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Strategic Analysis of Facebook

Introduction

Facebook is an American-based organization that operates in the United States while it has a global market for its products and services. Mark Zuckerberg, Dustin Moskovitz, Eduardo Saverin, and other colleagues decided to establish this social media company in 2004 (Brügger, 2015). As of 2012, this social networking platform became one of the leading in the world of technology, with an approximated 1 billion registered users (Brügger, 2015). Its central base of operation is located in Menlo Park, California. This social network had a rich history when Tyler Winklevoss sued Facebook in 2004. The former was the founder of ConnectU, a startup he created with his colleagues (Brügger, 2015). In 2006, the social site introduced its revolutionary News Feed, which enabled users to create consolidated homepages (Brügger, 2015). As of 2017, Zuckerberg continued developing this platform by introducing Ads and Beacon to reach brands (Brügger, 2015). In pursuing success, he met Sheryl Sandberg, who used to work in Google as a Treasury staff, and hired her as the CEO of Facebook in 2008 (Brügger, 2015). The company improved its social networking capabilities by introducing its iconic Like button in 2009.

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Company background

This corporation has been facing various challenges that posed a risk to its strategic landscape. For example, when the European Union legislated the General Data Protection Regulation (GDPR), the company had to adjust its operations in Europe accordingly (Houser & Voss, 2018). The firm’s Chief Financial Officer, Dave Wehner, affirmed that the regulatory standard would have detrimental effects on the site, such as revenue problems (Houser & Voss, 2018). The Internet has brought several challenges such as data breaches, bugs, and misuse to this team of Facebook. The ‘view as’ feature of the social web gave a loophole to attackers to view what people’s profile was like, thereby creating a security and data breach in the process (Brügger, 2015). Lastly, the Cambridge Analytica controversy indicated the company was facing leadership and culture issues.

Corporate strategies and Management

Mark Zuckerberg exemplifies the transformational management style, which involves engaging the employees in bringing change, innovation, and direction. The corporation uses several strategies beneficial in its pursuit of organizational goals and objectives. For example, it uses a cost leadership tactic that involves reducing products and services (Kim & Yang, 2017). Market penetration strategies enable it to increase the global presence, thereby bolstering the market share. Market development strategies are significant for Facebook to find ways of entering a new market (Sakas et al., 2015). To do this, the company cooperates with governments to enable their citizens to access online social networks (Brügger, 2015). Therefore, with Zuckerberg’s management style in-store, the social network organization successfully achieves its goals through the highlighted strategies.

Facebook’s competitive advantage over its competitors comes from its absolute number of monthly active users. This implies that it has a global presence and brand image that is way above its immediate rivals such as LinkedIn and Twitter (Sakas et al., 2015). As a global conglomerate, its goals and objectives remain clear to its strategic journey. For example, according to its mission statement, the company intends to give the customers the power to create a community and integrate the world (Brügger, 2015). Its vision statement has various aspects such as global market reach, self-expression, discovery, and communication. The company’s objectives drive its pursuit for success, which also contributes to improving its competitive advantage.

Facebook’s corporate executive management plays a vital role in ensuring it stays within the boundary of attaining its goals. First, senior administration is responsible for establishing the overall direction and product strategy for the corporation, which is entirely managed by Zuckerberg (Kim & Yang, 2017). Moreover, it is also responsible for overseeing the enterprise’s sales, business development, communications, and human resource management, which is the obligation of Sandberg. Facebook’s leadership is vital in achieving its strategic goals and objectives. It is also essential for managing the firm’s diverse needs.

Interpersonal skill is a proficiency that enables smooth interaction and communication. For a company as big as Facebook, with employees from various backgrounds, the leader’s interpersonal skills are pivotal. From an example of Zuckerberg, open communication is a crucial element in team management (Kim & Yang, 2017). It is significant because it creates trust while it creates a motivating environment. Problem-solving is also a vital management skill. Zuckerberg has demonstrated the art of this skill in various situations that proved detrimental to the company.

Since its inception, Facebook has faced several ethical and legal scenarios that required Zuckerberg and his team to make certain decisions. For example, in December 2007, the Beacon incident involved the corporation’s initial significant encounter with advertising privacy issues, which raised several ethical issues (Brügger, 2015). During this time, organizations were able to monitor Facebook clients’ purchases and then inform their friends about the details (Ho, 2015). The incident occurred several times without the consent of the users. In response, Zuckerberg stated an apology and assured users they would be allowed to opt out of the program Beacon.

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In November 2011, an incident involved the case of the company not following its privacy obligations by allowing private data to be publicized without warning. Regulatory bodies stated that the company falsely allowed third-party applications to access essential operational information (Kim & Yang, 2017). In response, the company agreed to undertake an independent privacy audit annually (Brügger, 2015). Additionally, the agreement finds the company liable for a 16,000 USD per day penalty for breaching each clearance count.

Marketing analysis

Facebook has several strengths and weaknesses in its internal structure. One of the strengths of this firm is its strong brand image. It manages its business operations and emerges as reliable social networking over companies such as Twitter and LinkedIn. It also has a large consumer base, regarded as its core capability (Sakas et al., 2015). Its considerable scope and number of users make advertisers use the potential of Facebook to be able to directly target their clients. Its innovative workforce is also regarded as a core competence, essential for product development, and driving its product strategy.

However, it has several weaknesses that limit the expansion of its internal structure. For example, its core products and services can be replicated by rival companies. This limitation makes the firm vulnerable to the players in its competitive environment. Moreover, users can also view its non-personalized online advertising system as annoying, thereby rendering it a weakness (Sakas et al., 2015). The company has low diversification as a significant percentage of its revenue comes from its website and other mobile applications.

In its macro-environment, Facebook has several opportunities and threats. For example, it has numerous chances for expanding its primary social media and online advertising structure. The social platform also has the opportunity to revamp its products. Innovation can help the corporation renew its social networking webpage and mobile applications (Sakas et al., 2015). Several opportunities are also available in market penetration and development. It can exploit these chances to increase membership and revenues to increase its market share in the industry. Irrespective of these opportunities, its macroenvironment poses a threat to its strategic landscape. For example, as it continues to grow, it will always be a target for cybercrime, which is detrimental to user experience and business performance (Sakas et al., 2015). Another threat is that it operates in a saturated market with several players offering substitute products and services. Its product portfolio is almost imitable, which implies that a new entrant can offer almost the same portfolio as the company.

Facebook has a rich product portfolio that encompasses several products. Examples of these products are Instagram, Messenger, Oculus, Facebook, and WhatsApp (Brügger, 2015). It operates and runs other social networking platforms such as Instagram, where users post and share their photographs. Its WhatsApp and Messenger platforms are mobile apps that are used for messaging (Brügger, 2015). The corporation also manages Oculus as its subsidiary, which manufactures and sells virtual reality kits.

The company adopts a variety of promotional tactics in its marketing program. For example, it primarily relies on viral marketing, which incorporates word-of-mouth persuasion, where users convince other people to sign up for Facebook accounts. Advertising is also an aspect of its marketing program, which entails utilizing online social networks and Google to reach out to potential customers (Sakas et al., 2015). Lastly, it applies public relations under its CSR initiatives to promote its brand reputation.

Facebook adopts two significant pricing tactics, such as market-based and value-for-value strategies. Under the market approach, it uses competitors’ prices as an instrument for determining the prices of its advertising services (Sakas et al., 2015). LinkedIn’s marketing approach excludes the aspect of the industry and incorporates premium packages in its pricing system. In contrast, Twitter’s market pricing approach relies on the type of content a user intends to advertise. Facebook also adopts the value-for-value pricing model that permits advertisers to choose the amount to pay above a particular minimum price (Brügger, 2015). In contrast, Twitter’s pricing approach is based on the type of account the user has, especially with promoted accounts having low prices.

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Accounting cost/benefits analysis

Working capital ratio = (Total Current Assets/Total Current Liabilities)

2019/31/12
Total Current Assets 133376
Total Current Liabilities 32322
Working Capital Ratio 4.1265

Quick ratio = (Total Current Assets – Total Inventories)/Total Current Liabilities

2019/31/12
Total Current Assets 66225
Total Inventories 0
Total Current Liabilities 15053
Quick Ratio 4.40

Receivables turnover ratio = Net Sales / accounts receivable

2019/31/12
Net Sales 70.7 billion
Accounts Receivable 9.518 billion
Receivables turnover ratio 7.428

Price Earnings Ratio = Share price / Earnings per share

2019/31/12
Share Price $205.25
Earnings per share $6.44
PE ratio 31.87

Return on Total Assets = Net Income / Total Assets

2019/31/12
Net Income 18,485,000
Total Assets 133.376B
ROTA ratio 13.86%

Conclusion

This paper has explored the significant aspects that constitute Facebook company’s operation. The company benefits from its market share in the social networking industry. It is recommended that the company should improve its diversification strategy to expand its product portfolio. As suggested by its SWOT analysis, its product offering is limited since other companies can copy it to increase competition. Therefore, the company should diversify its core business offerings to avoid the risks present in its macro environment.

References

Brügger, N. (2015). A brief history of Facebook as a media text: The development of an empty structure. First Monday, 20, 155-205. Web.

Ho, C.-W. (2015). Identify with community or company? An investigation on the consumer behavior in Facebook brand community. Telematics and Informatics, 32(4), 930–939.

Houser, K. A., & Voss, W. G. (2018). GDPR: The end of Google and facebook or a new paradigm in data privacy. Rich. JL & Tech., 25, 1.

Kim, C., & Yang, S.-U. (2017). Like, comment, and share on Facebook: How each behavior differs from the other. Public Relations Review, 43(2), 441–449. Web.

Sakas, D., Dimitrios, N., & Kavoura, N. (2015). The development of Facebook’s competitive advantage for brand awareness. Procedia Economics and Finance, 24, 589–597. Web.

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