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Professor

Class

September 27, 2022

Instant Messaging Industry: Strategic Landscape

The instant messaging (IM) industry improved on the short messaging service (SMS)

industry. With IM, users can send larger amounts of data such that messages incorporate

multimedia items such as audio or video files through the internet rather than through mobile

service carriers, restricting the geographic range where users could send messages. The major

WhatsApp competitors are WeChat, LINE, Kakao Talk, Viber, and Facebook Messenger.

1. Porter’s Five Forces Analysis

The threat of new entrants is low. There are significant barriers to entry, such as user

loyalty to their chosen IM platform and the technical and capital requirements needed to set

up an IM company. The threat of substitute products is also low. IM services fill a niche that

is not addressed by other solutions. IM can be used for formal and informal communication

such that substitute products need a unique value proposition to displace IM firms’ segments

in the communications sector. The customers have low to medium bargaining power. They

cannot readily replace the value created by IM solutions with other products. However, they

can lobby IM service providers to adhere to certain policies such as stringent data protection

when united. The bargaining power of suppliers is low. The IM companies consume unique

services and provide big business to suppliers of services such as encryption. The competitive

rivalry is moderate. There are numerous IM applications, each with different value

propositions and attempts at differentiation to attract customers.

2. Vertical Scope
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Facebook is a highly vertically integrated company. The company handles many

aspects of service delivery. This has allowed the company to create an ecosystem that it

controls. As a result, there is limited interoperability with other services. For instance, a

message sent on Facebook Messenger cannot be received on another IM platform such as

WeChat. Facebook controls a large portion of its value chain by internally handling supply-

side user development and platform provider and sponsor aspects.

3. Horizontal Scope

Facebook’s acquisition of WhatsApp was a move aimed at increasing its horizontal

scope. Facebook already had Facebook Messenger as a product in the IM industry. Therefore,

acquiring WhatsApp came with the risk of predation, where the acquisition could come at the

cost of possibly decommissioning Facebook Messenger. To prevent this, Facebook

positioned the two as serving distinct customers with different needs. Allowing WhatsApp to

maintain its leadership and growth trajectory without integration into the Facebook

ecosystem allowed the application to retain the features that had made it popular among users

worldwide. Additionally, the acquisition allowed Facebook to increase its market share in the

IM segment and reduce the ability of its competitors to use WhatsApp to erode its

competitive advantages. The increase in market power justified Facebook’s spending a

significant portion of its market capitalization in the acquisition.

4. Internal and External Analysis

To maintain its growth, Facebook has to balance the interests of numerous internal

and external stakeholders. Facebook’s business model relies on advertisement and games to

generate revenue. It, therefore, designs its products to increase user engagement. The

company has also managed to tailor its products to fit various devices. For instance, it

develops mobile applications compatible with various operating systems. In addition,

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Facebook has had to make acquisitions for WhatsApp and Instagram to compensate for

decreased user engagement as user preferences change with time. Externally, Facebook

competes with other products such as Twitter and other offerings in specific segments such as

video streaming products YouTube by Google. Facebook has also been accused of having lax

data protection policies. Facebook collects various user data, and many users are concerned

about their privacy since their data may be made available to third parties without their

consent.