Facebook’s Business Strategy 1

BUSINESS MODEL, PRICING STRATEGY AND DIGITAL PRODUCT

CHARACTERISTICS OF FACEBOOK

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 Facebook’s Business Strategy 2

Recent technological advancements have led to the rise of digital business. Millions of

people across the world have access to the internet and as a result have encouraged the rise of

digital business. Due to the widespread access to the internet, people across the world are

increasingly embracing use of social media for communication, meeting new people, making

friends, retaining relationships as well as content sharing. Today, social is playing a leading role

in the provision of essential human services such as entertainment, communication, study as well

as work (Zott & Amit, 2010, p.220).

Use of the internet has increased the ease of doing business as people are able to access

essential products and services at their convenience without having to physically move to access

the products. Due to the advantages of using the internet in doing business, many people have

shifted to digital business. This has encouraged the rise of multiple digital businesses such as

Facebook, Twitter, Netflix, EBay, and LinkedIn among others. The rapid rise in the number of

digital businesses has increased the level of competition in the digital business environment (Van

Dijck, 2012, p.170).

In order for the digital businesses to cope with the stiff competition and gain a

competitive advantage, digital businesses have embraced the use of business models, pricing

strategies as well as production of digital products with unique characteristics. Facebook is one

of the common digital businesses which have embraced the use of business models, pricing

strategies and digital product characteristics (Trimi & Berbegal-Mirabent, 2010, p.450).

Launched in February 2004, Facebook is today ranked as the second most popular digital

business after Google. It has over 500 million active users with developers and entrepreneurs

form over 190 countries across the world. Its rapid rise is due to the uniqueness and effectiveness

of its business model, digital product characteristics as well as pricing strategy, Facebook has
 Facebook’s Business Strategy 3

managed to overcome the stiff digital business competition and emerged as a top brand among

users of social media.

Using its business model, Facebook has managed to compete for resources and customers

amid the competitive digital business environment. Moreover, through the use of its business

model, Facebook has managed to highlight its distinctive activities as well as approaches which

has been a key factor in the attraction of customers, employees, and investors as well as in the

delivery of products and services profitably (Schaltegger, 2012, p.115).

Nevertheless, due to the provision of free services, Facebook has not been able to

maximize on profit and generate revenue that is commensurate with its global popularity. Its

business model which has emphasized on the use of online advertising to generate revenue has

not allowed the business to maximize on its potential of making money (Osterwalder & Pigneur,

2010, p.109). Therefore, there is need for further adjustments and improvements on the business

model and pricing strategy as well as its products to make monetization better realized and

improve its financial performance.

Facebook’s Business Model

Facebook uses an effective business model to attract customers, investors and employees

as well to oversee the delivery of products and services profitably. It has a unique business

model which emphasizes on the articulation of the value proposition, definition of the product

and services offered to the customer, identification of competitive resource systems, figuring out

the revenue and growth models as well as the formulation of competitive strategy under the

whole market (Massa, et al. 2017, p.100). Due to its popularity among global users, Facebook

employs the use of a marketing mix which is able to support as well as capitalize on the

popularity. Its model focuses on the product, price, place and promotion.
 Facebook’s Business Strategy 4

In coming up with an effective model able to make the company gain a competitive

business advantage, Facebook considers the online nature of its social networking website as

well its mobile apps. Moreover, the company puts into its consideration the social behaviour of

its customers in coming up with its marketing strategy. The company focuses on both the

individual users of its products as well as the advertisers since the two are the contributors of the

company’s revenue (Lehmann & Buxmann, 2009, p.452). In its business model, the company

therefore focuses on building strong customer relationships, product innovation as well as

infrastructural management.

Customer relationship

The company has put in place an information strategy which enables for the provision of

safe, efficient and customized experience. Facebook users the strategy of gathering profile

information about its customers, as well as the activities the customers are engaged in such as the

content they are sharing (Johansonn, et al. 2012, p.10). Similarly, the company gathers

information concerning online transactions of customers as well as payments made by users of

the site. Collection of information on the use of its products helps the company in the

management and improvement of the products and services.

Similarly, information collection enables the organization in the establishment of a strong

customer relationship by enabling customers to access services on time (Hedman & Kalling,

2003, p.50). Moreover, information collection enables the company to assess the needs of

customers and thereby offering personalized ads to the users, supplementing the user profile as

well as enabling customers to memorize the account in case the user is deceased.

Product innovation
 Facebook’s Business Strategy 5

In an attempt to ensure value proposition, Facebook offers a social networking platform

which makes it easier for the users to communicate efficiently with other users. Product

innovations such as the social graph and digital mapping of the real life social connections of

users provides users with an opportunity of meeting new people from across the world.

Similarly, Facebook has embraced innovation as a way of reaching to co-operations with

advertisers and application developers (Heller, et al. 2011, p.35).

Moreover, the company has embraced product innovation which has improved its

capability to keep the mass data transmission under a stable network infrastructure. Using the

stable network infrastructure, the company is able to ensure an up-to date, safe as well as an easy

to use internet platform in its attempt to promote content sharing amid situations of rapid growth

traffic.

Infrastructural management

In order to meet the varied needs of its users, Facebook has designed various activities

which guarantee multiple features as well as maintain distinct networks on its platform. The

company has embraced infrastructure which is capable of informing people on what to do,

promote advertising as well as to protect the privacy of the users of the infrastructure

(Gambardella & McGahan, 2010, p.270). To ensure that it delivers improved products, Facebook

has embraced partnerships with other companies. For instance, its partnership with Microsoft has

led to the building of an advertising strategic alliance which contributes to the development of

better services.

Facebook’s digital product characteristics

Facebook offers both social networking website as well as online social media services.

The main products offered by the digital business are the online social media services and the
 Facebook’s Business Strategy 6

display advertising services. Although advertisers contribute to most of Facebook’s revenue, the

company also raises revenue from its online social media products. It provides social media

products which are available via its social networking website and the mobile apps.

Among the characteristics of Facebook products is that they attract users due to their

social nature (Doz & Kosonen, 2010, p.380). Examples of the social media services provided by

Facebook which attract users on the basis of their social nature are Instagram and WhatsApp.

Moreover, Facebook uses its product popularity as a basis for its display of the advertising

services. Another characteristic of Facebook products is that the products become more attractive

as the social networking website of Facebook gains more users. This is the strategy which

Facebook uses to attract more people to use its advertising services. The company uses the

membership of its online social network as its marketing strategy.

Facebook’s pricing strategies

To gain a competitive advantage in a digital business environment characterized by stiff

competition, Facebook has embraced the use of appropriate pricing strategies. To maximize on

the wide global digital market, the company does not use a single pricing strategy but rather uses

a combination of marketing strategies (Chan, et al. 2004, p.380). The company uses a

combination of the market-oriented pricing strategy as well as the pay what you want pricing

strategy.

Market-oriented pricing strategy

Facebook comes up with the price for its products and services by evaluating the price

charged by its competitors in the digital business such as Google, Amazon, and EBay among

others. Through evaluating the price of commodities which are more or less similar to its

products, Facebook comes up with its pricing which sometimes is usually higher than the price
 Facebook’s Business Strategy 7

of the competitors but in some cases, the prices are lower (Casadesus-Masanell & Ricart, 2011,

p.105).

Features of the product are used to determine whether the product should have a higher or

lower price in relation to the price of the competitor. For instance, if its product has extra

features than that of the competitor, the company sets a higher price and if it has fewer features,

the company sets a lower price (Baden-Fuller & Haefliger, 2013, p.425). Nevertheless, in some

cases, Facebook sets same prices for products having more features than those of its competitors

to make the product the better value as a way of gaining a competitive advantage. Similarly, in

its pricing strategies, Facebook analyses the price sensitivity of its customers.

Depending on the level of sensitivity of the customers to the given product, the company

alters its prices to match the pricing of competitors and sometimes sets the price just below that

of the competitors. The company uses the prices of its competitors as its basis of coming up with

the rice of the advertising display (Arthur, et al. 2009, p.110). The prices set by Facebook are

usually applied per view as well as per click by the customers. Moreover, the company charges

prices for the user generated actions on its social networking website as well as on the mobile

apps.

Pay what you want pricing strategy

As a way to motivate customers to choose its products, Facebook in some cases uses the

ay what you want pricing strategy. Using this pricing strategy, the company sets a minimum

price to guide users in coming up with appropriate rice for the advertising services. The

customers have the freedom of choosing the price to pay per view and per click as well as for the

user-generated actions on Facebook’s social networking website and mobile apps (Al-Debei &

Avison, 2010, p.360). Facebook uses this strategy due to its flexibility which serves as a factor
 Facebook’s Business Strategy 8

that attracts advertisers to use the online advertising service display of Facebook thereby

enabling the company to gain a competitive advantage.

 Facebook’s Business Strategy 9

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