the results averagely. Also.businessinsider. or in this context more precisely followee and followers. Users can retwitte any post – copy into own profile a post from another’s one automatically.

800. of the 10 most popular Social Networks10 updated on January the 6th 2011.000. buyers and their behavior. and it has achieved decent popularity.000 29.ebizmba. 550.000 Number of unique monthly users per month 4) Dynamics of industry By looking at the product of Social Networks industry from different perspectives.000 95. according to the growing number of fields when fulfilling personal information.500.000 50.000 Industry Dynamics Models & Trends 10 .000 30.000. All in all.000. the table in bellow shows the estimated number of unique monthly users per month.Finally. straight and power. 5) Product life cycle Product change. Social Networks is reaching its maturity stadium in the industry’s life cycle. relationship status and photos and 10 http://www. it gives more and more options in controlling the privacy.000.000. educational information. in this chapter we will see that this industry has many customers. marketing Social Networks offer their users more and more services and ways of connecting people. At the beginning. Facebook user was able only to state the place and time of birth.000.000.000 12.000.000 8.000 27.000 80. More importantly. For instance. Facebook offers many layouts that user can use for their profile.

specific Social Networks. there is a significant decline of users’ utilizations of them. This is related to Facebook. quotes. such as university. etc. having in result that in average users have more and more “friends”. Temporally. On the contrary.. Nowadays. New aspect of connecting people by information and thoughts is omnipresent and Twitter is undoubtedly compelling more and more attentions of Social Networks’ users. there is an increasing number of users. there is no great pressure or advertising campaigns for Industry Dynamics Models & Trends 11 . or at least its growing rate. Moreover. This does not mean that this industry as a whole declines. is proof that this industry is generally satisfied by the size of its market. on which users spend less time. too. interests. Even though it offers more and more by the time. only by friends of our friends. Concerning Facebook as dominant player and service that in different ways emerges broad number of services. We can be searched within whole Internet. Statistics shows us that people have globally selected their brand. Club effect is the prior emotional manipulation that supports. Limited spare time spent on (online) socializing results in customers making up their mind from which network they have the most usage. all of above listed actually indicates that this network is in its latest growth or mature state. are possible to be defined within their own privacy settings. while others companies from the same domain do not have bright future. liking pages will directly connect to users’ preferences. This factor. different settings of privacies are offered.videos. Consequently. or cannot be discovered at all. so our acquaintances can be sure that they have found the right person. we can specify our networking. different sites offer many variations of these possibilities. Since these people are not real friends. etc. MySpace and related services role. Facebook. This is however true for subindustry in which Facebook. In Facebook. movies. including Facebook. being found in many of the Social Networks became advanced. Besides that. but also as explained above sometimes saturates this industry. By growing popularity Facebook becomes special kind of mailing service. like YouTube offers disliking items. a profile becomes less private and users do not want to show too many information about themselves. Even in this phase. where user can pretty much like anything he/she finds interesting. current place. company. At the beginning users were allowed to comment and later on “like” specific item. as well as the low number of advertisings. family members. music. brief description about ourselves.

and these IT points are distributed all over the world. Immense number of data is stored. They need to make sure that users are satisfied by both originality and functionally of products. the hardware that supports this software is IT equipment. On the other hand. Even more.g. our habits. apart from the social influence. strategy. competition and risk Social Networks as an industry are quite dynamic. or at least in the countries that allow access to these sites. They basically depend on likeliness and recommendations among these groups. and so on profitability. and to persuade them that they need to be connected with others in their way. e. and some people put as little data about themselves as possible. Margins. Consequently. There is an omnipresent feeling that Internet knows too much about us. etc. IT companies.the users to start using any of them. these sites are extremely losing on its popularity. If we contemplate on new entries. It is known that only Facebook has about 30000 servers11 that will forever store data once put on users’ profiles. Here algorithms and patents are the backbone of attractive services. at any of the phases of the life cycle of the product. As being online. Otherwise. there is always a room for innovations and improvement. and since people and their needs constantly change. profits. and manipulation of them is becoming more and more crucial for obtaining greater profitability. Since it essentially depends on attractiveness.datacenterknowledge. Industry Dynamics Models & Trends 12 . permanent or temporal interests. labor for manufacturing these products is essentially IT experts. 11 http://www. which cover great variety of interest areas. its distribution is all over the world. in order to make sure that their content will be shown in many different profiles and be a topic for discussions in a various Social Networks. at this stage the risk is very high. Since ideology of this industry promote globalism. servers. Twitter pointers). The market is pretty much divided into the already existing Social Networks and customers are reluctant to again share personal information and find peers on them. it is usual that many other sites advertise Social Networks (by putting Facebook. Manufacturing and distribution Social Networks as an online service is a piece of software. their core must be unique and original. They try to recognize people with special needs or interests. hardly achievable in the time of Facebook and Twitter and other Social Networks.

so why not on the new site too? At this stage margins are low. This is the stage of growth. somehow related to the first one. It is proven by eye-tracking techniques that people know where to expect the advertisements and their eyes become trained in order to avoid them. Bellow it is shown the distribution of users at the end of June 2010. first companies that recognize these customers as their potential customers too are willing to invest some money. Now. too. These are basic strategies in avoiding the decline of product. promotions are flowering and the whole service is getting more and more adapted. At the stage of maturity. and try to adjust their service in that direction too. profits are high and being constant. Once popularity is achieved. After succeeding in gathering special kind of users.However. Optimal moment for the new entries Even though Social Networks seem to have saturated market. the same market is used again to open profiles. there is always a space for the entries. we experience that refreshments in a way of new ideas are introduced. Social Networks themselves form idiosyncratic profile and the way of attracting mass number of users is the mark of this stage. Or at least marketing sectors of these companies like to think in that way. Privacy issues can significantly lower the popularity and many options in this sense are being offered to users. where software is being corrected in the case of errors. Industry Dynamics Models & Trends 13 . On the other side. since there are no profits without popularity that has to be strived on. and we could see that roughly only 28% of the whole world’s population has access to this source of information. First of all is that the main supplier – Internet. they continue marketing their product among chosen group of users. if they are persuaded. as long as Social Networks are used. has more and more users itself. but also they try to adapt it to more groups. Social Networks are examining which additional interests or needs the temporal users have. computed profiles according to users’ behaviors and data left are becoming more complete and precise and users are attacked with the ads that they would be most probably interested in. Usually.

can disrupt it and substitute it. 6) Industry life cycle When looking globally. However. verbal real communication. and sometimes we can think that we cannot get any further. Google is researching in a way to make their service (search) more socialized and personalized. Finally. for the company whose area of coverage is the most similar to the new entry’s one. They develop technology in the boundaries of their own companies and new options are just popping out. Every day this industry offers a new kind of entertainment and new versions of their product. population was surprised by the way of communicating in Twitter. etc. and humans are looking forward to experiencing it. it was totally disruptive one. and also different needs and interests will be introduced into industry. which situation happened with MySpace and Facebook. unsatisfied users would turn to new service. Social Networks are going to have too. The way of obtaining information was smoothly accompanied with ideas of online connecting individuals. Only great technological innovations.By Internet having greater number of users. However. business meetings. Industry Dynamics Models & Trends 14 . the industry is inside itself incremental. gross number of people naturally embraced it. Then.. by above product analysis we presume that SNs are probably in its maturity state. Even though this new way of interacting among people does not resemble to families. such as time travel. In this technological innovation sense. People got trained in using these services. much functionality and their variations are introduced. probably the best time would be the point where slop of maturity phase goes down. humane desire for discovering appeals these strategies and waits extraordinary applications to appear. At the time this industry was born. usual friendships. at the biggest players in the industry.

It is all about usability. are declining. Due to listed reasons. while Twitter is growing. from our perspective we cannot imagine that this industry will soon (ever) decline. goes in the same pace with change and evolves by the time. Industry Dynamics Models & Trends 15 . like mySpace. Although Facebook as its dominant player is in its maturity stage.We can conclude that this idiosyncratic industry is very dynamic. fun and comfortability. many others are trying to enter the market. creativity. It strongly supports globalism and freedom. some of them.

negotiating and courting are being gained. even grown adults.html http://www. and we assume that now Social networks are somehow shaping the life of many people who became addicted to this kind of services. MS. you see them waking up in the morning and the first thing they do is check their Facebook. “the news feed” one of the most successful features in Facebook is patented. Several Articles13 indicate that big investments are being put into patents. it is the patent acquisition door. Addiction is definitely a serious society problem created by social networks especially when you see for instance that average Facebook user spends 55min per day on the site12 In other words. such as Google. 12 13 http://facts. For instance.allFacebook.III. One of the features that the social networks companies are competing about is the speed and the reliability of their servers. Technological: The dependency of social networks on technology is also very obvious. This kind competition has opened a new door for those companies. it is very explicit in the industry name “Social Networks”. and in the definition of the industry given above. we can understand that social networks are tightly linked to populations. Many software companies. Law is quite supportive for this new “industry” since great profits from deciding the validity of Industry Dynamics Models & Trends 16 . For some people Facebook has become like breathing. since it is a matter of websites and Internet. the fights are very tough between companies in this field. not only because it is a money making business. to different communities. And the problem is that it’s not a teenage addiction. it is a big step for Facebook in its battle against its competitors. or because it protects the uniqueness of product and service. Strategic analysis 1) STEEP Variables • Social: The social variable is very obvious. and new algorithms. Apple are competing for the algorithms and other intellectual properties. but also because it enables some companies to slow down the growth of other companies or to sue them if they use some patent and earn some money to recover damages. Another technology that has been recently patented by Facebook is the face-recognition algorithm in its website. this is an amusing phenomenon. and it is strongly slowing them down. others competitors cannot use it for now. Facebook and other social networking websites have changed many facets of the Internet and how we communicate.randomhistory.

Mark Zuckerberg. and he invited the heads of Internet giants. But the biggest problem they are dealing with is the privacy issue (ref SWOT Analysis). For instance. and the online is part of this marketing. First of all. and there are several association militating to convince IT companies to use green IT. this is why they are trying to set some kind of regulation on it. The leaders of this world are aware of the importance of this industry and of the dangers of it. the social networks will be directly affected. we have already seen the relationship with the social variable.eg8forum. It is admitted that companies spend significant amounts on marketing. all that affects social behaviors of a community concerns also its politics. the French president M. was one of the guests. the Facebook founder. Political/Legal: The social networks industry is linked to the political and legal variable in different ways. no porn content.Economic: The link between Social networks and economy can be seen on its direct relationship to the advertising industry. So if for some reason (a crisis for instance) companies decided to decrease their marketing expenditure.. like minimum user’s age. and by definition. which energy is green and which has less power consumption. and data storage. Ecological: The ecological variable in social networks concerns only server rooms. Sarkozy has recently hosted the first eG8 about: “The Internet: accelerating Growth”14. 14 Industry Dynamics Models & Trends 17 .. because server power consumption is rapidly becoming a hot topic in the whole IT industry. no intellectual property violation etc.

Motivated by security issues as well as efficiency. In order to provide seducing services to customers. This is a big issue in the IT industry. Social networks companies have to buy valuable patents. MySpace. the biggest players in the social network industry own their own.2) Porter’s five forces and value chain New Entrants (+-) Suppliers Internet operators(+) Data Centers (-) Customers Rivalry(+++) Facebook. So this supplier’s force is not at all powerful except for the Internet operator which remains quite powerful because of the dependency of this kind of companies on Internet access. they managed to setup these infrastructure and datacenters according to their needs. Twitter. And you should know that good patents are one of the biggest forces of companies. the press publishes continuously articles about lawsuits between companies. Amazon web-services). LinkedIn Advertisers(-) Users (+++) Substitutes(-) Virtual world Online gaming Social Networks : Porter’s five forces EXPLANATION: Suppliers: It is very known that all IT companies need infrastructure. in order not to be legally sued for illegal use of them and pay damages to the patent holder. but now. Industry Dynamics Models & Trends 18 . This services were provided previously by some third party suppliers (IBM. For instance Facebook says that one of its success factor keys in the Social Networks industry is the tagging feature that was patented few months after its invention. datacenters and of course Internet Access.

Online games can 15 16 http://www. but may be the idea of some virtual word will change the way of thinking of people and will move the industry to this new kind of entertainment. The expansion of online gaming has reflected the overall expansion of computer networks from small local networks to the Internet and the growth of Internet access itself. For instance. An online game is a game played over some form of computer network.“Zuckerberg has long talked about photo tagging as the innovation that helped him and other early Facebook employees initially conceive of the idea for the platform. And Facebook itself was once a new entrant and it has won the battle against MySpace. - Advertisers: Most of them are retail advertisers. and they are for most small and medium enterprises. they are very demanding. There is another potential substitute to social networks that is quite successful. And we will see in the SWOT analysis how the users are the biggest strength of Facebook. this is because they are not united. And their influence is not very affecting to the industry if they are the part of the five forces that creates the money flow.insideFacebook. New entrants: There are low entry barriers in terms of infrastructure and investment cost. Users: Their force is very powerful. it’s online gaming. by the time they start using a new one. it still outcompeted rivals simply because it centered its product around people. But it’s very hard to reach the wanted popularity. and not around technical capabilities. since they have two kinds of adopters. but. and they are very difficult to be attracted to new social networks.emmanuelmort. the Borrell Associates Report says that 74% of Facebook revenue comes from local advertisers16. they kind of become addicted to it. the leader in that time.” 15 Customers: The concept of customers is very different in the Social Network industry. Substitute: So far. users and http://www. The company did a competitive analysis of all other photo products out on the web and while Facebook didn’t offer features like high resolution or printing. and they should satisfy both of Industry Dynamics Models & Trends 19 . In the SWOT analysis. we will see how Facebook deals with new entrants and how it changes their threat to strength. there are no clearly defined substitutes to social networks.

range from simple text based games to games incorporating complex graphics and virtual worlds populated by many players simultaneously. Facebook takes seconds to master and constantly adapts around a user’s network of friends. Why did MySpace lose the battle? “The news that MySpace is to axe up to half of its workforce is yet another sign that the beleaguered social network will never compete with its heavyweight rivals Facebook and Twitter. 17 18 http://en.” There is also an explanation of all of them. They go further by stating these 4 problems: “The site was slow to innovate. MySpace failed to adapt and appeal to its original market as they left their mid-teens and became young adults. their likes and the games they play on the becoming MySpace friends with their favourite bands and uploading their party photos. making online games a form of social activity beyond single player games17. But whether a MySpace user has one friend or a http://www. MySpace’s chief executive Mike Jones admitted the site was no longer a social network but now a “social entertainment destination”.marketingweek. but it has a very different point of view of social networks. … Lack of understanding about itself At the end of last year. Many online games have associated online communities. the product will still work in largely same way. The photos are still there. had no real understanding about itself as a brand. the site was brimming with teenagers writing on each other’s Industry Dynamics Models & Trends 20 . but very few big players.wikipedia. Twitter is also a big but now a little dated as its users flocked to Facebook. and here are some mayor parts: “Lack of loyalty to its users In 2005. when the site was at its peak. held minimal financial control and seemed unable to keep up with its everageing audience. Lack of innovation There is little comparison between MySpace and Facebook as a product. there are a lot of players. MySpace was the biggest player before the coming of Facebook which over passed it. Rivalry: The competition in the industry of social networks is very tough.” says the online article from the site marketingweek.

The site had repositioned as it became obvious it was never going to compete with the leading social networking websites in its previous 3) Business Model Facebook makes money off out of the following business model: 19 http://dailybragger. It seems MySpace could do with some better friends. whereas Facebook’s investors were ready to take on early losses in order to invest for the future. Brands should adapt to the changes within their market. It had admitted defeat.” as well as going further by stating following “Spammers. and more importantly in many ways have not adapted their product to users’ changes and temporal market. but never make reactive decisions and change the market they operate in altogether. “ Another site “dailybragger”19 puts emphasize on MySpace’s lack of sharing. They blew up MySpace with marketing spam from everything to viagra to finding “Hot chicks in your area. Additionally.php Industry Dynamics Models & Trends 21 . Blame the markerters for this one. Apparently.””. There are flashy links. Lack of control Rupert Murdoch’s NewsCorp bought MySpace for around $580m in 2005 when it had 20 million unique users. they complain that it is “overwhelming to some people. after reaching its peak in 2005. MySpace loses the pace. ads galore. usually random. … MySpace executives were pressured to make profit from the site immediately to substantiate the predictions. They exaggerated in advertising. slow load times on pages from amateur HTML copy and pasters and plenty of other bells and whistles that are not needed. which destroys any community. Now MySpace is losing its parent company tens of millions of dollars each month.

you do not need to be a marketer in a big company to promote your product. 74% of Facebook income would Facebook's come from local advertisers. the more advertisers can target their more audience. which enables Industry Dynamics Models & T Trends 22 . Thanks to Facebook. proving that the geographical segmentation works wonderfully. Facebook gathers enormous ’s amounts of data about its users.Figure 3 Business model Facebook makes money off in two different ways. according to Borrell Associates Report. campaign in less than 5 minutes and whatever be your campaign budget. *Money1: Advertising Facebook’s main source of money is advertising. don't More surprisingly. it provides a free social network service to users (some other companies charge users for it) with all the seduction that goes with it to win their popularity. then it becomes able to suggest to other companies (advertiser) to target specific kinds of users according to some well defined criteria. Advertising (*Money1) and Virtual gifts (*Money2). The possibility of having a very fine segmentation is an undoubted added value for advertisers. Now. and then it uses this popularity to sell targeted advertisement to the advertisers. you can make your advertising . and the more the ads are expensive. One good point about Facebook n ads is that they are not invasive and so people don't get disturbed with these ads. The more users fill their profile with personal information. Facebook revolutionized the advertisement. and to do so. In fact.

06 Serbia 0.brighthub. This strategy can be assimilated to microfinance in the bank industry.Facebook to attain a very large number of small advertiser rather than few big advertisers. more expensive and more interactive. It is a virtual shop with virtual gifts sold most of the time at 1$ to users in order for them to 20 http://www.33 The second way Facebook uses for making money off is the Gift-shop (ref picture below). Facebook suggest two kinds of pricing: CPC: Stands for "Cost Per Click" and is used in online advertising. CPC defines how much revenue Facebook receives each time a user clicks an advertisement link on its website CPM: Stands for "Cost Per Mille" and defines how much revenue Facebook receives for each thousand times the advertiser’s ad is displayed. they allow things like surveys that let the user interact with the advertisement20.14 0. And for each of the two kinds of advertisement. Facebook offers two types of advertisements: self-service ads and engagement ads. picture.22 Morocco and the user can click the link or "like" the advertisement.45 1. Cost of a simple Ad in $ Country CPM CPC *Money2: Virtual Gifts Switzerland 0. The first type is simple: they consist of a title.10 0. Engagement ads are more complex. and a bit of text.aspx Industry Dynamics Models & Trends 23 . Facebook is paid even if the ad is not clicked on.

but in fact. Facebook generated more than $100 million in revenue just through selling virtual gifts.buzzle. thanks to the large number of Facebook users. researchers estimate that Facebook will make over $200 million in 2011 just by selling virtual gifts. only the fact that the user money to offer the gift counts. which means that the price or the value of the gift or the gift itself does not count for the gift receiver. Facebook makes money off of providing a great platform that makes it easy to people to connect with their friends. And because of the rising popularity of the Gift Shop. and then sell them entertainment: virtual gifts. With this service. in literal translation. in 2010. which allows them to specifically target a significant percentage of the world's population. and relevant advertising. Industry Dynamics Models & Trends 24 . no matter how big is the amount.[ http://www. Their greatest advantage is the detailed personal information they have on hundreds of millions of Facebook plays on the emotional aspect of users and applies the French proverb: “c’est le geste qui compte”. enhanced gameplay. This way of earning money does not look very profitable.html] Facebook Gift-shop To summarize. it means: “it’s the thought that counts”.impress and surprise their beloved ones.

its most important developer (It has developed Farmville. Facebook has a very good relationship with its application developers. the most popular game on Facebook with nearly 35 million monthly Facebook and the Emerging Social Networking Industry by William Clark. Matthew OrnelasKuh 21 Industry Dynamics Models & Trends 25 . For instance. Facebook has another major strength. while still keeping the clean Facebook style (The webpage design and the blue color etc…) which differentiates it from its rivals. A very interesting strength of Facebook is its new open format platform allowing customers and developers to develop their own third party applications. lately. it is its good relationship with other companies. there are some individuals and companies that are now specialized in developing Facebook applications that keep users on the Facebook pages for long durations and secure their loyalty for Facebook. in May 2010 Facebook signed a long-term commitment with Zynga. With such extensive valuable data.4) SWOT analysis21 Strength Large network of suscribers Detailed information New open format platform Good relationship with companies Weaknesses other Social networks are very difficult to be monetized Low Click-through-rates on the ads Opportunities Extremely finely advertising Selling informations to others companies Users information is usefull for any future type of marketing Streamlined purchasing system Strengths Threats Privacy issue Low entry barriers??? Rivalry and competition Facebook’s greatest strength is the large network of subscribers. more specifically. Ilya Loksha. In fact. it is easy for it to tailor its product and attract all kind of advertisers to use Facebook for their advertisement. it is the detailed information it obtains from each and every user.

2006.html 23 http://www.brighthub.aspx#ixzz1Me1JxExg 24 http://facts. primarily concerning the safety of younger users (George. Kornblum & Marklein. Facebook entertains a very strong relationship with Microsoft. in the beginning of their relationship. Ellison. by Danah M.randomhistory. Facebook had 500 million users in 2010. in these last few years. Social networks in general suffer from this issue. they were exposed to increasingly negative publicity about the dangers of posting personal information online. Knowing that average Facebook user spends 55 minutes24 a day on the site. Boyd. that’s too miserable. and that is because it is extremely hard to make people click on an ad while chatting or surfing on the news feed or on their friends’ profiles. there are many users that are afraid that the network or Internet itself would know too much about which makes it 3. Nicole B. which makes them very suspicious. For instance. The problem comes from the fact social networking suffer from extremely low click-through-rate on their ads. and people will be able to see how many people liked each result. Threats Facebook’s greatest weakness is the privacy issue. Internet users find them confusing and not persuasive enough. the button Like will appear on the research results. Weaknesses Facebook’s biggest weakness is that social networks are very difficult to be monetized.70$ . the revenue is miserable. and a revenue of $1. Moreover. 2006).co. as of 2009. Considering the large number of users. and Scholarship. In the article Social Network Sites: Definition.telegraph. Researchers have investigated the potential threats to privacy associated with Social 22 http://www. Although there are many options in controlling the privacy. Microsoft's search engine Bing now includes deeply baked integration with Facebook. which means that average user spends almost 14 days per year on the Facebook site for only 3. Facebook used to display a large number of Microsoft ads (due to a 2007 ad deal).70$ per user per year.html Industry Dynamics Models & Trends 26 . that spending had reached $50 million23 . these issues are being delved into: “Popular press coverage of Social Networks has emphasized potential privacy History.86 Mds. it knows too much information about its users. and very recently. and the potential threat of identity theft and general invasion of privacy. despite their presumably excellent potential for highly targeted advertising.

such as hometown and date of birth. thus he addressed a speech to all teenagers preventing them for the use of social networks. 2007). they suggest a framework for privacy in Social Networks that they believe would help resolve these conflicts. and Berendt (2007) argued that the privacy options offered by Social Networks do not provide users with the flexibility they need to handle conflicts with Friends who have different conceptions of privacy. the press publishes some news about someone who got fired because of some post he wrote on Facebook. In one of the first academic studies of privacy and Social Networks. such as the potential ability to reconstruct users' social security numbers using information often found in profiles. from time to time. Johnson. and Menczer (2007) used freely accessible profile data from Social Networks to craft a "phishing" scheme that appeared to originate from a friend on the network.Networks.000 Carnegie Mellon University Facebook profiles and outlined the potential threats to privacy contained in the personal information included on the site by students. Another Facebook’s biggest threats is that the social networking industry in terms of infrastructure and investment cost has low entry barriers. Hoser. their targets were much more likely to give away information to this "friend" than to a perceived stranger. Jagatic. Privacy is also implicated in users' ability to control impressions and manage social contexts. suggesting that teens are aware of potential privacy threats online and that many are proactive about taking steps to minimize certain potential risks. Of the teens with completely open profiles. 66% of whom report that their profile is not visible to all Internet users (Lenhart & Madden. […] In another study examining security issues and Social Networks. 46% reported including at least some false information. both of which are Industry Dynamics Models & Trends 27 . […]” For instance. even the US president Obama is very suspicious towards social network. Survey data offer a more optimistic perspective on the issue. the only inputs required to produce a social networking site are a team of programmers and a batch of servers. even though data exposed through the feed were previously accessible. Boyd (in press-a) asserted that Facebook's introduction of the "News Feed" feature disrupted students' sense of control. Preibusch. Pew found that 55% of online teens have profiles. Jakobsson. Gürses. Gross and Acquisti (2005) analyzed 4. or about someone who got killed because of some picture posted online on a social network.

Opportunities For Facebook.readily available with a small investment of capital. Facebook wins the loyalty of its users. The same story might happen to Facebook if it repeats the same errors in favor of MySpace or any other already established social network. encourages you grab ideals in byte-size chunks and use your updates as jumping off points to other places or just let others know what you are up to at any given moment25. When Facebook appeals to people looking to reconnect with old friends and family members or find new friends online. But for the case of MySpace. if a start-up comes up with a new idea that Facebook does not integrate in its website. This is called what we a win-win relationship. The biggest one is again the amount of information Facebook has of its population. However. instead of competing with the new entrants. For instance. and Facebook does not have to care anymore about the threat of new entrants. it is always better for both Facebook and the start-up to cooperate than to compete. while there is of course a large network externality effect that causes users to prefer well-established social networking sites over new entrants.twitip. because people don’t stop using Facebook if they are on Twitter and vice-versa. some new kinds of marketing will appear. May be in the future. there is a direct rivalry between it and Facebook. the biggest ones are MySpace and Twitter. and in the other hand. users can readily adopt a new network without sacrificing their use of Facebook. Facebook deals very cleverly with this threat. there are several opportunities for Facebook in the industry of social networks since Internet is spreading drastically in the society. the two companies are not in direct competition. and it has several competitors. this information will always be useful whatever the kind of marketing be. We already know how Facebook overpassed MySpace (ref why did MySpace lose the battle). and put it in Facebook website. Furthermore. it cooperates with them. Twitter is very different from Facebook and sees the social networking from a very different point of view. Twitter on the other hand. and so the start up can create a Facebook application with the new idea. Facebook is not the only player in the social network industry. in one hand the start-up reaches a very large population without having to do a large marketing campaign. because the social networking services themselves are almost all free to use. By doing this. Industry Dynamics Models & Trends 28 . both parts make money off from the relationship. One other threat of Facebook in the social network industry is the rivalry. thus. and no one can deny that this detailed data about the population will be useful for this new kind of 25 http://www.

Since we are focusing on Facebook. 4. or contains nudity or graphic or gratuitous violence. and they are regarded as internal ones. You will not collect users' content or information. or sweepstakes (“promotion”) on incites violence. which includes the following commitments: 1. because they need to be given by a law. 7. there is no regulation applied to every country. and up to our knowledge. 9. 5) Regulation Since the scope of our industry is supported by the Internet. using automated means (such as harvesting bots. they can make enormous amounts of money thanks to this. or scrapers) without our permission. such as a pyramid scheme. but we cannot guarantee it. or threatening. Temporarily. So Facebook can either apply this new marketing style. giveaway. 6.Facebook. One other opportunity for Facebook is that so far.php?ref=pf Industry Dynamics Models & Trends 29 . or sell the information to other companies that want to apply it. the Social Networks’ market is again the whole world. spiders. 26 https://www. We need your help to do that. You will not bully. robots. You will not send or otherwise post unauthorized commercial communications (such as spam) on Facebook. 8. we give below some of its safety rules26 : Safety We do our best to keep Facebook safe. You will not post content that: is hateful. especially with the large population they have. Accordingly. 5. You will not develop or operate a third-party application containing alcohol-related or other mature content (including advertisements) without appropriate age-based restrictions. regulations are difficult to be established. Children are highly protected while pornography and similar issues are highly forbidden. global network. or harass any user. Facebook do not give enough attention to E-commerce. 2. You will follow our Promotions Guidelines and all applicable laws if you publicize or offer any contest. You will not solicit login information or access an account belonging to someone else. There are many regulations so far for the content of these services. and it is a very great opportunity for Facebook to jump into this field. You will not upload viruses or other malicious code. and despite the virtual Gift-Shop. the functionalities that these sites offer are the same worldwide. but they have the challenge to make it acceptable for users in order to not lose their loyalty. intimidate. on Facebook. and the law is different from country to country. or otherwise access Facebook. 3. You will not engage in unlawful multi-level marketing.

or discriminatory. China has forbidden access to Facebook and Twitter. it should be stated by any company or website why they are collecting data and what it is for. misleading. users will be given the right to withdraw their information from websites.readwriteweb. in that way disconnecting half of billion people from the most popular. In March 2011. As shown. With the new set of Industry Dynamics Models & Trends 30 . since these giants do not need to adjust their services in order to stay alive. Is there need for regulations apart from already existing? Many surveys show that users do not really feel comfortable when not having enough knowledge and power over the information given27.php 30 http://focusuk. You will not facilitate or encourage any violations of this Statement. malicious. You will not use Facebook to do anything unlawful. They published an article29 where they approve this action by claiming that these sites spread pornography among users. they cover many different and negative sides of society.28 Hopefully. these regulations will be applied as worldwide social networks. 12. European Union gave an answer to this: “The amendment aims at protecting user privacy and preventing personal data exploitation. calling it the “right to be forgotten. such as a denial of service attack. as they seek personalized services and data collection to improve search results. the possibility to refresh our memory in such a way is for the majority very unpleasant. it will be never erased.10. or impair the proper working of Facebook. overburden. You will not do anything that could disable. As listed in YouTube’s regulatory list. prior to collecting data. These rules resemble to the rules of many other Social Networks and they hit the core by stating that acting according to them is essential for wellbeing of community. which has become a growing concern for both Facebook and Google. Social 27 28 29 http://www. Also Muslim countries complain about divorce http://www.wordpress. These however conflicts to the ideologies of Muslim and some other country.” politically_sensi. Even when we do not want to remember it. society perspective made these sites protect basic commonsensible “codes of obligation”. The actual policy of Facebook is that when some data is being put online. recommendations and advertising revenue. 11.php http://siliconangle.

26 Industry Dynamics Models & Trends 31 . ideas. promoting ideologies and spreading cultures.Networks are very powerful tool for making public opinion. Apparently. some countries are not in favor or globalism and these are the main reasons for these strict restrictions.

many start-ups are ready to give up independency and just merge into this giant. More precisely. Here is a serious leakage of possible users. It mainly plays on club effect and merging services Industry Dynamics Models & Trends 32 . and service. Apart from it. Due to prohibitions. Consequently. Facebook realized the importance of the popularity in this kind of industry. Facebook is cooperating with other software services. and Facebook is working on improving the functionalities for adjusting privacy. the example from report was Microsoft. available for everyone to leave the mark: make new game. new ways of advertising are invented. Nonetheless. algorithms for determining users’ needs and characteristics Facebook has not been using only to make users feel comfortable. Sophisticated recommendation algorithms are used to make ads attacking the most suitable users. Facebook and other companies have another ways of income. Conclusion Undoubtedly. When it started. Facebook is a giant which has reached its success by mostly following analyzed strategy in social network industry. It has even adjusted services related to the users’ activities. Gift shop is one of the mentioned examples. Facebook and YouTube advertise each other within the service. by strictly monitoring what how users act and concluding what they want from the network. However. nowadays Facebook is said to be platform. Facebook did not let users leave the network because of spamming. it followed the dynamics of human's need.IV. application. but Facebook has friendly relationship with other companies within the same domain . When looking from the perspective of strategic analysis. In an interesting manner Facebook is responding to new entries. MySpace.rivalry. but on the contrary. Similarly to services related to users. Not only to users and advertisers. In this case. Finally. Secondly. China and many other countries do not have access to Facebook’s content. It has sold it for profit from advertising. Therefore. Popularity is the key. currently the most popular social network firstly gained the trust from the users. Even more. it has easily surpassed its biggest rival. It is apparent from regulations imposed by some governments that privacy issue is probably the main threat within social network industry. and since Facebook already poses it. interestingly enough it offered to users features that other services already had. it has attracted them by new functionalities and applications. it integrates them within the network and this affect proves how hard is for the new social service to enter the industry. not every variable from STEEP analyses provides bright future of Facebook and other companies from this industry.

and the decline of this industry. innovating. particularly Facebook. is very hard to be seen. attracting new kinds of users.from everywhere it can. It is constantly growing. Industry Dynamics Models & Trends 33 .

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